Committee Approves Anti-Currency Manipulation Bill

The Senate Finance Committee, by a
vote of 20-1, has approved legislation designed to provide a counter-attack against those countries
that undervalue their currencies in order to gain an advantage in international trade. Acting
against currency manipulation has been high on the agenda of US textile manufacturers who contend
that China’s currency policies amount to as much as a 40-percent trade subsidy. While the bill does
not specifically mention China, that country clearly is the target, but the act could be applied to
other countries as well. Retailers and other importers of textiles and apparel are opposed to this
type of legislation, as are companies that want to do business with the Chinese.

The bill would target the Treasury Secretary to identify “fundamentally misaligned”
currencies and enter into negotiations with the offending countries. If that does not produce
acceptable results, the secretary would be required to take the issue to a World Trade Organization
dispute panel. The legislation also would permit the United States to levy anti-dumping penalties
on imports based on currency manipulation.

As the bill was reported out of committee, the Treasury Department issued a statement saying
it could not support the legislation and it believes that “direct, robust discussions with the
senior Chinese leaders, not legislation, is the best means of achieving progress.” The statement
further said: “Treasury recognizes that members of Congress wish to send a strong message through
this bill and others. Secretary Paulson will be delivering a strong message to President Hu and
others next week in China. It is vital to the health of the global economy, including the US
economy, that China reforms its currency and takes other steps to reduce imbalances.”

Enactment of the bill could be delayed by a jurisdictional dispute in the Senate. The Senate
Banking committee feels it has jurisdiction over the matter and has a bill of its own. The two
committees likely will eventually enter into negotiations that would result in a merger of the two
bills. The overwhelming vote in the Finance Committee is an indication of the strong sentiment to
do something about the currency issue, but it may not be all that easy. President George W. Bush is
strongly opposed to the legislation. His supporters in the Senate could block it with procedural
tactics, and it would require a two-thirds majority to pass it over their objections.

July 31, 2007