Sept. 9 (Bloomberg) -- The U.S. Commerce Department decided to impose duties of as much as 31 percent on steel pipe from China, agreeing with American producers such as U.S. Steel Corp. that the imports were supported by unfair subsidies.

The average duties on $2.8 billion in annual imports of the pipe, used in oil and gas wells, will be 21.3 percent, the Commerce Department said in an e-mailed statement today announcing the preliminary decision.

The tariffs may help U.S. Steel and other domestic producers weather a drop in demand for the pipe following the collapse in oil prices last year. It also may be a precursor for a number of trade complaints against China. President Barack Obama must decide a separate case on imported Chinese tires by Sept. 17.

“These are decisions that can’t be avoided, so they’ll be perceived as setting the tone for what the Obama administration trade policy is,” said Timothy Keeler, the former chief of staff for the U.S. Trade Representative’s office, in an interview before the decision. Keeler, a lawyer at Mayer Brown LLP in Washington, represents GITI TirePte Ltd., the largest Chinese maker of tires, in the trade case.

The case, the largest so-called countervailing duty complaint filed against Chinese-made products, was brought by the United Steelworkers union; U.S. Steel, the largest U.S.- based steelmaker; U.S. operations of Evraz Group SA, Russia’s second-largest steelmaker; and Pennsylvania-based Wheatland Tube Co.

Depositing Duties

After the ruling is published in the Federal Register, importers of the product -- known as oil country tubular goods - - will have to deposit duties of the assigned amount, pending a final ruling later this year by the Commerce Department and a separate decision by the U.S. International Trade Commission.

Chinese officials have spent the past months trying to head off tariffs for the steel pipes and the separate case brought by the United Steelworkers union against Chinese auto tires.

Chen Rongkai, a Beijing-based spokesman for China’s Ministry of Commerce, said before the decision today that a ruling against Chinese parties in either case may hurt the two nations’ trade ties.

“We hope the U.S. government will adhere to the promise it made at the G-20 summit on anti-protectionism and make a sound decision accordingly,” Chen said.

Gross Profits

In the steel-pipe case, U.S. manufacturers saw their gross profits almost triple to $2.42 billion in 2008 from the previous year, according to the International Trade Commission. Record oil prices drove demand for the product. While imports from China surged, U.S. production and employment increased too.

“The fact that China is subsidizing is very clear,” Michelle Applebaum, who runs a research firm in Highland Park, Illinois, that advises investors on the steel industry, said in an interview today. Chinese pipe imports came in “like locusts” last year, and a duty of as much as 31 percent could block most or all new imports, she added.

As oil prices fell a year ago, overall demand and imports of the pipe fell too, according to Applebaum.

To contact the reporter on this story: Mark Drajem in Washington at mdrajem@bloomberg.net

Last Updated: September 9, 2009 15:29 EDT