Transatlantic trade relations will take a step closer full scale war today when the World Trade Organization is expected to confirm that a $4bn (£2.7bn) export subsidy program for some of America's best known companies violates global trade rules.
A WTO rejection of the US appeal against an earlier judgment in favor of the European Union will pave the way for Brussels to slap up to $4bn in retaliatory sanctions on US goods, a move which Washington has described as a "nuclear weapon".
The $4bn being demanded by Europe would be the largest sanctions bill in the history of the WTO.
Brussels and Washington agreed to observe a ceasefire on several long-running trade disputes last year while they united to back the new round of global trade negotiations successfully launched in Doha in November.
However, today's ruling on the US foreign sales corporations (FSC) laws is likely to reignite festering tensions over issues such as proposed American restrictions on steel imports and the EU's ban on imports of hormone treated beef.
Brussels has called on Washington to amend the rules of the FSC program which channels tax breaks to big exporters including Boeing and Microsoft.
But with Congress having already rewritten its laws once, only to have the new scheme rejected by the WTO, observers say there is little appetite in Washington for further compromise.
Last August, the WTO ruled that the amended FSC law provided illegal export subsidies, violated the trade body's agriculture agreement and discriminated in favor of American goods.
If as expected, the WTO confirms its earlier judgment, there will be a further two month delay while it decides the size of the sanctions bill the EU can levy.
Brussels has asked for $4bn, which would be the largest sanctions bill in the history of the WTO, dwarfing earlier rulings in Washington's favor over beef and bananas.
EU officials hope that the US will agree to a voluntary compensation program rather than forcing it to impose sanctions. Few member states have shown much enthusiasm over drawing up lists of US goods to target, fearing that America could retaliate by putting to test the legality of the EU's own agricultural export subsidy programs at the WTO.
Some member states fear that punitive sanctions on the scale demanded by Brussels could backfire at a time when both Europe and the US are struggling to pull their economies out of recession.
Renewed strain between world's two biggest trading blocs could not come at a worse time for officials at the Geneva-based body who are preparing for the complex negotiations launched at Doha.
The WTO's director general, Mike Moore, warned in December that the first few months of this year would be critical for the success of the round.
The next transatlantic flashpoint is likely to be over steel, where the US has threatened to restrict imports to protect its producers from the global supply glut.
At a meeting before Christmas, 30 of the world's biggest steel producing countries agreed to cut 100m tons from global steel output this year to stabilize prices.
But the EU made clear at the time that the reductions were dependent on Washington withdrawing its threat to impose import restrictions in February.
If Washington goes ahead and imposes tariffs on foreign steel imports, the EU has already said that it will respond by taking the US to the WTO.
© Guardian Newspapers Limited 2002