The U.S. Court of Appeals in Washington said U.S. law doesn't let the Commerce Department apply countervailing duties against products from non-market economies such as China.

In laws passed in 1988 and 1994, "Congress adopted the position that countervailing duty law does not apply to non-market economy countries," Judge Timothy Dyk wrote in the unanimous decision posted on the court's website. "If Commerce believes that the law should be changed, the appropriate approach is to seek legislative change."

A three-judge panel upheld a U.S. Court of International Trade decision that found the action on the Chinese tires was illegal. In non-market economies, prices aren't set by the market. So the U.S. uses prices in other nations, often India, to help determine when products are dumped, or sold at a discount to their fair value in the home market.

"I've always felt that if the courts were to ultimately declare that the administration cannot apply the anti-subsidy law to China, Congress will act within about a week to make it clear that the administration can," said David Spooner, a former Commerce official now at the law firm Squire Sanders & Dempsey LLP in Washington.

Titan's complaint

The decision stems from a case filed by Titan International Inc., the biggest U.S. maker of off-road tires, and the AFL-CIO labor federation against imports of tires from China.

Under the Bush administration, the Commerce Department had reversed course on more than two decades of precedent and allowed both anti-dumping duties and countervailing duties against imports
from China.

Anti-dumping duties apply to goods sold overseas at or below the price in the home country. Countervailing duties aim to offset the benefits of government subsidies to industries.