Senators Pressing For Passage Of Currency Bill

Sponsors of legislation to impose heavy penalties on imports from countries that manipulate their
currencies reportedly are seeking a vehicle to win Senate enactment of their bill, and both
supporters and opponents have weighed in heavily through widespread contacts with senators.

The legislation in question is the Currency Exchange Rate Oversight Reform Act, which
currently has 19 sponsors in the Senate. The bill would require the Department of the Treasury to
act when it finds an undervalued currency. It calls for “immediate” negotiations with the country
involved, and if the problem is not resolved within 60 days, punitive measures — such as
preventing the federal government from buying goods and services from those countries — should be
taken. If the problem is not resolved after a year, the bill requires the U.S. Trade Representative
to bring a case against the foreign government to the World Trade Organization (WTO). The bill also
provides the Department of Commerce with formulas to impose penalties for dumping and undervalued
currencies. China’s alleged currency manipulation is the primary target of the legislation.

While anti-currency manipulation legislation has considerable support in both the House and
Senate, the Obama administration is opposed to going the legislative route, preferring instead to
seek reform through negotiations. As a result, the currency reform legislation very likely could
not be enacted on its own merits, so sponsors are considering attaching it as an amendment to
another popular bill that the President would be reluctant to oppose.

A coalition of 28 associations — including the U.S. Chamber of Commerce, the Business
Roundtable, the National Retail Federation and the American Apparel and Footwear Association — has
written to senators urging them to oppose the amendment.

“We agree that China needs an exchange rate that better responds to global trade flow, and
believe that China should implement concrete measures to move toward a market-determined exchange
rate,” their letter says. “We strongly disagree that legislation is the best means to achieve that
goal.” Instead, the letter states, “We believe the United States should continue to work
multilaterally and bilaterally to press China to allow market forces to determine the value of its
currency. Furthermore, we need to see if China’s recent policy shift to allow greater exchange rate
flexibility will lead to meaningful movement in its currency value.”

The letter says the coalition opposes using anti-dumping and countervailing duty laws in
connection with currency imbalances, saying estimations of the correct currency value would be
“inherently subjective, unilateral and potentially politicized.” The letter adds that the
legislation would appear to violate the U.S. commitment to the WTO’s rules  governing the
calculation of anti-dumping duties and the types of subsidies that are subject to countervailing

The amendment is supported by the Fair Currency Coalition, which includes the  American
Manufacturing Trade Action Coalition, the National Textile Association, the National Council of
Textile Organizations, the U.S. Industrial Fabrics Institute, the  American Federation of
Labor Industrial Council, 10 other trade unions and some 30 manufacturing organizations.

In their letter to senators, coalition members note that the opponent’s letter admits “China
needs an exchange rate that better responds to global trade flows,” but,  “It offers no
practical, logical path to reach its conclusion that the U.S. needs a comprehensive and coordinated
strategy to confront the challenges posed by China’s state capitalism and mercantilist currency
policies. The currency coalition claims there is no reason to expect China to act quickly on
currency reform as China’s President Hu Jintao has emphatically stated that the yuan already is
“close to fair value.”

The coalition rebuts the opponents’ charges that the legislation presents WTO problems,
saying the Senate should ignore the “spurious arguments advanced in the opposition letter and boost
job creation by doing the right thing — passing an effective, WTO consistent trade remedy without
further delay.”

July 6, 2010