Argentina, Canada and the United States brought a complaint before the WTO in May 2003, charging that a European moratorium on imports of GMOs was more about business protectionism than concerns about the health of consumers or the environment.
They accused the EU abusing a WTO agreement that enables members to restrict imports on health grounds.
In its confidential, preliminary decision, the panel said that Europe must fall into line with the rules of global commerce.
These are set by the 149 trading nations in the WTO and refereed by the Geneva-based body, which can authorise retaliatory customs duties against members who fail to respect its decisions.
The EU said the moratorium was needed to give it time to gather data from biotech firms and decide how to update its rules on GMOs.
The overall EU moratorium was lifted in May 2004.
Brussels argued that it placed no restrictions on GMOs which are confirmed as safe for human consumption, noting that it is one of the top importers of genetically modified farm goods, particularly soya.
Technical case
The dispute has been seen as one of the most technical cases ever handled by the WTO, and the panel's report ran into 1,050 pages – leaving both sides scrambling to get to grips with it when it was issued to them late Tuesday.
"We're analysing the report. We're waiting for the final version before making any comment," said Andre Lemay, spokesman for Canada's international trade ministry.
National restrictions came in for the most criticism in the WTO ruling, other diplomats said.
But it was not all bad news for Brussels: some EU-wide measures on particular GMO imports were found to respect the rules, they said, without giving details.
If the EU fails to win a potential appeal, it could also choose to ignore the ruling and simply suffer the punitive customs duties the WTO could allow Argentina, Canada and the United States to apply.
It has already chosen that path after losing a separate dispute with Canada and the United States over its ban on imports of beef treated with growth hormones.
US 'pleased' over ruling
The United States has welcomed the ruling.
"We're pleased with the outcome," said a US trade official who asked to remain anonymous.
The official declined to comment on the specifics of the ruling, saying US authorities had not yet reviewed the document.
"We're not at the end of this road, but the report is a significant milestone," the official stated.
The US-based Biotechnology Industry Organization also praised the WTO decision.
“Resolution of this issue is important to farmers around the world," spokesman Sean Darragh said.
"The European Union's inaction has effectively blocked up to 300 million dollars of US agricultural exports annually to the detriment of American farmers. Globally, more than eight million farmers in 21 countries have already adopted biotech crops," he added.