Bipartisan Group of Senators Introduce New China Currency Bill

Senate Majority Has Said He Intends to Consider a Currency Bill Soon

During a September 13, 2011 press conference, Senate Majority Leader Reid (D-NV) indicated that he plans for the Senate to consider China currency legislation after the Senate completes its consideration of a bill to retroactively reinstate the GSP program, revise the Merchandise Processing Fee, and renew Trade Adjustment Assistance. (See ITT’s Online Archives or 09/23/11 news, 11092309, for BP summary of Senate passage of GSP/MPF/TAA bill.)

Highlights of Bipartisan China Currency Bill

According to the press release, the bill would:

Improve oversight of currency exchange rates - repeal the currency provisions in current law and replace them with a new framework, based on objective criteria, which will require Treasury to identify misaligned currencies and require action by the administration if countries fail to correct the misalignment.

Clarify CV duty law can address currency undervaluation - specify the applicable investigation initiation standard, which will require Commerce to investigate whether currency undervaluation by a government provides a countervailable subsidy if a U.S. industry requests investigation and provides proper documentation.

Include WTO-consistent, key provision from previous legislation - preclude Commerce from imposing this bright-line rule, and would clarify that Commerce may not refuse to investigate a subsidy allegation based on the single fact that a subsidy is available in circumstances in addition to export.

Establish new objective criteria to identify misaligned currencies - require Treasury to develop a biannual report to Congress that identifies two categories of currencies: (1) a general category of “fundamentally misaligned currencies” based on observed objective criteria and (2) a select category of “fundamentally misaligned currencies for priority action” that reflects misaligned currencies caused by clear policy actions by the relevant government.

Require new consultations - require Treasury to engage in immediate consultations with all countries cited in the report. For “priority” currencies, Treasury would seek advice from the International Monetary Fund (IMF) as well as key trading partners.

Trigger tough consequences - trigger consequences unless a country adopts policies to eliminate the misalignment.

Immediately upon designation of a “priority” currency, the administration would have to:

• Oppose any IMF governance changes that benefit a country whose currency is designated for priority action.
• Consider designation of a country’s currency as a “priority” currency when determining whether to grant the country “market economy” status for purpose of U.S. antidumping law.

After 90 days of failure to adopt appropriate policies, the administration would have to:

• Reflect currency undervaluation in dumping calculations for products produced or manufactured in the designated country.
• Forbid federal procurement of goods and services from the designated country unless that country is a member of the WTO Government Procurement Agreement (“GPA”).
• Request the IMF to engage the designated country in special consultations over its misaligned currency.
• Forbid Overseas Private Investment Corporation (OPIC) financing or insurance for projects in the designated country.
• Oppose new multilateral bank financing for projects in the designated country.

After 360 days of failure to adopt appropriate policies, the administration would have to:

• Require the U.S. Trade Representative to request dispute settlement consultations in the World Trade Organization with the government responsible for the currency.
• Require the Department of Treasury to consult with the Federal Reserve Board and other central banks to consider remedial intervention in currency markets.

Allow presidential waiver -- allow the President to initially waive the consequences that take effect after the first 90 days if such action would harm national security or the vital economic interest of the U.S. However, the President would have to explain to Congress in writing how the adverse impact of taking an action would be greater than the potential benefits of such action. Any subsequent economic waiver would require the President to explain how the adverse impact of taking an action would be substantially out of proportion to the benefits of such action. Furthermore, any Member of Congress would be able to thereafter introduce a joint resolution of disapproval concerning the President’s waiver. Should the disapproval resolution be approved, the President would be able to veto it, and the Congress would have the opportunity to override the veto.

Establish new consultative body -- create a new body with which Treasury must consult during the development of its report. Of the nine members, one would be selected by the President and the remainder by the Chairmen and Ranking Members of the Senate Banking and Finance Committees, as well and the Financial Services and House Ways and Means Committees.

(Note that a China currency bill (H.R. 2378) was passed by the House in September 2010. H.R. 2378 would have, among other things, made countervailing duties available for “fundamentally undervalued currencies.)

¹The new bill combines S. 328 previously introduced in 2011 by Senators Brown (D-OH) and Snowe (R-ME) with S. 3134 previously introduced in 2010 by Senators Schumer (D-NY) and Graham (R-SC). As of September 23, 2011, S. 1619 had 19 co-sponsors.

(See ITT’s Online Archives or 09/15/11 news, 11091516, for BP summary of the Senate Majority Leader’s plans to soon act on China currency legislation.

See ITT’s Online Archives or 09/21/11 news, 11092136, for BP summary of 51 trade associations urging the Senate to oppose China currency legislation.)