A WTO panel set up to help resolve one of numerous disputes within the tit-for-tat trade war between the world's two biggest economies found that China's "additional duties measure is inconsistent" with various articles of the General Agreement on Tariffs and Trade (GATT).
Beijing indicated it was studying the ruling.
Washington meanwhile hailed the decision, with Sam Michel, a spokesman for the US trade representative, saying it recognised that China "illegally retaliated with sham 'safeguard' tariffs".
The case revolves around China's decision in April 2018 to impose tariffs on 128 US imports worth $3 billion, including fruits and pork.
That move came shortly after the administration of former US President Donald Trump announced steep tariffs on steel and aluminium imports from China and a number of other countries.
Marking a departure from a decades-long US-led drive for free trade, Trump justified the steep tariffs with claims that massive flows of imports to the United States threatened national security.
The administration of his successor, President Joe Biden, has taken a less combative tone but has stuck with the tariffs.
- Appealing into a void -
Separate panels set up by the WTO's Dispute Settlement Body to settle complaints filed over the US steel and aluminium tariffs ruled late last year they too violated international trade rules.
Washington has appealed those rulings, which also determined that the inconsistencies found were not justified by the security exceptions provided for in the GATT, as they were not applied in a time of war or during a case of serious international tension.
Wednesday's panel ruling did not delve back into whether Washington was justified in claiming national security exemptions.
But it acknowledged the US tariffs had been imposed evoking such objectives, and not as so-called safeguard measures imposed to protect domestic industry.
It therefore found that an agreement allowing for retaliation against unjust safeguard measures did not apply in this case, as China maintained.
The panel recommended that "China bring its WTO- inconsistent measure into conformity with its obligations under the GATT".
An official with China's Ministry of Commerce said that the ministry was studying the report and would follow up on it, in accordance with WTO rules, state media Xinhua reported.
The official, who was not named, also demanded "that the United States immediately cancel the steel and aluminium Section 232 measures that violate WTO rules", the paper said.
Michel meanwhile insisted that "China's decision to pursue this dispute highlights its hypocrisy by both suing the United States in the WTO and at the same time unilaterally retaliating with tariffs".
"The panel rightly rejected China's argument that the US Section 232 actions are safeguard measures that may be 'rebalanced' under WTO rules."
China can now appeal Wednesday's ruling, but it remains unclear where the cases can go from there.
The WTO's appeals tribunal -- also known as the supreme court of world trade -- has been frozen since late 2019, after the United States under Trump blocked the appointment of new judges and demanded a dramatic overhaul.
By filing appeals into a void, countries can in effect block others' ability to move forward and request financial compensation for activities deemed illegal by the DSB.
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