WASHINGTON — A trade battle is shaping up over a law that lets American companies pocket tens of millions of dollars in fines that the government collects from foreign competitors.

        Foreign governments say the law violates trade agreements, and they have started proceedings against the United States in the World Trade Organization. If they win, they could cripple American companies' ability to compete abroad by imposing fines of their own on U.S. goods.

        The law, passed last year, seeks to help U.S. companies by giving them money when the federal government determines foreign competitors dumped their products in the United States at artificially low prices. The first checks are to go out later this year.

        Critics warn it could unleash a flood of litigation.

        “It encourages people in the private bar to seek out cases. Ambulance-chasing. Not too many lawyers will be able to resist what essentially is a bounty,” said John Simpson, president of the American Association of Exporters and Importers.

        The law was written with the steel industry in mind, and steel dominates the list of companies that have won trade complaints.

        Of the 360 punitive duty cases preliminarily qualified for payments, 46 percent involved steel. The chemical industry was a distant second with about 14 percent, but the list of industries benefitting runs the breadth of the economy: pasta, aspirin, garlic, tomatoes, uranium, and the humble Fourth of July sparkler.

        Diamond Sparkler of Youngstown, Ohio, the only remaining American sparkler maker, won an unfair trade complaint against its Chinese competitors, resulting in the U.S. government slapping a punitive duty on imports.

        “Even with the 94 percent duty, we're still getting killed,” said William A. Weimer, Diamond Sparkler's general counsel. “We just can't compete with the wages we have to pay.”

        Under the law, the punitive duty money collected on sparklers imported from China can go to Diamond instead of the U.S. Treasury, as it did before.

        American companies must apply to get the funds and will have to certify they're putting the money to a use allowed by law, such as training, new technology, health benefits and pensions. The law also lets unions apply for a share of the money.

        The European Union, Australia, Brazil, Chile, India, Indonesia, Japan, South Korea and Thailand have told the WTO that giving trade-violation fines to competing companies violates international agreements.

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