World Trade Organisation director Mr Renato Ruggiero was struggling today to avert a trade war between the European Union and the United States after talks to end the long-running battle over bananas collapsed in chaos last night. Trade diplomats were working through the night in an attempt to find a compromise deal to prevent Washington imposing duties of more than $520 million on a range of European goods.

"We do not have a deal," said EU ambassador Mr Roderick Abbott as he emerged from an hour-and-a-half afternoon negotiating session in Geneva with his US counterpart, Ms Rita Hayes. Two banana exporting countries that have benefited from Europe's rules, St Lucia and Dominica yesterday blocked a US move to seek WTO authorisation for the imposition of sanctions.

The US is complaining that EU import regulations discriminate against so-called dollar bananas grown for US multinationals in Latin America in favour of bananas produced mainly in former French and British colonies.

It is planning to introduce punitive duties against a range of European products, none of which have any connection with bananas, in retaliation from the start of next month.

The EU claims it modified the rules at the start of the year to fall into line with a WTO ruling in the autumn of 1997 that its former import licensing regulations were discriminatory.

The WTO compromise calls for a delay in the US sanctions while a panel establishes whether the modified European import regime is still discriminatory and whether compensation should be paid.

A European Commission spokesman said last night that the EU would be prepared to accept the compromise but warned that it would itself lodge a counter-complaint to the WTO if the sanctions are introduced. At stake are European exports worth $575 million a year with the threat that thousands of jobs in industries having nothing to do with bananas will be hit.

The European Commission estimates the hardest hit sector to be targeted by the US will be Scottish cashmere where 2,000 jobs may be at risk.

It says that the US is prepared to destroy the main industry in a number of the smallest and poorest islands in the Caribbean.

Looming behind the banana issue are disputes in larger trade sectors, including US pork producers, complaining about the EU ban on meat reared using hormone growth promoters.