Approving legislation that punishes China for its undervalued currency is the 'wrong approach' that would put the US at odds with international trade rules, invite retaliation against US exporters, and prevent the US from working with China to revalue the yuan, three senior Bush administration officials warned the Senate yesterday.Treasury Secretary Henry Paulson, Commerce Secretary Carlos Gutierrez and US Trade Representative Susan Schwab told Senate Majority Leader Harry Reid of Nevada in a July 30 letter that instead of legislation, the administration should continue 'intensive dialogue' with China.
The letter said that since senior-level talks began last year, the yuan has tripled the rate of appreciation, and said either of two Senate bills now being considered would undo this progress.
'These bills will not accomplish our shared goal of persuading China to implement economic reforms and move more quickly to a market-determined exchange rate,' the officials wrote. They also warned of a host of problems that could follow approval of either bill.
'Legislation that could potentially violate our international obligations, distance us from multilateral institutions, invite copycat legislation or other retaliation against US exporters, impede our efforts to open and move foreign markets toward flexible, market-determined exchange rates would risk undermining market confidence, which rests on continued adherence to open trade and investment policies,' they wrote.
The letter was sent just two days before a Senate committee will consider currency legislation, for the second time in two weeks.
The Senate Banking Committee on Wednesday will consider its own version of a currency bill, one that is different from a bill approved by the Senate Finance Committee last week. If the Banking Committee approves its bill as expected, it will happen just hours after US Treasury Secretary Henry Paulson concludes meetings in Beijing on the value of the yuan and other matters.
The bill under consideration in the Banking Committee would make it harder for Treasury to avoid a finding that China and other countries have misaligned currencies. A finding to that effect under the Banking bill would require Treasury to come up with an action plan to deal with the issue.
Senator Jim Bunning of Kentucky is expected to offer an amendment to the bill tomorrow that would allow the US to treat misaligned foreign currencies as subsidies, which could be offset by duties on imports. Members of the Banking Committee indicated an interest in this language when they announced their bill earlier this year.
Language treating currency misalignment as a subsidy was not included in a bill approved by the Senate Finance Committee last week. Leaders of that committee have said the subsidy language is a likely violation of World Trade Organization rules.
In contrast, supporters of the subsidy language have said there is no WTO violation. Wide support for this language in the House means senators will likely have to consider the language later this year when discussing how to merge the two bills in the Senate.
Bushies: No to China Currency Bills
The official Bush administration line, in case you needed reminding, is that the China currency bills currently under consideration [1, 2] in the US Senate are b-b-b-bad to the bone. Not that lawmakers have taken any heed of the lame-duck (more like dead duck) Bush administration. Keep in mind that Treasury Secretary Henry Paulson is meeting with Chinese officials again, including Comrade Hu, to demonstrate that the much-ballyhooed "Strategic Economic Dialogue" is making progress in defusing US-China trade tensions. From Forbes:
