UPDATE 2-US senators pledge China currency bill push

(Recasts lead, adds detail)

By Doug Palmer

WASHINGTON, July 2 (Reuters) - A bipartisan group of four senior U.S. senators vowed on Wednesday to work together on a bill to pressure China and other American trading partners to maintain fair exchange rate policies, after a year of inaction in Congress on once red-hot China currency concerns.

Finance Committee Chairman Max Baucus and Banking Committee Chairman Christopher Dodd, both Democrats, said they met last week, along with ranking committee Republicans Charles Grassley and Richard Shelby, to discuss the next steps for currency legislation.

The meeting followed the recent visit of a high-level Chinese delegation to Washington for trade and economic talks.

"We pledged to continue working together toward legislation to address currency exchange rate regimes," the four senators said in a joint statement.

The Senate Finance and Banking panels passed separate bills a year ago to give the White House new tools to pressure countries that manipulate their currencies for a trade advantage.

However, partly because of a jurisdictional turf battle between the two committees, no further action was taken.

The yuan has risen over 20 percent against the U.S. dollar since China revalued its currency in July 2005. It hit a post-revaluation high in late trade on Wednesday.

However, many U.S. lawmakers believe the yuan remains significantly undervalued, giving Chinese companies an unfair advantage in international trade.

"During our meeting, we discussed the progress China has made to appreciate its currency as well as the urgent need for continued appreciation and exchange rate liberalization," the four senators said.

"We also discussed our legislative proposals to ensure that our global economic partners -- including the People's Republic of China -- maintain exchange rate regimes that are compatible with International Monetary Fund and World Trade Organization commitments and principles," they said.

The four senators said they agreed that 1988 legislation requiring the Treasury Department to semi-annually identify which countries are manipulating their currency to gain a trade advantage was "inadequate and in need of reform."

The renewed push for currency legislation comes as the White House is pressing for approval of free trade agreements with Colombia, Panama and South Korea that have faced stiff opposition in Congress.

Baucus and Grassley also have been in talks with the White House on a bill to expand federal aid for workers who have lost their jobs because of imports or companies moving overseas.

Many Democrats in both the Senate and the House of Representatives want to go beyond dealing with just currency manipulation to strengthen overall U.S. ability to deal with unfair foreign trade practices.

While that seems to set the stage for a trade bargain in the short time left in this year's legislative calendar, Bush administration officials have said they won't sign off on China currency legislation to advance the free trade pacts. They have also said they see no need for a new trade enforcement bill.

U.S. Treasury Secretary Henry Paulson and other top Bush administration official last year had warned that the Banking and Finance committee bills could backfire on the United States by triggering "a global cycle of protectionist legislation."

The Banking bill, which passed last year by a vote of 17-4, tightens the U.S. government's definition of currency manipulation to require a finding against any country that has 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.

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

The Finance currency bill, which passed 20-1, would allow U.S. companies to seek anti-dumping duties on imports from countries with "fundamentally misaligned currencies," as determined by U.S. Treasury Department.

It would also require the White House to take action through the IMF and the WTO against targeted countries that refuse to reform their currency policies.