A new trade war is brewing between Europe and the US that is sure to fought with fiscal measures and trade laws. And this time, China is also involved.

The bone of contention is the World Trade Organization's (WTO) 1997 Information Technology Agreement (ITA), which the US accuses the European Union (EU) of violating, if not in letter then definitely in spirit.

The act had been created to boost trade in high technology goods by eliminating a range of tariffs, and saves American manufacturers of items around $5 billion annually.

The US, along with Japan, has complained to the WTO regarding EU's import tariffs on computer screens and other technology products like cable converter boxes and printers, tariffs which the US contends violates the ITA.

In response, the EU defends its actions by saying that the concerned items fall outside the ambit of the ITA.

"The EU should be working with the United States to promote new technologies, not finding protectionist gimmicks to apply new duties to these products," said US Trade Representative Susan Schwab.

"Therefore, we urge the EU to eliminate permanently the new duties and to cease manipulating tariffs to discourage technological innovation," she said in a statement.

Global exports of products concerned are estimated to be worth more than $70 billion, Schwab's office said.

The initial case involves three products, all developed after 1996 when the ITA was drafted, that the EU contends aren't covered by the accord.

The EU said it imposes duties based "exclusively on the objective characteristics of the products." However, with the technological advances over the past decade and the emergence of products that can perform dual, even multiple functions, the classifications have also changed.

As products such as television set-top boxes, large monitors and printers have evolved to include increased functionalities, EU customs officials have decided they are no longer covered by the ITA and imposed tariffs as high as 14 per cent

"Where changes in technology have given a product multiple functions - for example a digital photo camera that also records large amounts of high-quality video - then these products in many cases are objectively different products falling outside the original product categories covered by the ITA," the EU said in a prepared statement.

The EU cited the example of LCD monitor and flat screen TVs.

"What the US claims are LCD computer monitors are in fact screens equipped with Digital Visual Interface to allow use with consumer electronics such as DVD players," the EU said in a release. "They are therefore properly classified as video monitors and not covered by the ITA."

However, the American authorities aren't wiling to buy this argument. "It's not like you're using the computer screen to vacuum your rug," said Sean Spicer, a spokesman for Schwab's office. "It's not like the product has changed. It just added features."

The Americans strove to take the higher moral ground by sating that the EU is imposing duties on products "simply because they incorporate newer technologies.

"In effect, the EU is taxing innovation," the US Trade Representative's office said

The European Commission, the EU's executive arm in Brussels, said in a statement that it ''strongly rejects'' the complaints made by the US and Japan.

The 27-nation bloc respects its obligations under the Information Technology Agreement, the commission said, and ''has explicitly said it is willing to reassess the current ITA product coverage to reflect new technology in a negotiation with all ITA signatories. However, the US refuses to do this.''

Another Asian country is also involved in this fracas, albeit indirectly. Most of the products being debated over are actually manufactured in China but based on American designs and marketed by US multinationals under their brand names.

In matters of dispute, under WTO rules, the US has to first file a request for consultations at the Geneva-based organization, and then could ask for a three-judge panel to adjudicate the complaint after 60 days.