Holy %&#$, Yet Another China Bill

♠ Posted by Emmanuel in , at 6/13/2007 02:40:00 AM
Boy oh boy. I am quite astounded that yet another bipartisan Senate bill aimed at perceived Chinese currency manipulation has been announced prior to Grassley-Baucus-Schumer-Graham which comes out later today. At this rate, every Senate committee will have its own bill aimed at Chinese undervaluation. Below is the blurb from the Senate Banking Committee site. You can read this short PDF document too if you wish. My sense, however, is that tomorrow's bill is the one that matters as it has been in the pipeline longer, giving more time to refine its provisions and garner input from other senators. By the way, Senator Dodd is seeking his party's nomination as its presidential candidate [nudge, nudge, wink, wink].

From what I understand here, these two senators seek a tighter definition of what constitutes "currency manipulation" from the US Treasury and an ability to start a process overriding Treasury if the Senate believes Treasury has not adjudged currency manipulation properly. Also, they want to set timetables for appropriate remedial action to be taken. Given that Treasury isn't likely to brand China a currency manipulator later today, the next opportunity for this bill to go into action would be sometime near year's end. So, I still believe G-B-S-G has more teeth as it probably won't wait that long to take effect.
Responding to years of inaction by the Treasury Department to identify and promptly adjust currency manipulation by our largest trading partners, Senators Chris Dodd (D-CT) and Richard Shelby (R-AL), Chairman and Ranking Member of the Senate Banking Committee, today announced that they will introduce legislation to level the playing field for American workers and businesses.

China’s ongoing intervention to keep the yuan undervalued has contributed to the loss of approximately three million American manufacturing jobs, the record-high U.S. trade deficit, and undermined our overall competitiveness. The Dodd-Shelby proposal, among other things, would create tough, new authority for both the Treasury Department and the Congress to act to provide a level playing field for U.S. manufacturers and workers. The legislation would also tighten the definition of currency manipulation to provide for greater clarity and to prevent ambiguity or delay in addressing the problem. No other Congressional legislation encompasses these two elements.
    “The United States stands to benefit greatly from China’s booming economy and growth, but the current conditions of this relationship are hurtful to the U.S., not helpful,” said Dodd. “A change in our currency manipulation policy is long overdue. America’s companies and workers deserve an opportunity to compete on fair terms with countries such as China, just as we provide market access and fair competition for China and other nations on our soil. We are not asking for a headstart here, just a fair race. Secretary Paulson deserves credit for working to address China’s unfair currency and trade practices through the Strategic Economic Dialogue. But dialogue alone is not enough; we need action as well.”
Senator Shelby said, “I have long believed that China manipulates its currency, thereby giving it an unfair trade advantage. Although evidence gathered by the Treasury Department clearly supports this conclusion, Treasury has regrettably declined to label China a currency manipulator.”
    “Accordingly, I am pleased to join with Chairman Dodd in introducing legislation that tightens the definition of ‘currency manipulation’ and spells out a clear process for actions to be taken by Treasury in the event that a country is found to manipulate its currency. While the Strategic Economic Dialogue is significant and necessary, this legislation provides more tools to combat unfair trade practices and also provides a formal voice for the Congress. I believe that this legislation will provide the Treasury Department with the impetus necessary to produce real results, and I look forward to working with Chairman Dodd to expedite it through the committee process.”
Dodd and Shelby wrote to Treasury Secretary Henry Paulson last month, urging him to use both dialogue and action to combat currency manipulation. The Banking Committee has held two hearings on the issue this year – one in January and one last month.

Senators Dodd and Shelby announce this legislation on the eve of the Treasury Department's release of the International Economic and Exchange Rate Policy report, which is issued to the Senate Banking Committee and House Financial Services Committee – the committees of jurisdiction over currency-related matters – on a semi-annual basis.
Reuters offers this summary of Dodd-Shelby:

Dodd and Sen. Richard Shelby, an Alabama Republican, announced their plans just one day before the Treasury Department releases a semi-annual report on foreign currency practices, which is expected to again stop short of formally labeling China a currency manipulator.

The two senators also beat senior members of the Senate Finance Committee to the punch. The top Democrat and Republican on that panel have scheduled a Wednesday afternoon press conference to unveil their own currency bill...

Many lawmakers believe China deliberately undervalues its currency by as much as 40 percent to give Chinese companies an unfair advantage in international trade.

The Treasury Department has pushed China to move to a more flexible market-oriented exchange rate policy, but has frustrated many lawmakers and manufacturers by refusing to label China as a currency manipulator.

Earlier Tuesday, Treasury Secretary Henry Paulson said he still believed the best way to get China to move faster on currency reform was "through direct discussions and negotiations, not through legislation" [but who's listening to you, Hank?]

Dodd and Shelby said their bill would change the definition of currency manipulation to make it harder for Treasury to avoid making that finding for China.

Countries with a material global account surplus and a significant bilateral trade surplus with the United States would be classified as "currency manipulators, without regard to intent," they said.

The bill would also require a number of Treasury Department actions once currency manipulation is found. Those including developing a plan of action within 30 days that sets benchmarks and timeframes for the foreign trading partner to reform its currency practices.

It mandates U.S. action through the International Monetary Fund to pressure countries to end currency manipulation, and authorizes the Treasury Department to file a World Trade Organization case if "goals and benchmarks are not met within 9 months."

The legislation also creates a process for Congress to formally voice its disapproval if Treasury fails to cite a country for currency manipulation.

Other provisions would hold Treasury's feet to the fire in terms of pressuring China to open its financial services markets to more U.S. companies. [BTW, I have written more about this point in an earlier post.]

Senior Democrats in the House of Representatives have also said they plan to move currency legislation this year.