By and  on September 30, 2010

WASHINGTON — The House passed a bill Wednesday that would give the U.S. Commerce Department greater leeway in cracking down on China’s alleged undervalued currency by imposing punitive tariffs on imports.

By a vote of 348 to 79, House lawmakers sent a strong message to the Obama administration, which has repeatedly declined to take action against China’s currency policies under U.S. trade remedy laws. House Democratic leaders are also hoping the bill, which faces uncertain prospects in the Senate, will give members campaigning to protect U.S. jobs a boost as they head into the midterm elections.

The fashion industry has considerable exposure in China, having shipped $35 billion in apparel and textiles to the U.S. in the past 12 months, according to U.S. government figures. Importers oppose the legislation over concerns that it will run afoul of World Trade Organization rules and invite retaliation from the Chinese. U.S. textile producers, conversely, support the legislation, arguing that China’s undervalued currency has put their products at a competitive disadvantage and led to U.S. job losses.

President Obama took a tougher stance on China’s currency policies last week on the sidelines of the United Nation’s General Assembly meeting, pressing Chinese Premier Wen Jiabao about the slow pace of China’s currency appreciation and warning that the U.S. could take action if it didn’t see “significant movement.”

But there has been no appreciation in the yuan since last week. China pledged in June to let its exchange rate become more flexible and appreciate, but the currency has gained less than 2 percent since then and failed to quiet critics in the U.S., who argue it is undervalued by as much as 40 percent.

In Geneva, speaking at a forum reviewing U.S. trade policy, Sun Zhenyu, China’s WTO ambassador, questioned American fiscal policy. Sun said China was concerned about the “continuous depreciation” of the dollar and the growing U.S. budget deficit, and wants Washington to “take practical and responsible measures to prevent the dollar glut and maintain stability of the currency.”

Further inflaming critics of China’s currency policy, the Commerce Department recently said it would not initiate investigations in two cases into whether China’s alleged currency manipulation constitutes an illegal export subsidy. The Treasury Department in the Obama and Bush administrations has repeatedly declined to name China a currency manipulator, while saying the yuan is undervalued.

The House measure would reverse a long-standing practice at the Commerce Department that has essentially blocked trade remedy cases alleging that undervalued currency is an illegal export subsidy from moving forward, according to a fact sheet provided by the Ways & Means Committee.

Stephanie Lester, vice president of international trade at the Retail Industry Leaders Association, said the bill would make it more likely that Commerce officials would accept a countervailing duty petition on the basis of an undervalued currency allegation.

“It could lead to increased duties and costs for retailers and consumer products, and ultimately the American consumer,” said Lester. “We are also concerned there will be a tit-for-tat fight that could hit U.S. companies, including retailers operating stores in China. For example, the Chinese could decline to buy an Airbus plane or decline to approve a permit to open a store [as retaliation if the legislation is enacted].”

“The bill could result in more countervailing duty cases that will hit consumer products that retailers sell and create a lot of unpredictability and disruption in their sourcing operations,” said Erik Autor, vice president and international trade counsel for the National Retail Federation. “[Retailers] may have to pull up stakes and move to Vietnam or Bangladesh, or wherever, if it becomes untenable to source particular products in China as trade cases increase due to the bill.”

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