By and  on September 18, 2007

WASHINGTON — Lawmakers are ratcheting up the pressure to pass legislation cracking down on China's undervalued currency and contaminated products this fall, leaving a large swath of the fashion industry on guard over punitive legislation.

Congress returned from summer recess at the beginning of the month amid a new round of product recalls of lead-tainted toys by Mattel and facing unfinished business on punishing China's undervalued currency.

Trade veterans are still trying to determine whether Congress will have enough time left on the legislative calendar to craft and pass product safety legislation and a separate bill targeting undervalued currencies, notably from China, with punitive tariffs.

There is a growing consensus inside the Beltway that Congress will take up product safety legislation before it considers a currency bill, in light of the recent scare and recalls over contaminated products from China.

Tainted toys and food resonate with constituents and voters, making legislation aimed at overhauling regulatory agencies, beefing up import enforcement and increasing fines against repeat offenders popular among lawmakers from both sides of the aisle.

"I see a product safety legislation moving most quickly because product safety is an issue that members view as constituent-driven," said Brenda Jacobs, counsel for the U.S. Association of Importers of Textiles & Apparel. "I think things like currency are far more abstract. It is not a consumer issue in the same way that product safety appears to be."

Jacobs said she does not believe Democratic leaders will abandon their efforts to pass a currency bill tied to U.S. trade remedies, but she said it could potentially be put off until next year.

"Congress is not going to walk away from [currency] legislation, but they haven't drafted all of the bills yet and they have a lot of issues to reconcile before they move forward," Jacobs added.

The controversy over imports of contaminated Chinese consumer products has sparked an outcry on Capitol Hill and led to hearings, investigations, legislation and an interagency task force created by the Bush administration.

President Bush raised the dual topics of currency imbalances and the recent rash of recalls of contaminated and defective Chinese imports with Chinese President Hu Jintao in a meeting on Sept. 6 in Sydney. The two leaders were attending the Asia-Pacific Economic Cooperation forum.Bush, who has chosen to pursue a "strategic economic dialogue" with China to prod the country into letting the value of the yuan appreciate against the dollar, has drawn fire from lawmakers who want to take a stronger approach.

"We still have a huge trade deficit with China, which then causes us to want to work with them to adjust — to let their currency float," Bush said. "We think that would be helpful in terms of adjusting trade balances."

On the topic of product safety, which has become a firestorm on Capitol Hill this fall, Bush would said that Hu was "quite articulate about the product safety and I appreciated his comments," but he did not elaborate.

In Beijing, China's top safety and quality officials have scrambled to explain recent recalls of China-made products exported to the U.S. and elsewhere. The safety scares have fueled the growing potential for a Sino-U.S. trade war, as Chinese inspectors stall and refuse American-made goods in ports in what U.S. manufacturers have said are retaliatory actions.

The Chinese government has looked to international public relations firms for advice on the crises and has instituted incremental policy measures to address food and product safety concerns. But it has not issued any broad apology to consumers for its failures to detect the problems before they went to market.

On Aug. 31, the government's quality watchdog announced it would implement its first nationwide product recall system. The system requires producers and vendors to alert retailers and consumers when a problem is detected, or face heavy fines and possible closures.

"Our regulations make it very clear that producers must take prior and major responsibility for preventing and eliminating unsafe products," Li Zhaobin, policy and legislation director for the General Administration of Quality Supervision, Inspection & Quarantine, told a news conference.

Li Chang'an, a researcher in Beijing's China Labor Studies Center, said questions over safety have not begun to affect business or bilateral trade overall. The real quality and safety problems with China-made food and goods are with those sold to Chinese consumers, and there is little spillover into exports.

"The best products are still exported to Western countries," Li said.The heated issue has also surfaced in the presidential debates, as the primary season kicks into high gear.

