Little Progress On US/China Issues

By James A. Morrissey, Washington Correspondent

A lthough US and Chinese trade officials have held two high-level negotiating sessions in the past six months, little progress has been made on resolving a number of thorny issues. When the two groups met in Washington this past May, the Chinese came to town complaining about US protectionist policies, and US government officials and manufacturers complained about the burgeoning trade deficit. Returning home after two days of meetings, the Chinese delegation still was complaining about protectionist trade policies and US interests still were complaining about the trade deficit.

After much rhetoric about agreement on fundamental principles, very little of a specific nature came out of the meetings. Any meaningful resolution likely will be the result of congressional concern over the trade deficit and its impact on US jobs.

A primary target is what many in Congress and the business community say is China’s alleged illegal currency manipulation. They contend China’s refusal to let its currency float amounts to as much as a 40-percent subsidy for Chinese exports entering the US market. Legislation has been introduced in the House and Senate that would declare currency manipulation an unfair trade practice and permit US manufacturers to seek relief under anti-subsidy countervailing duty laws that could be applied to both market and non-market economies. The legislation enjoys the strong support of textile manufacturers and other members of the China Currency Coalition, but it is strongly opposed by retailers and other importers, who contend the legislation would result in higher prices for consumer goods and would do nothing to save US jobs.

Fuel was added to the fire in June when the Department of the Treasury, in its semiannual review of foreign currencies, declined to brand China a currency manipulator. The department said that while Chinese currency is clearly undervalued, it does not meet the technical requirement that it is being used as a means for gaining unfair competitive advantage in international trade. The Bush administration, and particularly Treasury Secretary Henry M. Paulson Jr., are continuing to support a go-slow policy that relies on negotiation rather than punitive tariffs or other measures. Members of the House and Senate have introduced legislation to address the currency manipulation issue, but it faces a difficult road in view of strong opposition from the president and consumer groups. Its greatest strength is as a means to bring pressure on the Bush administration and China. The international currency report said Treasury “forcefully raises the Chinese exchange rate regime with Chinese officials at every available opportunity and it will continue to do so.” It also said Treasury should not hesitate any longer to take “far more aggressive action to rebalance its economy and achieve far greater flexibility with its exchange rate.

An area that could yield specific results with China relates to the Department of Commerce’s recent decision to apply countervailing duty laws to nonmarket economies such as China and Vietnam. While the initial case in this area involves coated paper products, the department’s leading trade officials have said it could be applied to other industries. That has sent a signal to the US textile industry, which is looking into opportunities to file countervailing duty cases following the precedent set in the paper case.

Congress is looking into areas other than currency manipulation to attack trade problems. The Senate Finance Committee is considering legislation that would strengthen anti-dumping and countervailing duty laws. In launching the hearings on possible changes in trade remedy laws, Finance Committee Chairman Max Baucus, D-Mont., said the United States must do all it can to enforce trade remedy laws at home, but at the present time “we are falling behind.” He raised the question of whether existing laws are adequate and if agencies such as the office of the US Trade Representative have enough staffers, and if they have the capacity and tools to deal with modern-day trade issues. “We need to back up our trade enforcement purposes with action,” Baucus said.

At a hearing on Trade Enforcement for the 21st Century Economy legislation, Jennifer A. Hillman — a highly respected former commissioner of the US International Trade Commission and general counsel for the chief US textile negotiator — raised questions about existing trade enforcement practices.

“The central question with respect to imports is whether we are making it possible for those who are entitled to relief under our trade remedy laws to obtain that relief in a timely, effective manner and at a reasonable cost,”Hillman said, concluding that for now the answer is “yes,” but she expressed concerns about problems in the future.

She said both sides of the trade issue — enforcement of trade remedies against unfairly traded imports, and enforcement of rights for access to foreign markets and the protection of intellectual property rights — “are facing major challenges.”

Appearing at the same Senate hearing, Eric Autor, the National Retail Federation’s vice president and trade counsel, warned the proposed trade remedy law would “lead to more protectionism.” He said there is no need to strengthen current laws to make it easier for petitioning industries to obtain relief, and he added that US trade remedy laws are already “ vigorously and even zealously enforced.”

“Waving the banner of fair trade, some domestic industries have taken advantage of popular anxiety over trade and globalization to push for protectionist measures and legislation to limit foreign competition and pad their own profit margins at the expense of US consumers,” he added.

Another bill gaining support is the Border Tax Equity Act of 2007, which would provide US exporters with relief from value-added taxes (VAT) that some 150 countries impose on US exports entering their countries and grant a tax rebate for their exports. Introduced by a bipartisan group of House members, the border tax bill was quickly endorsed by textile and apparel lobbyists in Washington, but, predictably, importers don’t like the idea. The bill would direct the US Trade Representative to negotiate a remedy for the VAT inequity on goods and services within the World Trade Organization (WTO). If there is no negotiated solution by Jan. 1, 2009, the United States would charge an offsetting assessment at the US border on imports of goods and services equal to the amount of the VAT rebated by the country with a VAT. The United States also would issue rebates equal to the amount of VAT taxes paid by US exporters. Because these practices would require amendments to WTO rules, this idea faces pretty rough sledding.

Legislation to liberalize the government assistance eligibility criteria for workers who lose their jobs due to import competition is pending in the House and Senate. The legislation would expand the long-standing trade adjustment assistance program, and by streamlining the process would make it easier for displaced workers to receive retraining that could help them re-enter the work force sooner. One important step would automatically qualify displaced workers for adjustment assistance benefits in the event of layoffs or plant closings.

Displaced workers enrolled in training programs would receive up to two years of unemployment benefits while in job training. Workers also could be eligible for relocation allowances and re-employment services.

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July/August 2007