Minister warns of damage to UK as Europe launches US trade war

Britain will this week urge Brussels to suspend the multimillion-pound sanctions being imposed on a vast range of US imports today if America shows "credible signs" of backing down over the $4bn trade row.

Business groups have lobbied the Government to prevent the dispute between the world's economic superpowers mushrooming into a full-blown trade war, warning UK firms will suffer most. Mike O'Brien, the trade minister, told The Independent the UK government would lobby Brussels to suspend the sanctions if the Congress moves to pass the Bill currently going through the Senate that repeals illegal tax rebates at the heart of the dispute.

"It is important that the EU takes a constructive attitude to any credible steps that come from the US to bring them into conformity," he said. "I hope the European Union won't be unnecessarily pedantic if there is legislation that's going through at a reasonable rate."

Britain is likely to be able to muster support from Ireland, a key US ally that holds the EU presidency, as well as Holland, Spain, Finland and Sweden, trade experts believe.

The US administration has given way on the issue but has been unable to persuade the US Congress to enact new laws in time for the 1 March deadline set by the EU after it ran out of patience with the US. The dispute arose over the so-called Foreign Sales Corporation tax worth about $4bn to major US exporters that was first ruled illegal at the end of the 1990s. The Senate is expected to begin debating a Bill to repeal the provisions this week. Mr O'Brien insisted the EU had been right to impose sanctions and to set today a final deadline and denied there was any rift between the major powers. "The action was taken more in sorrow than in anger," he said.

From today the EU will slap a 5 per cent duty on more than $4bn (£2.1bn) worth of US exports. EU officials estimated the duties would raise $16.5m in March, rising to $46.4m in December. If they stay in place at 17 per cent, they will collect $667m a year. The retaliation will hit 1,700 products from buckwheat to nuclear reactor parts. Mr O'Brien's comments are a sign Britain's business leaders have persuaded ministers that prolonged sanctions could do disproportionate harm to UK firms, which has a £51bn annual trade flow with the US.

The CBI, the UK's largest business organisation, said it was worried British firms would bear the brunt of the impact of Europe's retaliatory action.

Gary Campkin, the head of the CBI's international group, said it was vital Europe's politicians extricated themselves from the dispute with the minimum of damage. "This was not a case that business particularly wished to be brought in the first place... and if there's sufficient progress in Congress the EU must move to suspend sanctions subject to rapid passage of the bill into law," he said.

The dispute comes hard on the heels of the EU's threat to impose sanctions $2.5bn of steel tariffs imposed by the Bush administration but which were ruled illegal. The White House backed down at the last minute.

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