STRASBOURG, France A top U.S. trade official said Monday it would be like dropping a nuclear bomb on the trade system if the European Union carried out a threat to impose $4 billion of sanctions on U.S. goods in a trade row, Reuters reported.

Robert Zoellick, the new U.S. trade representative, warned the transatlantic dispute over a U.S. tax break scheme for businesses could explode if handled incorrectly.

"I am concerned that a case that involves ... $4 billion worth of trade and a case that goes to the heart of national tax systems could lead to a dispute that gets out of control," Zoellick told the European Parliament's Industry Committee.

"There's no doubt that if it starts to go into affecting that much trade, it's like using a nuclear weapon on the trading system."

The WTO ruled last year that the U.S. foreign sales corporation (FSC) program, which granted around $4 billion a year in tax breaks to major U.S. exporters, was an illegal export subsidy. The United States changed the law, but the EU contends the new version is no better than the old one.

Both sides agreed to let the WTO arbitrate and a WTO disputes panel is expected to rule soon on which side is right. If the EU wins again, it has given notice it could seek WTO authorization to impose up to $4 billion a year of sanctions on U.S. goods.

Zoellick warned the FSC dispute could blow up just before the next EU-U.S. summit, scheduled for mid-June in Gothenburg, Sweden.

That is just months before a November WTO meeting in Qatar at which both sides say they want to launch a new round of global trade liberalization talks.