Senate panel OKs forex bill aimed at China

WASHINGTON (Reuters) - A second U.S. Senate committee approved legislation on Wednesday giving the Treasury Department new tools to pressure China to revalue its currency, despite the Bush administration's warning the bills could trigger a wave of protectionism around the world.

The Senate Banking Committee bill would tighten the U.S. government's definition of currency manipulation to require the Treasury to make that finding against any country that has both a material global current account surplus and a significant trade surplus with the United States.

It also instructs the Treasury to determine currency manipulation without regard to a country's intent, closing a loophole that has allowed the Bush administration to avoid taking that step against China.

The panel voted 17-4 in favor of the bill just one day after U.S. Treasury Secretary Henry Paulson, Trade Representative Susan Schwab and Commerce Secretary Carlos Gutierrez warned congressional action on the currency issue could backfire on the United States.

"At a time when U.S. exports are growing globally, such legislation also exposes the United States to the risk of 'mirror legislation' abroad and could trigger a global cycle of protectionist legislation," the top Bush administration officials said in a joint letter.

Paulson met with Chinese President Hu Jintao and other top officials in Beijing earlier on Wednesday, and told reporters he ran into resistance when he pressed for quicker action on currency reform.

"They emphasized they are committed to reform, but financial stabilizing is every bit as important," he said.

The lopsided committee vote reflects concern among both Democrats and Republicans that China is unfairly undervaluing its currency to give its manufacturer an unfair price advantage in international trade, Senate Banking Committee Chairman Chris Dodd told reporters after the vote.

"I think the Chinese need to understand this is a growing issue and a serious one," Dodd said. "I'm hopeful that action like today will resonate with them" and encourage them to move faster on currency reform, he said.

But Sen. Wayne Allard, a Republican from the agriculture exporting state of Colorado, said he was concerned the Banking Committee bill "could set us up for a trade war."

Sen. Robert Bennett, a Utah Republican, said he also worried Congress was repeating the mistake it made in 1930 when it passed the Smoot-Hawley Tariff Act, generally credited with prolonging the Great Depression.

The committee rejected an amendment -- mainly on the grounds it was outside the panel's jurisdiction -- that would have defined currency manipulation as a subsidy under U.S. trade laws to allow companies to ask for countervailing duties on Chinese goods.

That contrasts with the Senate Finance Committee, which voted 20-1 last week to pass another bill aimed at China that allows anti-dumping duties against countries with "fundamentally misaligned currencies" if they fail to make appropriate reforms.

Countervailing duties are used specifically to offset foreign government subsidies, while anti-dumping duties are imposed on goods sold at below fair market value.

Experts disagree on whether using either option against currency manipulation would be legal under World Trade Organization rules.

The Banking Committee bill would require Treasury Department actions once currency manipulation is found. Those include developing a plan of action within 30 days that sets benchmarks and time frames for the foreign trading partner to reform its currency practices.

It also 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 nine months.

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.

Dodd, a Connecticut Democrat, insisted again on Wednesday the Banking Committee has sole jurisdiction over currency legislation, but said he hoped to work with the Finance Committee over the August break to come with a single bill.