BRUSSELS, Belgium -- The World Trade Organization handed the United States a major loss Monday with a decision that opens the way for the European Union to ask for billions of dollars in punitive tariffs on U.S. imports.
Both the EU and the United States, however, immediately signaled their desire to avert a trade war that would dwarf any previous dispute and most likely hurt companies on both sides of the Atlantic.
The WTO appeals panel in Geneva ruled against a U.S. law granting multibillion-dollar tax breaks to Microsoft, Boeing and thousands of other American companies operating overseas.
The European Union, which brought the case, said it expected "rapid proposals" from Washington to bring itself into compliance with WTO rules.
$165 billion in goods
The Brussels-based EU could ask the WTO for permission to start imposing up to $4 billion in sanctions almost immediately. The United States exported $165 billion in manufactured goods and farm products to the 15-nation EU in 2000.
But EU Trade Commissioner Pascal Lamy indicated he would wait until at least until the end of March, when a WTO arbitrator is to report on the exact value of U.S. goods the EU would be entitled to impose the punitive tariffs on.
Lamy also said the EU remained open to "meaningful discussions" with the Bush administration to resolve the case, whose origins date back three decades.
"We have made a point of handling this dispute in a very reasonable manner," Lamy said. "Now it's up to the United States to comply with the WTO's findings to settle this matter once and for all."
In Washington, the Bush administration said it would decide how to proceed after consulting with Congress and affected companies.