The ruling came as the U.S. House of Representatives prepared a vote condemning Chinese currency manipulation and threatening possible trade penalties. But its negative outcome for Washington could bolster Beijing's claims that U.S. lawmakers are bending to protectionist pressure amid high unemployment.
The WTO said the U.S. was violating a number of its trade obligations by preventing Chinese chicken parts from entering the U.S. market, ruling against a measure in last year's U.S. federal spending bill.
The law extended a five-year U.S. ban on Chinese chicken declared after a 2004 outbreak of bird flu. The Obama administration has handled a number of cases it inherited from President George W. Bush's tenure, but the poultry case represented the first WTO complaint launched specifically against legislation signed by Obama.
The WTO can authorize sanctions against countries failing to comply with trade rules, but that usually takes years of litigation, and Washington can first appeal the 184-page verdict.
The Office of the U.S. Trade Representative acknowledged the defeat but said the restrictions in question were soon expiring and would be replaced by better conditions for Chinese poultry.
"The United States had explained that the temporary funding restriction was justified under WTO rules," spokeswoman Nefeterius McPherson said. "The panel, however, found otherwise."
Beijing and Washington banned each others' poultry in 2004 following an outbreak of bird flu. But China lifted the ban after a few months and has imported more than 4 million tons of U.S. poultry since 2004 mostly feet and other parts of birds that are popular in China but not elsewhere. The U.S. refuses to do the same.
The U.S., the world's largest importer, and China, the biggest exporter, also are arguing over regulations affecting commerce in steel, tires, patents and Hollywood films.
China's exports have surged since joining the WTO in 2001, rankling manufacturers in the United States, Europe and elsewhere. Critics of the Asian country say its rise as a trade juggernaut has been aided by unfair policies that boost sales of Chinese goods abroad while limiting the amount of foreign products entering the Chinese market.
A key element of that argument concerns China's currency, the yuan, which some economists and lawmakers in Europe and the U.S. charge as being intentionally undervalued so that Chinese companies can sell products from textiles and TVs to shoes and auto parts at cheaper prices than European or American competitors.
U.S. manufacturers blame the level of the yuan for millions of lost jobs, and American lawmakers face rising pressure to cut into the unemployment rate ahead of November elections.
Democratic Party leaders say the House will take up a bill this week that would give the U.S. government power to impose sanctions on China or other countries found to be manipulating their currencies to gain trade advantages.
China on Wednesday repeated promises of exchange rate flexibility but offered no new measures that might avert a possible House vote.
In June, Beijing promised a more flexible exchange rate, but the yuan has risen by only about 2 percent against the dollar since then.
China, in turn, has sharply criticized what it deems an upswing in protectionism in the United States and other rich countries since financial markets collapsed in 2008. It has since become more assertive in challenging the U.S. and other countries to respective Chinese trade rights.
"While urging its trading partners to further open markets, the U.S. has adopted more restrictive and protectionist practices in its domestic market," Chinese Ambassador Sun Zhenyu noted at a WTO meeting Wednesday.
Sun said American industrial subsidies, stimulus plans, bailouts, national security exemptions and "Buy American" or "Hire American" provisions "go against the commitment to opposing trade protectionism made by the U.S. at various multilateral forums, contradict its own preaching of free-trade spirit and have negatively affected international trade."