January 20, 2010 / 8:19 PM / in 9 years

U.S. law inhibits China currency probe: Gary Locke

WASHINGTON (Reuters) - U.S. law makes it difficult for the United States to investigate charges China’s currency practices constitute an unfair trade subsidy, U.S. Commerce Secretary Gary Locke told senators in a letter.

A copy of the letter to Senators Charles Schumer, a New York Democrat, and Lindsey Graham, a South Carolina Republican, was obtained by Reuters on Wednesday.

Locke’s comments could give fresh impetus to a bill in Congress giving the U.S. Commerce Department clearer authority to deal with foreign currency manipulation.

“I agree with you fully that subsidy allegations involving China’s currency practices should be assessed no differently than any other subsidy allegation,” Locke said.

Responding to the senators’ request for more aggressive action against China, Locke said hurdles in U.S. trade law have prevented the Commerce Department from investigating the allegation China’s exchange rate policy effectively subsidizes the country’s exports.

Many economists agree China’s currency is significantly undervalued against the dollar, giving Chinese companies an unfair price advantage in international trade.

Schumer and Graham mounted a high-profile push several years ago for legislation imposing a 27.5 percent tariff on all Chinese goods to offset China’s perceived currency advantage. They eventually abandoned the effort.

But in a new tack, they wrote Locke in November to request that the Commerce Department “use the powers it has under existing law” to impose countervailing duties on Chinese goods in cases where U.S. companies can prove they have been harmed by China’s currency practices.

Locke outlined why the Commerce Department has so far turned down every such request.

“Before investigating an alleged subsidy, the Department has an obligation to establish whether the allegation meets the requirements prescribed under U.S. law; that is, whether there is a financial contribution that is specific to an industry or group of industries,” Locke said.

“When the subsidy allegation fails to meet these requirements, the department cannot initiate an investigation,” Locke said.

Charlie Blum, executive director of the Fair Currency Coalition, said he disagreed with Locke’s reasoning.

China’s exchange rate regime is a subsidy that specifically benefits Chinese exporters and world trade rules gives the United States and other countries legal scope to take action against it, Blum said.

Blum’s group represents a number of U.S. textile and steel manufacturers and union groups.

It has been a driving force behind the Currency Reform for Fair Trade Act, which would give Commerce new authority to fight prolonged currency misalignment.

That bill has 7 co-sponsors in the Senate and 78 in the House of Representatives.

Reporting by Doug Palmer; Editing by Andrew Hay

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