London University's Philippe Sands: US won't be able to proceed with sanctions today

The American special trade negotiator, Peter Scher, said the US would not immediately impose punitive tariffs on EU goods, but would require importers to deposit money in the form of bonds - in effect making them pledge funds at once.

The bonds would cover the cost of duties that Washington might impose, if the World Trade Organisation found in its favour.

Washington says the EU is unfairly supporting banana-growers in former colonies in Africa and the Caribbean - an accusation the EU denies.

BBC News' Patrick O'Connell on which products are likely to be hit

There is an intricate series of deadlines at the World Trade Organisation in Geneva, which has still to rule on how high any US sanctions might be.

A WTO panel investigating the dispute said on Wednesday it needed more time to reach a decision.

The EU trade commissioner, Leon Brittain, described the US move as unacceptable and unlawful.

Fears are growing that thousands of jobs in Europe, including more than 2,000 in Britain, could be jeopardised by a looming trade war as the US threatens more than $500m in trade sanctions against EU exports.

Unless the EU changes its policy the US Government is threatening to slap huge extra duties on a range of products, which will effectively double the price of anything from Scottish cashmere jumpers to French cheese imported to the US.

'Catastrophic' consequences

Scottish business leaders have warned that the dispute could be "catastrophic" and the Church of Scotland has urged EU commissioner Sir Leon Brittan to try and save the £20m cashmere industry.

The Department of Trade and Industry estimates that the tariffs would affect £80m worth of UK exports to the US.

Meanwhile the EU has opened a second front on the banana war by forcing the WTO to convene a panel to review the whole functioning of US trade policy.

Under Section 301 of the US Trade Act, which was recently reactivated by President Bill Clinton, the US government has given itself the power to unilaterally impose sanctions against countries which it decides are not trading fairly.

The EU and Japan, the latter facing trade sanctions over steel exports to the US, claim that this is against the whole spirit of the WTO. The WTO system of trade rules was supposed to do away with unilateral sanctions.

US ambassador to the WTO Rita Hayes said, "This is just obfuscation and retribution ... sour grapes over bananas."

But EU ambassador Roderick Abbott rejected the charge.

"This is something we feel very strongly about ... it is a substantial problem of principle that comes down to the issue of unilateral or multilateral practices," he said.