FACTBOX-US current, proposed law on currency manipulation

March 16 Tue Mar 16, 2010 5:54pm EDT

March 16 (Reuters) - U.S. senators have introduced new legislation that threatens China with punitive duties if it fails to lift the value of its currency, boosting pressure on the Obama administration to take action under existing law.

The bipartisan measure, which merges earlier efforts to change the currency law, aims to end what the lawmakers said was Beijing's deliberate efforts to keep the yuan cheap to subsidize exports and tax imports. [ID:nN16248922].

The new bill increases pressure on the Obama administration to declare Beijing a currency manipulator in April when a semiannual currency report is due from the U.S. Treasury Department. Under an existing 1988 law, such a move would require the Treasury to begin "expedited" negotiations with China to adjust its currency.

But the new proposal from Democratic senators Charles Schumer and Debbie Stabenow and Republican Senator Lindsey Graham would repeal the existing law, lower the threshold for action and provide new punitive tools for dealing with a "fundamentally misaligned" currency.

Following are details on the 1988 currency law and the Schumer-Stabenow-Graham Currency Exchange Rate Oversight Act of 2010:

CURRENT LAW

-- The U.S. Treasury Department, in consultation with the International Monetary Fund, shall analyze the exchange rate policies of foreign countries on an annual basis.

-- Semiannual reports are due April 15 and Oct. 15.

-- The reports examine whether countries are manipulating their currency's exchange rate with the U.S. dollar "for purposes of preventing effective balance of payments adjustments or gaining unfair competitive advantage in international trade."

-- If manipulation is found, the Treasury secretary shall "initiate negotiations with such foreign countries on an expedited basis, in the International Monetary Fund or bilaterally, for the purpose of ensuring that such countries regularly and promptly adjust the rate of exchange between their currencies and the United States dollar."

-- The secretary "shall not be required to initiate negotiations in cases where such negotiations would have a serious detrimental impact on vital national economic and security interests."

-- In such cases, the secretary must notify leaders of the Senate Banking Committee and the House of Representatives' Financial Services Committee of his decision.

The authorizing statute: here

LATEST PROPOSAL

-- Treasury under the Schumer-Stabenow-Graham bill would be required to drop its "manipulation" criteria in favor of determining whether a currency is "fundamentally misaligned" based on objective criteria or clear policy action from the relevant government.

-- The latter designation would trigger a priority investigation from the U.S. Commerce Department as to whether the undervaluation is an unfair subsidy for that country's exports at the expense of a particular industry. It must then impose import duties to counteract the subsidy.

-- Treasury would be required to immediately consult with all countries with misaligned currencies, and engage the International Monetary Fund in priority cases. In the case of China, the IMF said on March 1 that the yuan was "substantially undervalued" from a medium-term perspective.

-- After 90 days of the designated country's failing to make appropriate policies, the U.S. must incorporate the currency undervaluation into its dumping calculations for products from that country. Federal purchases of goods and services from the country would be prohibited unless the country is a member of the World Trade Organization's Government Procurement Agreement -- a provision aimed squarely at China. It would forbid Overseas Private Investment Corp financing and oppose multilateral development bank financing for projects in the designated country.

-- After 360 days of failure to adopt appropriate policies, the U.S. Trade Representative must request WTO dispute settlement consultations with the designated country. The U.S. Treasury would be required to consult with the Federal Reserve and other central banks to consider remedial intervention in currency markets.

-- The U.S. president could put the process on hold after the initial 90 days of inaction if he determined that it would harm national security or the economic interests of the United States, but this must be explained and could be overridden by a congressional disapproval resolution.

-- the bill would create a new body which the Treasury must consult with during the development of its report. Eight of the nine members would be chosen by Congress.

For more details on the bill, see [ID:nN1699515].

PREVIOUS CONGRESSIONAL EFFORTS AT REVAMP

-- Many U.S. lawmakers have called for changes because Treasury has historically been reluctant to label countries as currency manipulators, particularly China. However, there has not been a serious push to revamp the law since 2007.

-- Some lawmakers have proposed giving Treasury less discretion in citing countries when certain conditions are met; others wanted the U.S. government to adopt what they consider more neutral language in its semi-annual reports.

-- The Senate Finance Committee passed legislation in 2007 that would have required Treasury to identify countries with "fundamentally misaligned" currencies but action on the bill stalled, partly because of a jurisdictional battle with the Senate Banking Committee. (Reporting by David Lawder, Doug Palmer and Nick Olivari; Editing by Kenneth Barry)

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