Senate to Debate China Currency Bill

October 3, 2011 01:18 AM
 

via a special arrangement with Informa Economics, Inc.

Measure not on current House agenda; Obama would likely veto if bill unlikely gets to White House


NOTE: This column is copyrighted material, therefore reproduction or retransmission is prohibited under U.S. copyright laws.


The Senate today will begin debate on a bill (S 1619) dealing with China's currency policy. The bill, pushed by Sens. Sherrod Brown (D-Ohio) and Chuck Schumer (D-N.Y.) and others, is called the Currency Exchange Rate Oversight Reform Act of 2011. It faces hurdles in the House, and a likely presidential veto should the bill get to the president's desk, an unlikely event.

Congressional Quarterly, in writing about the proposal, headlined one article with the dead-end message: "China Currency Vote Will Be Symbolic Only."

High hurdles ahead. Even if the Senate should muster enough votes for the bill's passage (Schumer expects at least 60 senators will vote for cloture to begin debate in a likely Monday vote), veteran observers predict low odds the bill will be signed into law. "The Chinese government should take note that this bill is on a fast track to passage in the Senate," Schumer said Sept. 30, signaling the symbolic notion of CQ's tag line. Schumer made the remark in a press call joined by Sens. Debbie Stabenow (D-Mich.), Bob Casey (D-Pa.) and Jeff Sessions (R-Ala.).

House Republican leaders have no plans to bring the Chinese bill to the House floor. An aide to House Majority Leader Eric Cantor (R-Va.) confirmed there are no plans to vote on China currency legislation. That forecast could likely result in more senators actually voting for their version of the bill because they know it won't go beyond their chamber. Cantor, House Speaker John Boehner (R-Ohio) and Rep. Kevin McCarthy (R-Calif.), the House majority whip, all voted against last year’s China currency measure.

White House officials privately hope House GOP leaders will save them from having to veto what is a popular measure among many Democratic lawmakers. The Obama administration, which has opposed prior similar bills, has thus far declined to detail its position on the legislation. "We are reviewing the bill, and we share the goal of achieving further appreciation of China's currency," White House Press Secretary Jay Carney said. He added that China's currency is "substantially undervalued and we need to see continued progress. And we've made that clear, publicly and privately."

Seeking White House position. Senate Finance Committee Ranking Member Orrin Hatch (R-Utah) has called on the Obama administration to reveal its official position on the Senate bill. In a letter to Treasury Secretary Timothy Geithner and U.S. Trade Representative Ron Kirk, Hatch said "it's imperative that the 100 members of this body have a full understanding of the administration's views on this legislation" to have an informed debate. Hatch specifically asked Geithner to provide "any constitutional, legal, or other policy concerns the administration has with the currency provisions" in the bill. Hatch asked Kirk to comment on the trade policy implications of the Senate bill, and to explain whether it believes the legislation is inconsistent with WTO rules and, if so, in what way. Hatch asked Geithner and Kirk to provide a response in writing no later than 5 pm ET on Monday, Oct. 3. Reid has scheduled a procedural vote on the bill for 5:30 pm ET the same day.

There are lingering concerns as to whether or not the Senate bill is World Trade Organization (WTO) compliant, but Schumer said the latest bill is complaint with WTO rules.

Defining an undervalued currency. Supporters of the measure cite estimates from the Peterson Institute for International Economic as saying the Chinese currency, the yuan, is undervalued 28.5 percent against the U.S. dollar, keeping Chinese exports competitive and creating jobs in China. The jobs argument is the biggest argument supporters of the Senate bill will use when the debate comes this week.

From June 18, 2010 through early August 2011, China's currency appreciated by 6.1 percent. The pace of the appreciation has been criticized as being too slow. Many observers believe that currency reform is in China’s own long-term economic interest. However, many economists argue that a Chinese currency appreciation will do little to reduce trade imbalances in the U.S. and China unless such action is accompanied by changes to U.S. and Chinese macroeconomic practices (i.e., the U.S. would need to save more and consume less and China would need to save less and consume more), which could lower overall U.S. imports (including from China) and boost China’s overall imports (including from the U.S.). In addition, some analysts contend that Chinese industrial policies pose a much greater challenge to U.S. economic interests than an undervalued currency.

The bill would make an undervalued currency an actionable subsidy under U.S. countervailing duty cases. Under current law, the administration must impose duties on subsidized imports causing economic harm to a U.S. industry, as determined by the U.S. Commerce Department and the International Trade Commission. The bill outlines "the applicable investigation initiation standard, which will require Commerce to investigate whether currency undervaluation by a government provides a countervailable subsidy if a U.S. industry requests investigation and provides proper documentation."

The bill stipulates consequences for "priority currencies" found to be misaligned. If a currency is designated for priority action and the Treasury Department determines that the country has failed to adopt appropriate policies or take identifiable action to eliminate the fundamental misalignment, "the United States Trade Representative shall request consultations in the World Trade Organization with the country regarding the consistency of the country's actions with its obligations under the WTO Agreement."

Other consequences range from the ending of financing or insurance for projects in that country by the Overseas Private Investment Corporation to consultations between Treasury, the Federal Reserve Board, and other central banks to consider remedial intervention in currency markets. "It is not just a report from Treasury anymore," Stabenow said, referring to the department's twice-yearly report to Congress — with the next one due Oct. 15. "Now [Treasury has] to act."

At least one U.S. agriculture group is opposing the Senate bill. The American Soybean Association (ASA) on Sep. 29 sent an "action alert" informing its members to urge senators to vote no on cloture this week. ASA said passage of the bill "could undermine our entire commercial relationship with China, the third largest export market for U.S. goods valued at $69.7 billion, and the top customer for U.S. soybeans valued at $11.2 billion," ASA warned.


 

NOTE: This column is copyrighted material, therefore reproduction or retransmission is prohibited under U.S. copyright laws.


 


 

 

 

 

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