But in Europe, they are widely regarded as "Frankenstein Foods" and are shunned by an overwhelming number of consumers.

Diplomats say developing nations, mostly those in Asia and Africa that need food aid, are caught between the two powers. Washington says it is helping feed the Third World with its GM grain, but Brussels says the Americans are dumping surpluses.

At loggerheads for years with EU nations over GM foods, the United States has now chosen the World Trade Organization (WTO) as its battleground.

Last year, Washington made good on repeated threats to retaliate over EU biotech policy, which it says has no scientific justification. It filed a WTO suit claiming its farmers were losing some $300 million a year due to lost sales.

The EU may soon lift its unofficial five-year ban on new GM crops and products with the expected approval in the next few months for imports of a engineered sweet maize known as Bt-11.

While this might be enough to pacify Washington in the short term and stave off the immediate WTO threat, the acid test will be for the EU to allow new GM seeds for planting in its fields.

U.S. biotech firms will watch this closely, diplomats say, and view any EU authorization of "live" GMOs as a chance to market their products in Europe - adding to the likely rise in trade if the EU allows imports of new GMO products like Bt-11.

"They (European Commission) will want to give a positive signal across the Atlantic that we take this seriously," said one diplomat. "Bt-11 will help, but (Washington) will want to see a proper commitment to getting live GMOs for planting."

PROTOCOL MAY SQUEEZE TRADE

While a main U.S. concern is to resume shipping GM grain to Europe, this trade could be squeezed by the rules of the U.N. Cartagena Protocol, which aims for transparency in GMO trade. Signatory countries now number more than 80 and will meet this month in Malaysia to discuss how to implement the protocol, their first meeting since it came into force in September.

The protocol obliges exporters to provide more information about GM products like maize and soybeans before any shipment to recipient countries, to help them decide whether to accept it.

Under its provisions, a nation may reject GMO imports or donations - even without scientific proof - if it fears they pose a danger to traditional crops, undermine local cultures or cut the value of biodiversity to indigenous communities.

U.S. officials say they want to see proper implementation of the protocol by its signatories, in line with WTO rules. If not, this would harm trade and could be challenged.

"We are certainly very concerned that there could be disruption of trade if the implementation of the protocol isn't done properly," a U.S. government official said.

"If there is some way that the parties implement the protocol that is inconsistent with the provisions of the WTO, then we would certainly want to have that addressed at the WTO."

Although many African nations are prone to food shortages, countries like Zimbabwe, Zambia and Mozambique have voiced concerns about accepting GM maize donations - saying GMOs have not been fully tested for environmental or health effects.

CAN U.S. EXPORTERS COMPLY?

The United States, where most GMOs originate, has not signed the Cartagena agreement and looks unlikely to do so in the short term, insisting GMOs are no different from natural organisms.

Along with major GMO exporters Canada, Australia and Argentina, the United States says GM crops are safe, can increase yields and resist destructive pests.