As both America and the European Union claimed a partial victory, the Scottish-based cashmere industry was anxiously waiting to discover whether it would feature on a new "hit list" being drawn up in Washington. It warned that 1,000 jobs in the industry were at risk.
The World Trade Organisation (WTO) gave the US permission yesterday to impose 100 per cent tariffs on goods from Europe. It backed Washington's claims that EU rules, which took effect in January, failed to comply with earlier WTO decisions on banana imports.
The US, which wants more access to the European banana market, has long argued that EU tariffs favour former European colonies in the Caribbean over Latin American producers, and European distributors over US companies.
But London and Brussels dismissed America's claims of a "major victory", pointing out that the WTO had scaled down significantly Washington's demand for sanctions on goods worth pounds 314m.
Sir Leon Brittan, the EU vice-president and trade commissioner, insisted the WTO's decision to give the US less than half of what it wanted amounted to "a pretty stunning rebuke".
He said the organisation had ruled that America had "jumped the gun and taken the law into its own hands" by imposing conditional duties last month. Its retaliation "has been and remains largely illegal", he said.
Sir Leon said the EU would abide by the rules but would first consider an appeal against the WTO's decision. The ruling would allow the high tariffs to be imposed retrospectively from 3 March.
Despite the latest war of words, the two sides may yet seek a last-minute compromise that could persuade the US to scrap the sanctions. Both the British government and the US embassy in London raised the prospect of talks aimed at limiting the dispute to bananas, lifting the threat to other products.
Brian Wilson, a Trade minister, said: "This has got nothing to do with cashmere, nothing to do with all these other industries, but purely has to do with bananas ... The principle is that of course they shouldn't be taking action against any unrelated industries and that this thing should be settled within the relevant sector."
Peter Chase, economic counsellor at the US embassy in London, said: "We have passed one step in this process and hopefully it will galvanise the negotiations that are needed to solve this problem. But if the EU regime remains illegal and if the problem isn't resolved then we would be authorised to take action against other imports from the EU."
The White House insisted it was satisfied by the compensation it had won, which is the biggest trade sanction auth-orised by the WTO.
The final list of European goods subject to tariffs would be published in a few days, said US officials. They would be selected from the original list, which ranged from Scottish cashmere sweaters and Italian cheese to French handbags and German coffee makers.
Peter Scher, America's senior negotiator on agriculture matters, warned that products would be chosen in an effort to exert maximum political pressure on EU politicians to change their policy on banana tariffs.
Jim Thompson of the Hawick Cashmere Company said the sanctions would cause severe problems for his industry in Scotland. "It will have catastrophic effects - if this actually goes through we are looking at most definitely a thousand jobs in the Borders," he told BBC Radio Scotland.
The cashmere industry is receiving government aid to compensate for losses caused by the US sanctions, but the subsidy ends next week.Reuse content