The World Trade Organisation has ruled that China broke international rules by restricting the exports of raw materials.
The ruling is a victory to the United States, the European Union and Mexico, which took China to the WTO in 2009.
They argued that export restrictions on raw materials including coke, bauxite and magnesium discriminated against foreign manufacturers and give an unfair advantage to domestic producers.
The WTO dismissed China's claim that the quotas served to protect its environment and scarce resources, and Beijing is expected to appeal against the ruling.
Trade Commissioner Karel De Gucht says the EU is prepared to react if China does not change its policy.