October 4, 2011 / 10:01 PM / 8 years ago

FACTBOX-Details of U.S. Senate China currency bill

Oct 4 (Reuters) - The U.S. Senate is considering legislation to ratchet up pressure on China to revalue its currency. [ID:nN1E7930MH]

Many U.S. lawmakers contend an undervalued yuan gives Chinese producers an unfair advantage in global markets and costs American jobs.

Here are some key facts about the bill, which would have to be approved by the Senate and the House of Representatives and signed by President Barack Obama to become law.

A final Senate vote is expected later this week.

COUNTERVAILING DUTY PROVISION

Under the Senate bill, known as the Currency Exchange Rate Oversight Reform Act of 2011, the Commerce Department would need to investigate whether a foreign government is subsidizing exports by undervaluing its currency when a U.S. company, group of companies or other eligible party requests a probe.

If the department found that a government was subsidizing its exports by undervaluing its currency, it could put in place countervailing duties.

The Commerce Department currently refuses to consider whether Chinese currency undervaluation is a trade subsidy on the grounds that it does not provide a benefit that is “specific” to Chinese exporters, one of the criteria that must be met under World Trade Organization rules when countries are considering applying countervailing duties.

The Congressional Budget Office has estimated it would raise about $61 million in duties over 10 years, Senator Orrin Hatch said on the Senate floor.

CURRENCY MISALIGNMENT, NOT MANIPULATION

Current law requires the U.S. Treasury Department to issue a report each April 15 and Oct. 15 on whether any country is manipulating its currency’s exchange rate “for purposes of preventing effective balance of payments adjustments or gaining unfair competitive advantage in international trade.”

The reports are often delayed for political reasons and it has been 17 years since the Treasury has designated any country a currency manipulator under the statute. China was named five times from 1992 to 1994.

If manipulation is found, the Treasury is required to “initiate negotiations ... on an expedited basis,” both bilaterally and through the International Monetary Fund, to persuade the country to adjust its exchange rate.

The Senate bill repeals those provisions and instead requires the Treasury Department to issue a report each March 15 and Sept. 15 listing countries with a “fundamentally misaligned” currency, based on certain objective criteria and policy actions of the relevant government.

It also requires the Treasury secretary, if requested, to testify on the report on or before March 30 and Sept. 30 of each calendar year before the Senate Banking Committee and the House Financial Services Committee.

In a provision aimed at China, it requires Treasury to designate countries with fundamentally misaligned currency for “priority” action if they engaged in certain behaviors.

Those include “protracted, large-scale intervention” in the currency exchange market, and “excessive and prolonged” accumulation of foreign exchange reserves.

ESCALATING PENALTIES

The bill requires the United States to seek to launch talks with both priority and non-priority countries with fundamentally misaligned currencies.

For priority countries, it also requires the Treasury secretary to seek the advice of the IMF and work with other countries to encourage exchange rate adjustment.

If a priority country fails to adequately revalue its currency within 90 days, the bill requires the Commerce Department to incorporate the currency undervaluation into its dumping calculations for products from that country.

It bars U.S. federal government purchases of goods and services from the country unless the country is a member of the World Trade Organization’s Government Procurement Agreement — another provision aimed squarely at China.

The United States would also need to request the IMF to engage the designated country in special consultations over its misaligned currency to encourage revaluation.

It would forbid the U.S. Overseas Private Investment Corporation from financing or insuring projects in the designated country.

It would require the United States to oppose new multilateral bank financing for projects in the designated country.

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 also would be required to consult with the Federal Reserve and other central banks to consider remedial intervention in currency markets. (Reporting by Doug Palmer in Washington; editing by Mohammad Zargham)

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