By  on September 1, 2010

WASHINGTON — The Commerce Department said Tuesday it would not initiate investigations in two cases into whether China’s alleged currency manipulation constitutes an illegal subsidy.

The textile industry has been closely watching the outcome of the coated paper case, which reaches its final stage next month, for indications on how the Commerce Department would receive future cases.

The announcement was made as part of a preliminary trade remedy determination in a case involving aluminum extrusions. The agency said because the currency allegations in that case were so similar to those in a second one involving coated paper, its decision not to initiate an investigation would be the same in both instances.

Countervailing duties are imposed in cases where the Commerce Department finds that a foreign government has illegally subsidized goods in violation of international trade laws. The Commerce Department said in its decision that China’s currency policy is not specific enough to one industry or company to qualify as a subsidy under CVD laws because it is uniform across the whole Chinese economy.

“We are very disappointed that they chose not to investigate. They dropped the ball,” said a spokesman for the American Manufacturing Trade Action Coalition. “If Congress was waiting for the administration to act on this issue, it’s clear that they’re not.”

Under the Obama administration, the Treasury Department has twice declined to name China a currency manipulator, but has said the yuan is undervalued. Critics charge the yuan is undervalued by as much as 40 percent, giving China’s exports an unfair price advantage. In June, the People’s Bank of China said it would move toward a more flexible exchange rate.

The Commerce Department’s decision could add fuel to the fire on Capitol Hill to try to move legislation that would deem currency manipulation an illegal subsidy under trade remedy laws. Several lawmakers have been pressing for legislation to address China’s undervalued currency in the absence of a tougher stance against China by the Obama administration. The legislation could now gain even more traction when Congress returns from its recess in a little over a week.

“I think what importers should fear is that this will provide an impetus for Congress to act,” said David Spooner, an attorney with Squire Sanders who represents importers and who served as a trade official in the Bush administration. The decision doesn’t make any changes that would impact importers because it maintains the status quo, he said, but there is potential for the decision to provoke some action.

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