The EU is to gradually increase punitive duties on a wide range of US goods after Washington failed to change laws that give tax breaks to exporters, even though the tax breaks have been ruled illegal by the World Trade Organization (WTO).

European Commission trade spokeswoman Arancha Gonzalez told reporters the duties would rise as planned on April 1 from five per cent to six per cent. The extra duties began on March 1 and are due to go up one percentage point a month until March 2005.

"We hope that by this time next month, rather than announce a further increase from six to seven per cent, we will be able to announce the sanctions have been lifted," she said.

The US Congress has been working on legislation to replace the tax breaks, which the WTO banned for being an illegal export subsidy. Gonzalez said the EU applauded the work done so far by the US lawmakers.

In Washington, US Commerce Secretary Don Evans warned the rising sanctions "have the potential to cause serious harm to (the US) economy, which is finally experiencing a rebound."

He urged Congress to "act now" to pass legislation.

The Senate remains stalled on the corporate tax and trade bill due to an impasse over an amendment on an unrelated issue concerning overtime pay for American workers.

House leaders have struggled to find the votes for their version and have said they are looking to action in the Senate to provide momentum.

The EU sanctions are being applied on goods ranging from toy cars to parts for nuclear reactors. They are expected to amount to $300 million this year and to be worth around $666 million if they are extended for the whole of 2005.