Senate panel takes first step toward China bill

WASHINGTON (Reuters) - The Senate Finance Committee took the first step on Tuesday toward crafting legislation to address concerns about the huge U.S. trade deficit with China and strengthening the United States' ability to make sure that country plays by the rules.

"We're trying to come up with tough legislation that is WTO consistent," Sen. Charles Schumer, a New York Democrat, told reporters after the panel heard advice from industry officials, academics and a fellow senator on what to do.

Schumer and Sen. Lindsey Graham, a South Carolina Republican, pushed legislation through much 2005 and 2006 threatening to impose a 27.5 percent tariff on imports from China unless that country took steps to significantly raise the value of its currency against the U.S. dollar.

Many lawmakers and manufacturers believe the Chinese yuan is undervalued by up to 40 percent, giving Chinese companies an unfair price advantage in international trade.

Schumer and Graham abandoned their bill after agreeing to work this year with Senate Finance Committee Chairman Max Baucus, a Montana Democrat, and former committee chairman Sen. Charles Grassley, an Iowa Republican, on joint legislation.

The four senators are still in the early stage of crafting legislation, but "we want to work, the four of us -- Graham, Schumer, Grassley and myself -- to get some agreement on how to proceed with currency," Baucus told reporters.

He also stressed that any bill they develop has to be consistent with World Trade Organization rules.

Baucus offered few other details, but said he shared the view of many lawmakers that the U.S. Commerce Department should be able to impose punitive duties on subsidized products from non-market economies like China.

The U.S. Commerce Department is already moving toward making that change on its own. But Dan DiMicco, president of major U.S. steelmaker Nucor Corp, told the Senate panel Congress should pass legislation making it mandatory that the Commerce Department use countervailing duty laws against non-market economies, like China and Vietnam.

The Commerce Department has avoided doing that on the grounds it is too difficult to accurately calculate subsidies in countries where the government has extensive market control. However, many lawmakers and manufacturers believe that policy is now out of date. The House of Representatives Ways and Means Committee could pass legislation strengthening countervailing duty laws against non-market economies as early as next month.

Columbia University Professor Jagdish Bhagwati urged a cautious approach to China trade legislation.

While the Congress is right to be concerned about the U.S. trade deficit, which hit a record $765 billion last year, that is caused more by the low U.S. savings rate than any unfair Chinese trading practice, Bhagwati said.

Bhagwati also crossed swords with Schumer, when he noted that some prominent economists, such as Columbia University Nobel laureate Robert Mundlell have argued against a rapid revaluation of China's currency to address trade concerns.

Both Graham and Schumer are scheduled to testify on Wednesday at a second Finance Committee hearing focused on China's currency policies.

The Bush administration has pushed China on the currency issues and other trade irritants through a "strategic economic dialogue" that will meet for the second time in May.

Schumer said he expected the four senators to introduce their China legislation before that meeting occurs.

"We're running out of patience," he said.

Sen. Byron Dorgan, a North Dakota Democrat, told the panel Congress should revoke "permanent normal trade relations" with China because that country has not lived up to its market-opening obligations under the WTO.