By  on October 6, 2011

WASHINGTON — President Obama on Thursday entered the fray over legislation targeting China’s undervalued currency, stating that the Chinese manipulate the yuan and intervene in currency markets to the detriment of U.S. businesses even as he expressed concern about the bill’s compliance with international trade rules and the potential to spark a trade war.

With a Senate vote looming on a controversial currency bill that would set punitive tariffs on China if it failed to reform monetary policy, Obama said, “My main concern — and I’ve expressed this with Sen. Schumer [a chief co-sponsor of the China currency legislation] — is that whatever tools we put in place let’s make sure that these are tools that can actually work, that they are consistent with our treaties and international obligations. I don’t want a situation where we’re just passing laws that are symbolic, knowing that they are probably not going to be upheld by the World Trade Organization, for example, so that U.S. companies are subject to a whole bunch of U.S. sanctions.

“We’ve got a strong case to make, but we’ve just got to make sure that we do it in a way that is going to be effective.”

While Obama did not say that he would veto the bill, it was the strongest statement to date that he has made about the legislation, which has flamed tensions with the Chinese government and sparked a war of words between Democrats and Republicans on Capitol Hill.

The President acknowledged that China intervenes in currency markets, saying it is “indisputable.”

“In fact, we have stabilized our relationship with China in a healthy way,” Obama said. “But what is also true is that China has been very aggressive in gaming the trading system to its advantage and to the disadvantage of other countries, particularly the United States.”

He added that there has been “some improvement, some slight appreciation over the last year, but it’s not enough.”

The President’s remarks came in a White House news conference where he aggressively promoted his jobs plan and also expressed support for three pending trade agreements with Colombia, Panama and South Korea making their way through Congress. Obama said he was “comfortable” with a new Senate Democratic proposal unveiled Wednesday that would raise the tax threshold he recommended for families making more than $1 million a year from $250,000 in order to pay for his jobs stimulus plan.

The China currency legislation has strong bipartisan support in the Senate. Its central component would direct the Commerce Department to treat undervalued currency as an illegal export subsidy under U.S. trade laws, which could lead to punitive import tariffs on China and other countries. It would make it easier for industries to petition Commerce for relief under claims that a misaligned currency is an illegal export subsidy. The legislation would also require the Treasury Department to identify countries that “fundamentally misalign” their currencies and take action if they fail to correct it. Under current law, the Treasury must identify countries that “manipulate” their currency for purposes of gaining an unfair trade advantage and show intent.

Even if the Senate passes the legislation, it faces dim prospects in the House after Speaker John Boehner expressed misgivings about the bill on Tuesday.

Obama’s seeming misgivings about the legislation and refusal in the past to take unilateral action against China over its currency programs indicates he will likely continue a policy of trying to encourage the Chinese to reform their currency policy through diplomatic means.

But the U.S. did take action against China on another issue on Thursday. U.S. Trade Representative Ron Kirk said the U.S. had identified 200 subsidy programs that China has “failed to notify” to the WTO, in a formal submission the U.S. made to the global trade body. The U.S. also submitted and identified 50 subsidy programs it said India had not notified the WTO about.

Kirk said the U.S. is seeking detailed information and data from China and India through the actions at the WTO. If the two countries do not comply, the U.S. can bring the matter to the WTO Subsidies Committee.

“The situation is simply intolerable. Every member of the WTO is required to come clean on its subsidy programs on a regular basis. China has not notified its subsidy programs in over five years,” he said adding that India only recently filed its first incomplete notification in nearly 10 years. “The lack of transparency severely constrains the ability of WTO members to ensure that each government is playing by the rules.”

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