WASHINGTON - The government of China lost in an effort to block the Bush administration from considering penalty tariffs against imports of Chinese paper in a case that is being closely watched by a number of other US industries.

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The United States Court of International Trade, a federal court that handles trade matters, ruled Thursday that the Commerce Department does have the authority to consider imposing penalties against Chinese companies in disputes involving government subsidies.

Judge Gregory W. Carman, who heard the case for the trade court, rejected China's request to grant a temporary injunction to stop the US government from proceeding.

Commerce Secretary Carlos Gutierrez is scheduled to announce on Friday whether the government believes that Chinese paper producers are receiving improper subsidies from the Chinese government.

If the Commerce Department finds that such subsidies exist, it can impose penalty tariffs to protect American paper producers.

The request for subsidies was brought by NewPage Corp., which contends that its high-gloss coated paper is facing unfair competition from China because the Chinese paper companies are getting unfair government subsidies.

This trade dispute is being followed closely by a number of other American industries -- from steel to furniture -- that have been battered in recent years by a flood of imports from China.

US companies have always had the right to file dumping cases against China, which can result in penalty duties if Chinese companies are found to be selling products in the United States below cost.

But the ability to file subsidy cases could significantly expand the level of penalties that Chinese imports could face, giving American producers more protection.

The fact that the Bush administration made it known that it was now willing to consider cases against China involving government subsidies has been seen as part of a new get-tough approach in the face of soaring US trade deficits.

Last year, the US deficit with China hit an all-time high of $232.5 billion (euro174.1 billion), the largest imbalance ever recorded with a single country.

The administration is facing pressure from Democrats, who now control Congress, to show results in narrowing that imbalance. Critics blame it for the loss of thousands of American manufacturing jobs.

The Chinese Embassy and attorneys representing China did not immediately respond to telephone calls seeking comment.

China would have the right to appeal the decision of the trade court, which is based in New York, to the US Court of Appeals in Washington.

In his decision, Carman said that the court did not have jurisdiction in the case because China could seek redress from the courts once a Commerce decision had become final.