The European Union has placed hundreds of millions of dollars in annual economic sanctions on US jewellery, textiles, food, equipment and other exports.
It has done so to increase pressure on Washington to repeal corporate tax breaks that violate world trade rules.
The move could cost US companies some $315 million this year in extra duties on exports to Europe, and $666 million in 2005, unless Congress scraps the tax breaks. It was the first time the EU has levied trade sanctions on the United States since the World Trade Organization (WTO) was formed in 1995.
The EU has promised to lift the sanctions as soon as the US Congress passes legislation repealing the tax breaks. The Senate could begin action this week on a bill, but may not finish until late March.
President Bush, who has faced criticism from Democrats for 2.8 million lost manufacturing jobs since he took office, urged lawmakers to redirect the $50 billion in current tax breaks for exporters to "American manufacturers and other job creating-sectors of the US economy."
The WTO, in a case dating back to the late 1990s, has repeatedly ruled the US tax breaks amount to illegal export subsidies under international trade rules.
"We understand why the European Union took its action. We regret it, but we understand it," Secretary of State Colin Powell said at a briefing with EU counterparts.