* US should explore other options in case, group says
* Those include negotiations, paying compensation

WASHINGTON - The United States should refuse to implement a World Trade Organization ruling that would weaken its ability to use countervailing duty laws against subsidized goods from China, a coalition of labor and business groups said Thursday.

"In a series of increasingly alarming decisions over the past decade by the Appellate Body of the World Trade Organization, the application of the United States trade remedy laws to offset unfair trade has repeatedly been struck down," the Committee to Support U.S. Trade Laws said in a statement.

The most recent decision on March 11 undercuts the United States' ability to use countervailing duties to offset Chinese subsidies, and the committee "calls on the U.S. government to decline to implement this report," the group said.

The ruling goes beyond internationally negotiated disciplines on the use of countervailing duties, Gilbert Kaplan, the group's president, said in an interview.

U.S. Trade Representative Ron Kirk said the decision appeared "to be a clear case of overreaching by the Appellate Body" and U.S. officials repeated Thursday they were "deeply disappointed" with core elements of the ruling.

Kirk's office and the Commerce Department are evaluating the practical implications of the report and "the best approach to take going forward to ensure continued, effective enforcement of U.S. trade laws," a U.S. trade official said.

U.S. lawmakers also have criticized the ruling, which they said would make it hard for the United States to fight the trade-distorting effects of China's state capitalism.

Rather than simply implement the decision by changing U.S. trade remedy laws, the United States should "look at the whole range of options," Kaplan said.

Those include trying to negotiate an agreement with China that would allow the United States to maintain current practices or potentially paying China some compensation to keep the practices in place, he said.

The appellate body's March 11 decision involved cases in which the United States applied countervailing duties and anti-dumping duties on goods from China.

Countervailing duties are applied to offset government subsidies. Anti-dumping duties are used on goods sold in the United States at less than fair market value.

Until the mid-2000s, the United States only applied anti-dumping duties against China on the grounds that it was too difficult to calculate subsidies in a non-market economy.

The administration of former President George Bush changed that policy. However, it continued to treat China like a non-market economy in other regards.

The appellate body upheld China's argument that it was being hit with illegal "double remedies" in cases involving steel pipes, tires and woven sacks.

The panel also angered U.S. policymakers by rejecting Washington's position that certain enterprises majority-owned by the government of China are "public bodies" capable of providing subsidies.