By a resounding 20-1 vote, the Senate Finance Committee approved a bill that would permit the administration to apply trade sanctions to countries that keep their currency values at a level the Treasury Department deems too low. The lone dissenting vote came from Sen. Maria Cantwell (D-WA) who said the United States should continue to press for economic reforms in China through diplomatic channels and worried about possible retaliation. Finance Committee Chairman Max Baucus won support from those who had called the legislation too weak by shortening deadlines for decisions by the Administration and allowing Congress to override a decision by the president o waive remedies provided in the bill. The original legislation would have given offending countries 180 days to adopt policies to correct an undervalued currency, before remedies including antidumping duties would apply. That was shortened to 90 days in the final version. The president has the authority to waive those consequences if it is determined that imposing remedies would run counter to United States vital economic interest. The president then must decide after 360 days whether to continue that waiver and whether to take additional action, such as launching a WTO dispute or intervening in the currency markets. The final language provides that if Congress passes a joint resolution of disapproval, it can overturn both presidential waivers. That is stronger than language in the initial bill, which would have provided only for a concurrent (non-binding) resolution. The joint resolution of disapproval could be introduced only after the second presidential determination, 360 days after a country is identified as requiring priority action. The legislation is a response to the belief by manufacturing groups and many economists that undervalued currencies in China and Japan give those countries’ exports an unfair advantage. The bill aims to make it easier for Treasury to identify harmful currency practices by changing the standard under current law from currency “manipulation” to currency that is “fundamentally misaligned.” It proscribes a range of penalties for countries deemed to be out-of-line with market-based exchange rates, including boosting antidumping duties, blocking multilateral bank financing, and launching a World Trade Organization dispute. A Senate Finance Committee aide said the vote margin puts the panel in a “strong position moving forward” as it seeks to reconcile its bill with the Banking Committee bill. The Senate Banking Committee approved legislation that gives the Administration more tools to pressure China to let its yuan rise in value, as Sen. Jim Bunning (R-KY) lost his bid to add tariff remedies to the package. Bunning’s much-anticipated amendment, which included a provision to treat exchange rate imbalances as countervailable subsidies, fell on a 14-7 vote. Banking Committee Chairman Christopher Dodd (D-CT) persuaded most committee Democrats to vote against the amendment, contending that because it included provisions that are in the Finance Committee’s jurisdiction, it would have slowed efforts to bring the measure to the Senate floor. The Bunning amendment also included a provision from a bill reported by the Finance Committee that would allow the Commerce Department to boost antidumping duties against countries whose currencies are deemed to be misaligned. Passed on a 17-4 vote, the currency bill would strengthen the Treasury Department’s ability to identify countries that are manipulating their currencies by removing a provision in current law that requires Treasury officials to initiate negotiations with such countries, if those negotiations are not successful after nine months, the department would be authorized to launch a dispute case at the World Trade Organization (WTO). Dodd said after the markup it was up to Majority Leader Harry Reid (D-NV) to decide how to resolve differences between the Finance Committee bill and Banking Committee version. Dodd said he hoped that one bill will come to the floor but made clear he believed he has the upper hand in terms of jurisdiction. Sen. Charles Schumer (D-NY), one of four authors of the Finance Committee-passed bill, said he hoped the two bills can be blended. The spate of legislation to beef up trade remedies prompted the Club for Growth to unveil a petition warning that “retaliatory tariffs on China are tantamount to taxing ourselves as a punishment.” More than 1,000 economists signed the petition to urge Congress not to impose trade measures against China. At the Club for Growth news conference, economist and private equity investor John Rutledge said fixed exchange rates are important to the stability of China’s economy, and that efforts by Treasury Secretary Paulson to prod China into letting the yuan’s value rise risk pushing China into recession. Meanwhile, a US Treasury official elaborated on the Bush Administration’s criticism of currency legislation moving through the Senate, as House lawmakers told Administration officials to just accept that legislation to deal with alleged Chinese trade abuses is on its way. At a House Ways and Means Trade Subcommittee hearing on US-China trade issues, Treasury Deputy Assistant Secretary Mark Sobel reiterated the assertion from top Bush Cabinet officials that legislation to address the yuan would undermine efforts to move China toward a more market-based currency. He criticized in particular an element of the bill approved by the Senate Finance Committee that would require Treasury to identify an equilibrium exchange rate that would be used to adjust antidumping margins. “There is no reliable or precise method for estimating the proper value of an economy’s foreign exchange rate or measuring accurately a currency’s undervaluation,” Sobel told Ways and Means members. Sobel called another provision in the Senate Finance bill – to require the United States to oppose International Monetary Fund reforms, if they would result in greater voting shares for China or other countries with misaligned currencies – “detrimental to US interests.” Finally, he said a part of the bill that would call on the Federal Reserve to intervene to offset currency interventions by others would have little effect on the yuan, which is not traded internationally. Additionally, three Bush Cabinet secretaries sent strongly worded letters to Finance Committee Chairman Baucus, Banking Committee Chairman Dodd, Majority Leader Reid, and Republican Senators Charles Grassley (IA), Richard Shelby (AL) and Mitch McConnell (KY) stating the Administration’s opposition to both the currency bill approved by the Finance Committee (S 1607) and the currency bill passed by the Banking Committee (S 1677). The letter, signed by Treasury Secretary Paulson, Commerce Secretary Gutierrez, and USTR Schwab, sympathizes that Members of Congress want to communicate their concerns about China’s currency, but says the legislation “is not in the best interests of the United States.” The Bush officials warn that the approach of those bills “would substantially weaken the position of the United States to achieve substantial economic reforms in China and around the world.” Instead, the “best way to achieve results is through continued intense dialogue and engagement with China bilaterally and through multilateral institutions, coupled with appropriate reliance on WTO litigation and WTO-consistent trade remedies available under US law.”
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