The EU has imposed sanctions on US goods in the latest of a series of disputes to hit transatlantic trade ties in recent years.
The disagreement is over the US failure to end an export tax-breaks system for US companies.
The move could cost American companies $315 million this year and $666 million in 2005 if the sanctions remain in place.
The lower tax rates on exports by firms including Boeing and Microsoft were judged an illegal subsidy by the World Trade Organization (WTO) in 2002. It said the EU could respond by imposing up to $4 billion in sanctions a year on US goods.
The European Trade Commissioner Mr Pascal Lamy Lamy, not wanting to affect transatlantic trade, decided to apply gradual pressure against the US tax breaks system, known as the Foreign Sales Corporation (FSC), by phasing in sanctions .
They start at $16 million as an extra 5 per cent duty on selected US goods in March.
The duties are due to rise one percentage point a month with sanctions totalling an estimated $315 million in 2004 and $666 million if they run throughout 2005.
The Commission tried to soften the blow for EU importers, whose costs will rise, by targeting items that are less than 20 per cent of imports for a particular item.
The sanctions are intended to prod the US Congress quickly to replace the tax breaks with measures in line with WTO rules.
Based on the full $4.0 billion, the main sector to be hit would be US jewellery at an estimated $1.43 billion. Officials have tried to play down the impact of the trade row, the first time since the WTO was created in 1995 that the EU has retaliated on US goods.