Saturday, July 14, 2007
Senators Target China Currency, Propose Dumping Laws (Update3)
By Mark Drajem
Senators L. Graham, C. Grassley, M. Baucus and C. Schumer
June 13 (Bloomberg) -- Four U.S. senators introduced legislation today that would allow American companies to petition for steeper anti-dumping duties to counter the benefit of any undervalued currencies in China or other countries.
Democrats Charles Schumer of New York and Max Baucus of Montana and Republicans Lindsey Graham of South Carolina and Charles Grassley of Iowa also are seeking to change how the U.S. determines whether countries are manipulating their currency by dropping a requirement that the U.S. find evidence the country is trying deliberately to get a trade advantage.
Instead, the U.S. Treasury would look for specific signs that a country's currency is ``fundamentally misaligned,'' and then target the country for action, including a World Trade Organization complaint, if it persists in those actions.
``For too long our currency policy has left American workers and businesses unprotected from foreign governments seeking an unfair financial advantage,'' Baucus said at a press conference. ``There have been a lot of currency bills, but this one is the real deal.''
The Senate Finance Committee will probably vote on it next month and the full Senate in September, Baucus said. The measure will pass both the House and Senate by a veto-proof majority, said Schumer, the third-ranking Democrat in the Senate.
The legislation is the latest attempt by lawmakers to address China's trade surplus with the U.S., which surged to a record $232.5 billion in 2006. The lawmakers say that an undervalued yuan gives China's exports an unfair edge by making its products cheaper. The measure could also apply to Japan or any other nation, the senators said.
China on Their Minds
Schumer and Graham sponsored legislation last year that threatened China with a 27.5 percentage point increase in across-the-board tariffs to punish it for its currency policy. They dropped that approach late last year and pledged to develop legislation that wouldn't run afoul of global trade rules.
The Treasury Department today issued a semi-annual report on currency practices around the world without identifying China out as a currency manipulator. The report said it couldn't determine if China intended to seek a trade advantage by keeping its currency undervalued.
``The inaction of China over the last two years has disappointed us and disappointed us and disappointed us,'' Schumer said. When Treasury decides ``not to label China a currency manipulator, they are in effect tossing the ball to Congress.''
Under the legislation, if adopted by Congress and signed into law, Treasury would need to show only that a currency is out of line with its real market value based on government intervention and the accumulation of dollar reserves.
If a country is deemed to be misaligned, the U.S. Trade Representative's office would have one year to file a complaint at the WTO with that nation, and the Treasury Department would have to consult with the Federal Reserve and other central banks to consider ``intervention in currency markets.''
China and the Bush administration have warned against new legislation, without commenting on the particulars of this bill.
``You have a legitimate concern with the size of the deficit,'' Chinese Ambassador Zhou Wenzhong said yesterday. But legislation ``will hurt opportunities for healthy business activities between China and the United States.''
``We believe the best way to engage China is through dialogue and engagement and not necessarily legislation,'' Clay Lowery, the Treasury's top international official, told reporters today in Washington.
Dodd, Shelby Measure
Senate Banking Committee Chairman Christopher Dodd of Connecticut and the panel's top Republican, Richard Shelby of Alabama, yesterday introduced legislation to make it harder for Treasury to avoid naming a country a currency manipulator and to establish new consequences for that designation.
Democrats in the House Ways and Means Committee are set to propose their own bill in the coming weeks.
The yuan has risen 8.3 percent since China ended a strict peg to the dollar in July 2005. U.S. lawmakers say the currency is undervalued as much as 40 percent, and the legislation would require the Treasury Department to determine on its own how far off it is from a fair-market value.
The Treasury is required under a 1988 law to report twice a year whether countries are pursuing currency policies for ``the purposes of preventing effective balance of payments adjustments or gaining unfair competitive advantage in international trade.'' This bill would replace that law and establish tougher consequences for violating it.
Under current U.S. regulations, the U.S. uses the actual exchange rate on the date of sale of a product to determine the scope of dumping, which occurs when a country sells goods overseas at less than the price they are sold at home.
Under the measure proposed today, the Commerce Department would adjust its calculation on prices of goods to reflect a realistic exchange rate if a country doesn't adjust its currency value 180 days after it is deemed to be ``fundamentally misaligned'' with the dollar. This would have the effect of raising anti-dumping duties on imports from those countries.
China is the target of the most anti-dumping complaints in the U.S., with 62 separate products targeted as of the end of March, ranging from crawfish meat to glossy paper.
In addition, companies from a country that doesn't adjust its currency could be cut out of U.S. government contracts and export financing, and the U.S. would be obligated to oppose new World Bank and other international loans for that nation.
The legislation gives the administration discretion about whether to consider remedial action and the ability to waive action if the president found that consequences would harm the ``vital economic interest'' of the U.S.
Those exceptions would be very limited, Baucus said.
``This bill will make it very difficult for any Treasury secretary not to find misalignment when it occurs,'' he said.
To contact the reporter on this story: Mark Drajem in Washington at firstname.lastname@example.org
Last Updated: June 13, 2007 16:24 ED