US Congress to move on China currency bill

WASHINGTON - US lawmakers may vote next week on legislation that would penalise China for keeping its currency artificially low, a touchy issue that has gained broader political support as congressional elections approach.

By (Reuters)

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Published: Thu 23 Sep 2010, 10:28 AM

Last updated: Mon 6 Apr 2015, 11:53 AM

The decision to move a bill to pressure China to let its yuan currency appreciate against the US dollar comes a day before President Barack Obama is due to meet with Chinese Premier Wen Jiabao in New York.

A House of Representatives committee scheduled a vote for Friday on a China currency bill, and a Democratic aide said the full House was expected to vote on the measure next week.

Critics inside and outside Congress say China deliberately undervalues its currency by as much as 25 percent to 40 percent to give Chinese companies an unfair trade advantage, hurting US exports and job prospects.

Obama said on Monday that China had not done enough to raise the value of the yuan, keeping up Washington’s tough rhetoric on Chinese policy as US lawmakers planned legislation to punish Beijing.

“It is time for Congress to pass legislation that will give the administration leverage in its bilateral and multilateral negotiations with the Chinese government,” House Speaker Nancy Pelosi said in a statement.

“If China allowed its currency to respond to market forces, it could create a million US manufacturing jobs and cut our trade deficit with China by $100 billion a year, with no cost to the US Treasury.”

Lawmakers have pressed this issue for years with little success, but it appears to be gaining momentum — and bipartisan support — six weeks before congressional elections in which the high unemployment rate is the top issue.

The bill being considered was co-sponsored by a Democrat and Republican, and several Republican lawmakers strongly criticized China’s currency policy at congressional hearings on the matter last week.

Prospects for action in the Senate, which would also have to approve legislation, is uncertain. Key senators have said time may be too tight since lawmakers hope to leave Washington in just a few weeks to campaign ahead of the November elections.

The US Treasury Department said it would “carefully examine” any proposals put forward by Congress.

Some analysts see pressure for a bill building.

“The momentum is certainly there on the Hill to push this forward before the mid-term elections,” said Eswar Prasad, a professor at Cornell University. “There is a real prospect on this occasion that heated rhetoric will get translated into substantive legislative action.”

China’s central bank said in June it would loosen a peg against the dollar and let the yuan fluctuate more freely. Since then it has risen 1.8 percent against the dollar.

That makes the yuan an easy target for US politicians eager to address high unemployment in an election year.

In a speech to US businesses on the sidelines of a UN summit on poverty and the annual UN General Assembly meetings, China’s Wen said, “I fully believe that all the disputes and friction in China-US trade at the moment can be resolved.”

He also said China wants a “strong and stable U.S., just as the US needs a strong, stable China.”

The yuan exchange rate was not to blame for the trade imbalance between China and the United States, Wen said.

“The main reason for the US trade deficit with China is not the renminbi exchange rate, but the structure of trade and investment between the two countries,” he said.

Export subsidy

The proposed legislation, which is certain to irritate Beijing, would essentially treat China’s “undervalued” currency as an export subsidy and allow the Commerce Department to impose countervailing duties to offset the undervaluation.

US companies applying for the duties would have to show they have been injured by China’s exchange rate practices.

Congressional aides said the bill does not guarantee the United States would apply countervailing duties against undervalued currencies, but eliminates a hurdle that has blocked the Commerce Department from doing that in the past.

“This bill is being advanced in the absence of effective action on a multilateral basis,” House Ways and Means Committee Chairman Sander Levin said as he announced his panel would take up the bill.

“Hopefully the concrete step of this bill can spur efforts leading to the kind of multilateral structure needed to address major currency imbalances,” he said in a statement.

Both Obama and his predecessor, President George W. Bush, pushed China to move to a more market-oriented exchange rate. But the results have not come fast enough for American lawmakers who blame the huge US trade deficit with China for the loss of manufacturing jobs.

“It is very important that our companies face a level playing field around the world and that’s why it’s so important that we continue to try and encourage China to let their exchange rate reflect market forces and to end practices that discriminate against US companies,” US Treasury Secretary Timothy Geithner told lawmakers on Wednesday.

In a strongly worded statement on Tuesday, China’s Foreign Ministry told Washington to stop pointing its finger at Beijing over the yuan and focus instead on fixing its fragile economy.

But US officials showed no signs of toning down their criticism. In a speech on Wednesday, US Trade Representative Ron Kirk took aim at China’s industrial policies that he said unfairly discriminated against US companies.

“All we’re asking China to do is play by the rules, get your thumb off the scales, let us go in and compete equally,” Kirk said at the Global Services Summit, which brought together industry groups and trade officials from around the world.

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