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Washington Retail Insight

House Passes China Currency Bill, Senate Could Vote During Lame Duck

By J. Craig Shearman
Washington Retail Insight
September 30, 2010

Legislation intended to put pressure on China over its undervalued currency has been approved by the House despite concerns from NRF and others that the bill would violate international trade rules and accomplish little.

Wednesday's 348-79 vote on H.R. 2378, the Currency Reform for Fair Trade Act, came just before both the House and Senate adjourned so members could return to their home states to campaign for this fall’s election. But Senators Charles Schumer, D-N.Y., and Sherrod Brown, D-Ohio, have promised to push for Senate passage during the lame duck session scheduled to begin November 15.

The overwhelming vote in the House appears to make Senate passage likely, perhaps by a veto-proof majority. But if the yuan were to appreciate more rapidly between now and November, it could lead the Senate to react in either of two directions: to back off from a vote as no longer needed or to conclude that the House action was successful in pressuring the Chinese and that a Senate vote could result in further action by the Chinese.

NRF will continue to urge senators to avoid a vote on the legislation or reject it if it does come up for a vote. Since electoral politics played a large role in the timing of the House vote, there might not be the same political impetus for a post-election vote in the Senate.

NRF strongly opposed the legislation and counted Wednesday’s action as a key vote in its annual ranking of lawmakers on issues important to the retail industry.

“While we agree that the Chinese currency needs to move toward a market-determined exchange rate, H.R. 2378 would be ineffective in addressing the currency issue and would create significant costs for U.S. companies and workers in retail and other industries,” NRF Senior Vice President for Government Relations Steve Pfister said in a letter to House members. “This bill cannot provide effective leverage over China to resolve the currency issue or have any positive impact on either the trade deficit or U.S. jobs.”

The bill would require the Commerce Department to determine whether a country’s currency is undervalued and constitutes a prohibited export subsidy when considering “countervailing” duty cases. If so, Commerce could impose higher duties than it would under existing rules. But Pfister said countervailing duties, which apply to only a few targeted imports, amount to “a microeconomic mechanism” that “is simply the wrong tool to address a large, macroeconomic issue such as currency policy in a trading relationship worth hundreds of billions of dollars.”

The legislation was introduced in response to claims by U.S. manufacturers that China’s longtime policy of tying its currency to the U.S. dollar has allowed Chinese manufacturers to undercut U.S. companies. China earlier this year said it would begin allowing the yuan to float against a basket of currencies. The value of the yuan has increased more than 1 percent recently but critics remain unsatisfied.

Pfister said the legislation would violate World Trade Organization rules because currency exchange practices are not included under the list of government financial contributions the WTO allows to be considered in countervailing duty cases. Moreover, since International Monetary Fund economists have been unable to accurately determine the extent to which the Chinese currency is undervalued, any calculation by Commerce would be arbitrary and duties based on the calculation would be locked in for a year even if the value were to change during the interim. China would also be discouraged from moving beyond the currency peg set by Commerce.

Violation of WTO rules would shift attention from China’s policies to the United States and make it more difficult to resolve more pressing problems for U.S. companies doing business in China such as market access and protection of intellectual property rights.

As an alternative, NRF believes the currency issue is best resolved through multilateral and diplomatic channels such as the G-20, the IMF and the U.S.-China Strategic and Economic Dialogue, as outlined in a recent letter signed by eight former U.S. Trade Representatives and Secretaries of Commerce.

© 2010 National Retail Federation

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