RPT-FACTBOX-U.S. proposed legislation on exchange rates

(Repeats to extra subscribers with no changes to text)

NEW YORK, March 16 (Reuters) - The Schumer-Stabenow-Graham Currency Exchange Rate Oversight Act of 2010 is designed to reform and enhance oversight of currency exchange rates.

The intention of the bill is to ensure action against countries that fail to act to eliminate currency misalignment and includes tools to address the impact of currency misalignment on U.S. industries.

Existing law requires the Treasury Department to identify countries that manipulate their currency for purposes of an unfair trade advantage. But while the currencies of certain countries were found to be undervalued, they were not accused of "manipulation" under the current interpretation of the law.

The bill repeals and replaces the currency provisions in the existing law with a new framework that requires action by the administration if countries fail to correct the misalignment.

NEW CRITERIA: The bill requires Treasury to develop a biannual report to Congress that identifies two categories of currencies, the first being a general category of "fundamentally misaligned currencies" based on objective criteria and the second, "fundamentally misaligned currency for priority action" that reflects misaligned currencies caused by clear policy actions by another government.

STRENGTHENS EXISTING LAW TO ADDRESS CURRENCY UNDERVALUATION: The legislation requires the Commerce Department to investigate currency undervaluation as a "countervailable subsidy" if Treasury designates a "priority" currency and a U.S. industry requests an investigation. The legislation clarifies that the Commerce Department already has authority under U.S. law to investigate whether currency undervaluation by a government provides a countervailable subsidy and must do so if a U.S. industry requests investigation. Under existing trade laws, if Commerce and the International Trade Commission find that subsidized imports are causing economic harm to a U.S. industry the administration must impose duties on those imports to counter the effect of the subsidy.

NEW CONSULTATIONS: Under the bill, Treasury is required to immediately consult with all countries cited in the report. For "priority" currencies, Treasury would seek advice from the International Monetary Fund (IMF) as well as trading partners.

TOUGH CONSEQUENCES: Upon designation of a "priority" currency, the administration must: oppose any IMF changes that benefit a country whose currency is designated for priority action and determine whether to grant a country "market economy" status for purpose of U.S. antidumping law.

After 90 days of the country failing to make appropriate policies, the administration must:

-reflect currency undervaluation in dumping calculations for products produced or manufactured in the designated country,

-forbid federal procurement of goods and services from the designated country unless that country is a member of the WTO Government Procurement Agreement ("GPA"),

-request the IMF to engage the designated country in special consultations over its misaligned currency,

-forbid Overseas Private Investment Corporation (OPIC) financing or insurance for projects in the designated country, and

-oppose new multilateral bank financing for projects in the designated country.

After 360 days of failure to adopt appropriate policies, the administration must:

-require the U.S. Trade Representative to request dispute settlement consultations in the World Trade Organization with the government responsible for the currency,

-require the Department of Treasury to consult with the Federal Reserve Board and other central banks to consider remedial intervention in currency markets.

STRINGENT WAIVER PROVISION: The U.S. president could initially waive the consequences after the first 90 days if such action would harm national security or the economic interest of the United States. However, the president must explain how the adverse impact of taking an action would be greater than the benefits of such action. Any subsequent economic waiver would require the president to explain how the adverse impact of taking action would substantially outweigh the benefits of such action. Furthermore, any Member of Congress may thereafter introduce a "joint" resolution of disapproval concerning the president's waiver. A joint resolution provides an opportunity for congressional override of a presidential veto of a disapproval resolution.

NEW CONSULTATIVE BODY: The bill would create a new body with which Treasury must consult during the development of its report. Of the nine members, one would be selected by the President and the remainder by the Chairmen and Ranking Members of the Senate Finance and Banking Committees, as well and the House Ways and Means and Financial Services Committees. The members must have demonstrated expertise in finance, economics, or currency exchange. (Reporting by Nick Olivari; Editing by Andrew Hay)