* EU anti-dumping duties break law, discriminatory
* Victory for China in its first WTO dispute with EU
BRUSSELS, Aug 10 (Reuters) - The World Trade Organization has condemned the way the European Union assesses duties on unfairly priced imports in a complaint brought by China over sales of screws and bolts, a person familiar with the case said on Tuesday.
The ruling, if confirmed, demolishes a key approach by Brussels in dealing with imports from countries it deems not to be market economies, such as China, Vietnam and Cuba.
And it marks a victory for China -- the main target of anti-dumping measures, or duties on imports judged to be sold for less than they cost at home -- in its first trade dispute against the European Union since joining the WTO in 2001.
"The panel has found that the EU discriminates against Chinese exporters compared to exporters from other countries," said the person familiar with the case.
"It's a big victory for China as it takes out one of the pillars of EU anti-dumping activity against China," he said.
He was speaking after studying a confidential interim report by a panel of WTO experts on the complaint, raised by China in July last year, over anti-dumping duties on fasteners.
A spokeswoman for the European Commission in Brussels declined to comment as the ruling is still confidential.
MIXED RULING
The case involves duties of up to 85 percent, targeting hundreds of Chinese companies selling components widely used for cars, white goods and machinery worth some 575 million euros ($755 million) a year.
The WTO issued the report to Brussels and Beijing on Tuesday. Its final reports rarely differ from the interim versions.
The WTO panel ruled that that EU anti-dumping regulations break international trading law and are discriminatory.
In particular it rejected the EU's approach to non-market economies, which effectively applies a single anti-dumping duty to the whole country rather than for individual firms, unless they can prove that they are independent of the state.
It means that the EU must now set individual duties on companies that want them, without unnecessary obstacles, instead of imposing a blanket duty for the whole country.
But the mixed ruling did not back all of China's claims, for example dismissing Beijing's argument that Brussels made unfair comparisons between high-end EU fasteners used in the car and aviation industries with low-grade Chinese screws and bolts sold in hardware shops.
The dispute emerged last year as China overtook Germany to become the world's biggest exporter. Its export prowess has prompted a series of complaints and trade measures just when political leaders have been warning of the dangers of protectionism.
But for the entire history of the WTO since 1995, China has been by far the biggest target of anti-dumping investigations, even before it joined the global trade body.
In 2009 China was the target of 77 anti-dumping investigations out of a total of 201, and in the first four months of this year it was targeted in 12 out of 39 cases, WTO figures show.
Brussels argued it had followed all the rules on anti-dumping when it imposed the duties in January 2009.
The EU duties exempted subsidiaries of two European companies -- Spain's Celo and Italy's Agrati -- leading China to argue that they were discriminatory.
Several Chinese producers and European importers have challenged the duties in EU courts, including Ningbo Yonghong Fasteners, Gem-Year Industrial, Shanghai Prime Machinery and Germany's Adolf Wuerth.
Beijing subsequently slapped its own anti-dumping duties of up to 24.6 percent on European fasteners in December after Chinese manufacturers complained that EU-made screws were undercutting them unfairly.
Brussels launched a formal complaint about that move at the WTO in May.
The final report is expected to be issued to the parties next month and published in November, after which each side will have 60 days to appeal. (Reporting by Juliane von Reppert-Bismarck; Writing by Jonathan Lynn; Editing by Jon Boyle)