(Reuters) - A World Trade Organization panel on Friday handed the United States a victory in a case against Chinese imports duties on a specialty steel product primarily made in two presidential battleground states, Ohio and Pennsylvania.
"With respect to each of the 11 programs at issue, the panel concluded that China had acted inconsistently" with WTO rules governing the use of countervailing duties, which are used to counteract unfair subsidies, the panel said in its ruling.
The case involved Chinese duties on potentially hundreds of millions of dollars of "grain-oriented flat-rolled electrical steel", a specialty steel product made by AK Steel Corp (AKS.N) of Ohio and ATI Allegheny Ludlum (ATI.N) of Pennsylvania.
"Today's victory is important not only for steelworkers in Pennsylvania and Ohio, but also for American farmers and workers in other sectors that export to China," U.S. Trade Representative Ron Kirk said in a statement.
"The panel upheld our claims that China's duties on U.S. exports of steel products failed to comply with many WTO rules. This decision sends another clear signal to China that it must do more to fulfill its WTO commitments, and that it will be held accountable to play by WTO rules," he said.
Kirk visited ATI's facility in Washington, Pennsylvania in July 2010, a few months before the government brought the case.
The victory allows U.S. President Barack Obama to argue his trade policies on China are yielding results as he battles for votes against Republican Mitt Romney in the important states of Ohio and Pennsylvania before the November presidential election.
The case was unusual in that it involved China complaining about steel being sold at unfairly cheap prices on its market, something that China, which produces almost half the world's steel, is often accused of doing in the United States.
Cheap Chinese steel imports have attracted punitive duties in the United States and China made those U.S. duties the subject of a separate trade complaint at the WTO last month.
Both countries deny they are in a trade war, but the United States has faulted China's "apparently retaliatory conduct," a reference to tit-for-tat trade suits, while China has rejected many of the U.S. criticisms of its policies.
"We are looking at a variety of issues in the bilateral relationship, including, I would say, in the auto sector," Tim Reif, general counsel in the U.S. Trade Representative's office, also told reporters.
The duties dealt with in Friday's judgment appeared to be part of a "disturbing trend" of China using its trade remedy laws without justification, Reif said.
He noted China has the right to appeal but urged Beijing "to take on board the panel's obligations and comply promptly."
The tariffs, which AK Steel said amounted to about 19.5 percent on its products, will remain in force pending an appeal.
The United States has also challenged Chinese duties on U.S. poultry products that it says are unjustified.
Reif said Washington could bring another case if China goes after more U.S. products in retaliation for duties the United States has imposed on Chinese solar panels and wind turbines for unfair trade practices.
"We are watching those actions like a hawk," he said.
However, any U.S. trade case, whether on auto parts or other concerns, would be driven by a "careful examination of the facts," not the upcoming U.S. presidential election, Reif said.
China had imposed the punitive duties after its top silicon steel producers Baosteel Group and Wuhan Iron and Steel Group complained about imports from the United States and Russia, which is not a WTO member and was not involved in the case.
The Chinese steel giants were unhappy about the "Buy America" provisions of the American Recovery and Reinvestment Act of 2009 and State government procurement laws.
China imposed the duties in April 2010, prompting the United States to take the case to the WTO for adjudication. It claimed that China lacked sufficient evidence of unfair U.S. pricing practices or government subsidies to impose the duties.
China's Ministry of Commerce said in a statement that the WTO panel had supported China's key claims and found that China acted consistently with WTO rules in some areas, such as in its subsidy calculation methodology and on the disclosure of subsidies relating to government purchases of goods.
"With regard to the panel's findings on other issues in dispute, China will conduct further evaluation and reserves the right to appeal," it said.
Grain-oriented electrical steel, also known as grain-oriented silicon steel, is used for the cores of high-efficiency transformers, electric motors and generators.
Jim Wainscott, AK Steel's chief executive, has repeatedly said the case left the company somewhat "zoned out" of the Chinese market, but he hoped the United States would win the case and his firm's exports would revive.
In a statement on Friday, he said: "China's case was contrary to the WTO rules from the beginning and should never have been pursued."