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Ways And Means Passes China Currency Reform Bill

The House Ways and Means Committee on Friday passed H.R. 2378, the Currency Reform for Fair Trade Act, following the adoption of an Amendment in the Nature of a Substitute offered by Ways and Means Chairman Sander Levin, D-Mich., to make the bill consistent with U.S. obligations under World Trade Organization (WTO) criteria. The bill, which addresses China's undervaluation of its currency and the impact of that valuation on U.S.-China trade, now goes to the full House for a vote, possibly as early as this week.

"Today's passage signals an important advance in U.S. trade policy," Levin stated. "By taking a stand today, this Committee takes the lead in standing up for American workers and business, and holding China accountable for the manipulation of its currency. The measures included in this bill provide the Administration with additional tools for enforcing the rules of trade and are consistent with our WTO obligations. It will also bolster the Administration's efforts to bring about a multilateral framework for addressing this global issue."

According to Ways and Means' prepared summary, the amended bill allows the Department of Commerce to impose countervailing duties on foreign exports to the United States only if: "(1) the foreign government's interventions in the currency markets result in a 'financial contribution'; (2) a 'benefit' is thereby conferred; and (3) the resulting subsidy is 'contingent on export'." The summary notes that the bill's primary component -- "indicating to Commerce that it may no longer dismiss a claim based on the single fact that a subsidy is available in circumstances in addition to export" -- is consistent with WTO rules. In addition, the amended bill does not contain previously included controversial language to the effect that the bill "legislatively 'deems' that a finding of fundamental currency undervaluation satisfies the requirement of export contingency."

The Fair Currency Coalition (FCC), the National Council of Textile Organizations (NCTO) and the National Textile Association (NTA), long champions of the legislation, all hailed its passage by Ways and Means and urged a floor vote in the House this week before the pre-election recess.

"Ways and Means reported a strong bipartisan bill that will help deter foreign currency cheats from stealing American jobs and discouraging investment in the United States," said Fair Currency Coalition (FCC) Executive Director Charles Blum, singling out Levin; Ways and Means Ranking Member David Camp, R-Mich.; and bill sponsors Tim Ryan, D-Ohio, and Tim Murphy, R-Pa., for their efforts to move the bill forward.

NCTO President Cass Johnson noted potential benefits to the U.S. textile industry if the bill becomes law, saying: "For the first time in a decade, U.S. textile mills are adding jobs and re-opening plants. If China were to allow its currency to rise to market levels, we believe the textile industry in the United States would add thousands of additional new jobs and build or re-open dozens of plants. This legislation is an essential step forward to revitalizing the U.S. textile industry and the U.S. manufacturing base."

On the other side of the issue, the National Retail Federation (NRF), in voicing "concern" about the bill, disagreed with the points made by the bill's supporters, arguing that the legislation would not comply with WTO rules, would invite retaliation against U.S. exports, and would be ineffective in persuading China to allow its currency to float more freely.

"Using the trade remedies law -- a microeconomic mechanism designed to raise prices on a few targeted imports under a process lasting only a year -- is simply the wrong tool to address a large macroeconomic issue such as currency policy in a trading relationship worth hundreds of billions of dollars," said Eric Autor, NRF vice president and international trade counsel. "It is simply impossible to see how this legislation would in any way be an effective solution to the currency issue let alone have any significant positive impact on either the trade deficit or American jobs." He added that the actual benefit that exports might gain under a currency policy would be viewed differently under WTO rules than would the export subsidy that is the focus of the legislation. He also noted that because exporting is only one of many types of transactions in which currency conversion is a factor, one could not conclude therefore that Chinese currency policy comprises in itself a prohibited export subsidy. NRF supports the use of "multilateral and diplomatic channels" to bring about currency reform.

September 29, 2010

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