Sen. Barack Obama (D., Ill.), who earlier this year reintroduced the Lead Free Toys Act of 2007 that would give the Consumer Product Safety Commission the authority to ban contaminated children's toys, recently raised his concerns in letters to President Bush, U.S. Trade Representative Susan Schwab and executives in the private sector who have been the focus of product recalls.

"In light of the recent recalls of lead-contaminated toys manufactured in China, it is incumbent upon our government and our business to do everything possible to protect our children from dangerous products," said Obama in his letter to Bush.

The issue spilled over into the apparel area when Sen. Susan Collins (R., Maine), the ranking Republican on the Senate Homeland Security & Governmental Affairs Committee, announced in August that the panel had launched an investigation into the "effectiveness" of federal safety standards for children's toys and clothing.

Apparel importers, who bring in $21.6 billion worth of Chinese-made apparel annually, are concerned the Congressional debate could lead to stricter product safety regulations and requirements for all apparel, more scrutiny of cargo containers at ports and the imposition of user fees on companies that import products from China. Apparel importers must already meet strict CPSC standards on flammability and drawstrings.

"The general trade climate on the Hill seems to be getting frosty," said Mark Jaeger, senior vice president and general counsel at Jockey International. "It is a concern, particularly as we're looking at the final year and a half of the [apparel and textile] quotas [on Chinese imports] that run out at the end of 2008."

Jaeger said the concern over currency undervaluation and product safety was valid, but he said lawmakers "seem to like any opportunity to champion new legislation and that is difficult for the business sector."

"It is difficult for business to plan long-term with that kind of cloud hanging over it," said Jaeger.

Erin Ennis, vice president for the U.S.-China Business Council, said she doesn't believe Congress will act on a currency bill or a product safety bill this month due to overriding issues such as the war in Iraq and a string of spending bills that need to be considered.As for the long-term prospects of legislation in both areas, Ennis said she doesn't expect one issue to eclipse the other.

"They are moving on parallel tracks and addressing different concerns," Ennis said.

Congress has set legislative measures in motion that could set punitive tariffs on Chinese imports if the country doesn't revalue its currency.

Trade experts are unsure what the Democrats, who have solid support from many Republicans on the China currency issue, will try to get enacted into law this year. Jurisdictional disputes over legislation targeting currency manipulation and other trade matters and the looming presidential election process make it difficult to predict what course legislation will take.

Two Senate panels recently passed competing bills. One proposal would offset currency undervaluation in antidumping duty calculations and both would require World Trade Organization consultations with a country that is found to be manipulating its currency, which could ultimately lead to sanctions.

On the House side, Rep. Sander Levin (D., Mich.) is said to be working on a currency bill that he could unveil sometime this month, according to trade experts.

"On the currency bill, my guess is there will still probably be a bill on the President's desk by the end of the year," said Gary Hufbauer, senior fellow at the Peterson Institute for International Economics.

Hufbauer said he thinks the bill will have two key features: an extended time frame for China or any other country found to be manipulating its currency to address the problem before tariffs are triggered, and authority for the president to waive any recommended remedies due to national security or economic concerns.

Auggie Tantillo, executive director of the American Manufacturing Trade Action Coalition, which is pressing for more relief against undervalued Chinese imports, was not as bullish on passage of a currency bill.

"On the currency issue, I'm not convinced the Democratic leadership has bought into it sufficiently enough to put together the effort necessary to override an almost certain veto [by the president]," said Tantillo. "I think what I've seen [in Congress] is a movement in response to the outcry but not a sincere level of focus and energy to really bringing about a solution."On product safety, Tantillo said there is a perception on Capitol Hill of a "greater degree of legitimacy."

He said it would be hard for lawmakers in both parties to vote against a bill that included more funding and required more testing and inspections, and difficult for the president to veto it.

"I would say there is a better chance for a product safety bill than a currency bill," Tantillo said. "It is stunning that you have a situation such as currency issue where everyone acknowledges it is a massive problem and neither Congress nor the executive branch has moved forcefully to deal with it over the past five years."

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