European Commission yesterday called on the US to revamp its corporate tax regime after the World Trade Organisation formally ruled that a $4 billion (€4.4 billion) tax break for exporters violates international trade rules. The WTO backed the EU's complaint on all main points, judging that the US Foreign Sales Corporations Act is a prohibited export subsidy, violates agricultural trade rules and illegally discriminates in favour of US goods.

"For once the ruling is absolutely clear cut. The panel rejected all the US arguments," a Commission official said. The decision, widely leaked but formally released yesterday, comes as the two sides attempt to narrow their differences on a negotiating agenda for a new round of trade liberalisation talks ahead of the WTO ministerial meeting in Doha, Qatar, in November.

Senior US officials met in the White House last week to begin drawing up options for responding to the decision. Mr Bill Thomas, chairman of the House ways and means committee, has urged the Bush administration not to appeal against the ruling and instead back reform of the US corporate tax system. But US exporting firms want to appeal to allow more time for a negotiated settlement.