Treasury’s Lack of Action on China Leads to New Move in Congress
Amid rising pressure from Congress, the Treasury Department on Wednesday stopped short of accusing China of currency manipulation, but urged the trade giant to take more decisive steps to change its policies.
WASHINGTON — Amid rising pressure from Congress, the Treasury Department on Wednesday stopped short of accusing China of currency manipulation, but urged the trade giant to take more decisive steps to change its policies.
The report from Treasury Secretary Henry Paulson Jr. called on China not to "hesitate any longer to take more vigorous action" toward economic reforms, including greater flexibility in its exchange rate. However, the semiannual review of currency policies sent to Congress concluded that China did not meet the technical requirements for the designation of currency manipulation, which could lead to World Trade Organization sanctions.
The study followed the same line the Bush administration has taken for six years: The U.S. cannot prove China is undervaluing its currency to gain an unfair advantage in international trade.
The administration's inaction led to a new round of demands from Congressional critics who argue that China keeps its currency, the yuan, artificially weak, making goods 15 to 40 percent cheaper on the world market. Many experts contend that depressing the value of the yuan acts as an export subsidy, putting U.S. companies at a disadvantage and leading to job losses and a record $232.5 billion trade deficit with China last year.
The report was released as the U.S. Trade Representative's office denied an unfair trade practices petition against China filed by 42 House members, alleging that undervaluation of the yuan is prohibited under World Trade Organization rules.
Congressional pressure has intensified to force China to reform its currency policies and several bills have been introduced in this session. The latest measure, introduced by Sens. Max Baucus (D., Mont.), Chuck Grassley (R., Iowa), Lindsey Graham (R., S.C.), and Charles Schumer (D., N.Y.), is intended to force revaluation of the yuan and impose new consequences for inaction.
Missing from the bill was a more punitive approach, abandoned by Graham and Schumer last year, which would have imposed a 27.5 percent tariff on all imports of Chinese products if the yuan wasn't revalued by a set date. Instead, the new bill would redefine currency manipulation and result in WTO and U.S. penalties.
One twist in the bill would affect U.S. importers because the measure would raise antidumping duties. Dumping occurs when the price of goods sold in the U.S. is less than the market value of the goods in the originating country."I think the big issue is how they will determine currency misalignment and what criteria they will use," said Erik Autor, vice president and international trade counsel at the National Retail Federation. "And this rejiggering of antidumping calculations raises serious questions about consistency with WTO rules and retailers could face higher antidumping duties."
Auggie Tantillo, executive director of the American Manufacturing Trade Action Coalition, said his primary question is whether the bill would allow a private right of action for a U.S. company to bring a dumping case solely on the matter of currency.
"If that is the case, then there is some real substance to this bill," Tantillo said. "But if it is not the case, it sounds like a small step forward, but no real direct path to get some relief."
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