The European Commission said Wednesday that it would take the first step towards legal action against Canada at the WTO because of tax breaks for Canadian beer and wine that Brussels says puts EU products at a disadvantage.

The European Union's executive arm said that it would seek consultations at the World Trade Organisation on Wednesday because Ottawa had given excise tax breaks for Canadian wine and beer while leaving in place excise duties on imports.

The tax break has been in place on a provisional basis since July 1 but still has to be approved by the Canadian parliament, according to the commission.

"European wines and beers are second to none," said EU Agriculture Commissioner Mariann Fischer Boel.

"We can compete with anyone as long as we have a level playing field on which to operate," she added.

"This measure is unfair and I urge Canada to end this discrimination against our products."

The consultations mark the first step in the WTO dispute settlement process. If they do not lead to a resolution of the dispute after 60 days, the EU has the right to ask for a WTO panel to be set up to decide on whether the Canadian measures break the free-trade body's rules or not.

EU Trade Commissioner Peter Mandelson said that the tax breaks "are contrary to the letter and the spirit of WTO rules."

"I hope we will be able to use the WTO consultation process to agree an amicable resolution to the problem," he added.