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