The EU came off worst after accusing China of flooding the European market with unfairly cheap exports of fasteners, such as iron and steel nuts and bolts.
The EU case against China used five criteria that Brussels said allowed it to lump all China's exporters together into one claim.
But the WTO's highest court, the Appellate Body, said several of the criteria were invalid and the cases should have been brought individually.
One trade official said that would force a re-write of EU law, and until that happened the bloc would be ill-advised to bring more cases based on the same criteria.
"It would be a bit silly to ignore what has happened. It would be a walk in the park for China."
China welcomed the WTO decision.
"The ruling of the Appellate Body in this case is of great significance, which is conducive to improve competitive conditions for Chinese exporters in international markets including the EU," China's WTO mission said in a statement.
"This is not only a victory for the Chinese industry, but for the WTO rules as well."
In its ruling, the Appellate Body also said the EU had used the wrong method to calculate the amount of alleged dumping and had shown it impinged upon only 27 percent of EU production of such fasteners, not a high enough proportion to qualify.
But there was a silver lining for European manufacturers struggling to compete with China, since the Appellate Body's report also included some elements that could tempt the bloc to make more claims against China in future.
Although the report dismissed the EU way of lumping the Chinese fastener industry together, it said such aggregation might be possible in other cases. "It's possible still to consider China as one producer, like China Incorporated," said the trade official, who asked not to be named.
According to a second trade official familiar with the issue, a group of companies whose decision-making is subject to government influence could now be the target of an anti-dumping case, even if there is no state ownership.
That could open the door to more claims against China or other countries where the hand of the state is seen to be guiding decision-making in certain export industries, he said.
The WTO may also have supported future claims by saying the EU was right to grant confidentiality to people making anti-dumping allegations against China. That reversed an earlier WTO finding that may have put off some potential complainants. (Reuters)
