March 16 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
-- 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
-- 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
-- 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:
-- 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
-- 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
-- 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
-- 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)