By  on August 7, 2007

WASHINGTON — The Democratic-controlled Congress, intent on recasting the trade agenda, headed into a monthlong recess last week after setting measures in motion that could set punitive tariffs on Chinese imports if the country doesn't revalue its currency.

The flurry of activity on the China currency issue signaled where the collective focus of lawmakers will be when they return from their summer break in early September.

The new lens on trade has left retail and wholesale apparel importers anxious, while giving some hope to textile producers seeking a slowdown to the aggressive push by the Bush administration for more trade pacts.

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 legislators will take.

"There is a difference of opinion on those questions in this institute," said Gary Hufbauer, senior fellow at the Peterson Institute for International Economics.

While Hufbauer believes the Democratic leadership will successfully pass China currency legislation this year, he said other experts within Peterson don't agree. They believe "that turf jostling [between committees] is one reason for a delay and the other reason would be that Democrats will try to keep the issue alive to put pressure on the administration into next year, and that may be a more powerful reason," said Hufbauer.

In addition, he expects Congressional consideration of four trade deals — with Peru, Colombia, Panama and South Korea — to be pushed back until next spring.

"In the preheated [presidential] primary time, the signs don't seem quite right, now," Hufbauer said.

The House held a hearing on Thursday to discuss several competing bills targeting China's currency policies as the chamber continues to try to build a consensus for moving its own legislation forward. This followed the Senate Finance Committee and the Senate Banking, Housing and Urban Affairs Committee passing separate bills in the last two weeks targeting currency manipulation by China and other countries.

In the Senate, the committee chairmen will have to find a compromise between their two bills. The House is further behind on the currency issue, but leaders appeared ready to take some action to move the ball forward, although the timetable is unclear."I would welcome the opportunity to work with the administration to ensure the passage of strong and WTO-consistent legislation to address our heavily imbalanced relationship with China," said Rep. Sander Levin (D., Mich.), chairman of the Ways and Means Subcommittee on Trade, at the hearing last Friday. "But the administration has shown no interest in such legislation. Indeed...the administration has sometimes been part of the problem."

The main area of concern for the fashion industry is how far Congress will go in linking U.S. trade remedy laws, which could lead to higher duties on imports, to undervalued currency calculations. Many of the bills also require World Trade Organization consultations with a country that is found to be manipulating its currency and could ultimately lead to sanctions.

Several legislative proposals would make currency undervaluation subject to U.S. trade remedy laws such as antidumping and countervailing duties, but it is still to be determined what language Congress will include in a final bill in an effort to thwart a potential White House veto.

President Bush has opted to urge the Chinese to reform their currency practices through diplomacy rather than punitive measures. China, in turn, has revalued its currency by about 8 percent in the past two years, but critics charge that is not nearly enough to make a dent in the $232.5 billion U.S.-China trade deficit in 2006.

Treasury Secretary Henry Paulson Jr., Commerce Secretary Carlos Gutierrez and U.S. Trade Representative Susan Schwab sent a letter to Senate Majority Leader Harry Reid last week calling the legislative proposals the "wrong approach." The three cabinet members said the bills "will not accomplish our shared goal of persuading China to implement economic reforms and move more quickly to a market-determined exchange rate" and warned the proposals could spark a trade war.

Importers plan to lobby against bills that include U.S. trade remedies to offset undervalued currencies.

"Of course, it makes people nervous when Congress tries to clamp down on one of the largest trading partners for our industry," said Kevin Burke, president and chief executive officer of the American Apparel & Footwear Association. "We believe the legislation [passed by the two Senate committees] violates WTO rules, which opens us up to retaliatory action that we believe will ultimately hurt the very industries this type of legislation is meant to protect."Burke noted U.S. apparel firms that assemble their clothing in China and export it to the U.S. benefit by the lower value of the Chinese currency.

"If the currency is fairly cheap there, then it is a good place to manufacture your goods," said Burke. "But if the currency rises, then the cost of doing business there will rise, as well."

Domestic textile producers plan to fight aggressively for the inclusion of antidumping and countervailing duty remedies in any legislation that might move this year.

"A countervailing duty remedy in any anticurrency manipulation is critical," said Auggie Tantillo, executive director of the American Manufacturing Trade Action Coalition.

Tantillo and other textile executives maintain the bills containing antidumping duties as a remedy are a step in the right direction, but the use of countervailing duty cases provides an easier path to relief. Dumping occurs when a producer sells merchandise outside its country at a price below market value or lower than its cost of production. Illegal subsidizing occurs when a foreign government provides financial assistance to benefit the production, manufacture or export of a good that breaks WTO rules and can lead to countervailing duties being imposed.

"The more Congressional scrutiny on China, the more likely Congress will pass legislation to counteract China's unfair trade practices," Tantillo said. "The likelihood that the full House and Senate will pass anticurrency manipulation legislation this fall is higher than ever."

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