WASHINGTON - The United States announced in an unprecedented decision Friday to impose penalty tariffs on China to offset government subsidies, as it grapples with a massive trade deficit with the world's most populous nation.

Commerce Secretary Carlos Gutierrez told a news conference that a "preliminary decision" had been made "to apply the US anti-subsidy law to imports from China."

This is the first time countervailing duties will be imposed on imports from so called non-market economies such as China.

The decision was based on a case brought by US firm NewPage Corp., which contended that Chinese high-gloss paper imports were fuelled by subsidies such as tax breaks, debt forgiveness, and low-cost loans that posed unfair competition to US-made paper.

The decision alters a 23-year-old US policy of not applying the countervailing duty law to nonmarket economy countries.

"China's economy has developed to the point that we can add another trade remedy tool, such as the countervailing duty law," Gutierrez said. "The China of today is not the China of years ago."

He said the Bush administration would continue to "vigorously" enforce US trade law with respect to China.

The Commerce Department determined that Chinese producers and exporters of coated free sheet paper received "countervailable subsidies" of up to 20.35 percent.

Subsidies are financial assistance from foreign governments that benefit production, manufacture, or export of goods.

By acting on NewPage's petition filed last October, the United States was "leveling the playing field for American manufacturers, workers and farmers," Gutierrez said.

President George W. Bush has been under increasing pressure from the Democratic-controlled Congress to take bold steps to address the soaring US trade deficit with China, that ballooned to more than 200 billion dollars last year.

Some of them charged that China's government subsidies are fueling its exports.

In February, the United States hauled China to the World Trade Organization over its "illegal" industrial subsidies in steel, paper, information technology and other sectors.

It was the third time that the United States took China to the Geneva-based arbiter of global trade since Beijing joined the WTO in 2001.

Officials said the US government next could sue China at the WTO over rampant piracy of US goods, while exerting continued pressure for reform to its tightly managed exchange rate.

Gutierrez stressed that the decision Friday against China did not signal any retreat from economic engagement with the rising Asian power.

"Rather it speaks to the growing strength of our commercial relationship and the fact that as economic partners, we must be above all fair," he said.

"We will continue to apply this principle to all our trading partners."

The Commerce Department said Washington's decision to apply the new duty on China might require a review of US anti-dumping methodology for China, particularly at the enterprise-specific level, and that it was considering this issue to overcome any possibility of "double counting."

Antidumping and countervailing duties offset distinct and different unfair trade practices.

Concurrent antidumping and countervailing duty petitions have been filed against coated free sheet paper from Indonesia and South Korea and may result in duties against those countries, the department said.

- AFP /ls