As much as this argument has exposed America and the EU's unwillingness to comply with the WTO's spirit as well as its letter, it has also revealed potentially fatal weaknesses in the trade body's trade disputes settlement mechanism, which for four years has been immensely successful in resolving disputes and ensuring freer trade. But before the threat that the WTO is faced with, a recap of what goes on between the US and the EU.

America and the 15-country European Union (EU) have been engaged in an interminable argument about the EU's banana import rules which favour banana imports from former British and French colonies in Africa, the Caribbean and the Pacific (ACP).

The EU has twice been told by the WTO -- in acase brought by America and in an EU appeal against that ruling -- that its banana import rules are illegal and must be changed to end the discrimination against other banana exporters. But America says that the EU has made only cosmetic changes to this regime after dragging its feet for a full 17 months.

What has put the fat in the fire is that an exasperated America has imposed conditional trade sanctions on $520 million worth of a sweeping range of EU exports, without awaiting a ruling from the WTO on whether the modified EU import regime complies with world trade rules.

World trade rules say that if a country fails to comply with a WTO ruling, the complainant country which is injured by its trade behaviour can impose trade sanctions against it in any sector of its choosing.

But since the WTO has not yet said that the modified EU regime does not comply, American sanctions are seen as illegal unilateral action.

Several things have happened at once. The EU has asked a WTO disputes panel to rule onthe legality of its modified import regime. This ruling is due before April 12. America, in a post-facto move to win legitimacy for its action, meanwhile, has asked the panel to calculate the amount of the punitive sanctions it is entitled to apply.

The panel was to do this early this month, but it asked for more time. But the US administration, under severe pressure from Congress, went ahead and imposed the sanctions anyway. It is making American importers of EU goods -- such as Scottish cashmere sweaters, Italian pecorino cheese, pork, linen, handbags, etc -- post bonds on the full imported value of these goods that include 100-per cent tariffs. This in effect prices these imports out of the market at once and threatens about 2,000 jobs in the British cashmere industry and large numbers of cheese farmers in Italy, among others.

Two more things have happened. The EU, carrying out its threat, has challenged the legality of America's Section 301 trade law in the WTO. This is the US domestic trade lawunder which the US is accused of taking unilateral action against its trading partners in violation of the multilateral trade regime supervised by the WTO.

Other countries such as India, Japan and South Korea have also suffered in the past from being put on America's trade watchlists under Section 301 and threatened with sanctions. India has reserved the right to sit in on the hearings of a case in which it hopes that America's Section 301 law will be ruled illegal. The EU has also added a complaint about America's imposition of sanctions without a WTO go-ahad.

The EU is afraid that the US will use Section 301 provisions to impose sanctions on it in at least two other areas, both of which threaten to balloon into even bigger trade problems. These are an EU ban on imports of hormone-treated beef and restrictions genetically modified foods. The fact of the matter is that the banana fight is the outcome only of petty lobbying by domestic banana-distributing firms on both sides -- neither the US nor the EUproduces bananas. But beef and genetically modified foods are a different cup of tea altogether. These involve genuine fears about food safety and transatlantic differences about the ethics of genetic engineering.

The EU, which bans imports of hormone-treated beef, hurting American exports, has also lost a WTO case on this. But fears about food safety are widespread in Europe, particularly since the outbreak of mad cow disease. Britain was also gripped only two weeks ago by near-hysteria on genetically modified foods, which got labelled `Frankenstein Foods' by the British tabloid press. Looming trade battles in this area, if they are not nipped in the bud, could make the banana war look like child's play.

All this is bad, bad news for the WTO. EU trade commissioner has made the apt statement that there is some irony in WTO rules being flouted by a country that is to host the WTO's next ministerial meeting -- America. But embarrassment about this is the least of the Geneva-based body's troubles.

TheEuropean Union has dragged its feet on modifying its banana regime and there was no clear statement from the WTO on exactly what would constitute compliance.

If this is not speedily corrected -- and a review of the WTO's procedures is scheduled to end by July -- the system could simply collapse by members opting to use bilateral muscle-flexing rather than multilateral rule-following.

Already, considerable damage has been done by the sight of the world's two biggest traders being seen to be in violation of WTO rules. The US has imposed unilateral sanctions, the EU has not properly complied with two of the WTO's rulings. So how is the rest of the world to be persuaded to obey its rules and rulings? One WTO representative's reportedly exasperated comment in a closed-door that the WTO was not the property of the US and the EU alone is a reflection of other countries' despair at what is happening.

All this at a time when the US and the EU had at last agreed on a new round of trade-liberalisation talks inNovember at the WTO's next ministerial. What this row means for that is something there is no guessing about -- just yet.