House Approves Currency Reform for Fair Trade Act

The U.S. House of Representatives passed the Currency Reform for Fair Trade Act (H.R. 2378)  by a vote of 349 -78 last week, increasing pressure on China to hasten the appreciation of its currency.

A stronger yuan would make Chinese goods more expensive in the U.S., helping out American manufacturers competing against Chinese suppliers. At the same time, American products would be cheaper for Chinese consumers, who would also have greater buying power with a stronger currency.

Amid still high unemployment, American lawmakers face rising pressure to create jobs ahead of November elections.
But major business groups representing a diverse array of trades lined up against the bill, saying it would do more harm than good for economic growth and job creation. Many members of these groups include importers but also multinational firms that have sharply boosted investments and production in China and fear retaliation from Beijing, which could hurt future sales and expansion in China’s huge market.

While organizations representing retailers expressed an understanding that imbalances exist, none supported the measure fearing that its passage would violate rules of the World Trade Organization (WTO), invite retaliation against goods produced in the U.S. and fail to persuade China to raise the yuan to a fair valuation level.

Steve Pfister, SVP for government relations at the National Retail Federation, said in a statement that WTO rules do not include currency exchange practices as a consideration in duty cases. There is also the question of the true value of the yuan, which remains a point of disagreement among economists and banking organizations.

“It makes little sense to give China a legitimate reason to retaliate against U.S. exports or an excuse to hassle U.S. businesses with no prospect that this legislation would be effective,” Mr. Pfister said in a statement.

“Lost in much of the debate on currency is the fact that China is one of the largest and fastest growing markets for American exports. Given our near stagnant economic growth, it makes no sense to provoke tension and erect trade barriers that could jeopardize thousands of American jobs and undermine the President's goal of doubling U.S. exports within five years,” said Stephanie Lester, vice president for international trade at the Retail Industry Leaders Association.

The Obama Administration, according to the Wall Street Journal, didn't endorse the bill and chose not to work with legislators on its language to avoid being seen as supportive of the measure in any way. The bill now heads to the Senate where it will likely remain until a new Congress convenes next year.

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House Approves Currency Reform for Fair Trade Act

The U.S. House of Representatives passed the Currency Reform for Fair Trade Act (H.R. 2378)  by a vote of 349 -78 last week, increasing pressure on China to hasten the appreciation of its currency.


A stronger yuan would make Chinese goods more expensive in the U.S., helping out American manufacturers competing against Chinese suppliers. At the same time, American products would be cheaper for Chinese consumers, who would also have greater buying power with a stronger currency. Amid still high unemployment, American lawmakers face rising pressure to create jobs ahead of November elections.


But major business groups representing a diverse array of trades lined up against the bill, saying it would do more harm than good for economic growth and job creation. Many members of these groups include importers but also multinational firms that have sharply boosted investments and production in China and fear retaliation from Beijing, which could hurt future sales and expansion in China’s huge market.


While organizations representing retailers expressed an understanding that imbalances exist, none supported the measure fearing that its passage would violate rules of the World Trade Organization (WTO), invite retaliation against goods produced in the U.S. and fail to persuade China to raise the yuan to a fair valuation level.


Steve Pfister, SVP for government relations at the National Retail Federation, said in a statement that WTO rules do not include currency exchange practices as a consideration in duty cases. There is also the question of the true value of the yuan, which remains a point of disagreement among economists and banking organizations.


“It makes little sense to give China a legitimate reason to retaliate against U.S. exports or an excuse to hassle U.S. businesses with no prospect that this legislation would be effective,” Mr. Pfister said in a statement.


“Lost in much of the debate on currency is the fact that China is one of the largest and fastest growing markets for American exports. Given our near stagnant economic growth, it makes no sense to provoke tension and erect trade barriers that could jeopardize thousands of American jobs and undermine the President's goal of doubling U.S. exports within five years,” said Stephanie Lester, vice president for international trade at the Retail Industry Leaders Association.


The Obama Administration, according to the Wall Street Journal, didn't endorse the bill and chose not to work with legislators on its language to avoid being seen as supportive of the measure in any way. The bill now heads to the Senate where it will likely remain until a new Congress convenes next year.

About The Author

House Approves Currency Reform for Fair Trade Act

The U.S. House of Representatives passed the Currency Reform for Fair Trade Act (H.R. 2378)  by a vote of 349 – 78 Wednesday, increasing pressure on the People's Republic of China to hasten the appreciation of its currency. 

In short, the bill clarifies that countervailing duties (CVD) may be imposed on imports to counter subsidies that are the result of the producing country's fundamentally undervalued currency.  While the legislation does not specify China as the target of the legislation, the bill was clearly introduced and passed with the intention of forcing China to appreciate the renminbi, notes Alex Boian, director of trade policy at Outdoor Industry Association in a trade alert sent to members. 
 
The bill provides direction to the U.S. Department of Commerce that undervalued currency must be considered when investigating countervailable subsidies.  Introduced by Tim Ryan (R-WI), the bill was rewritten by Ways and Means Chairman Sander Levin (D-MI) to comply with World Trade Organization (WTO).
 
Steve Pfister, SVP for government relations for the National Retail Federation, has argued the legislation would violate WTO 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.
 
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, Pfister argued in a letter NRF sent to Congress Wednesday opposing the bill.
 
Retailers have argued the appreciation of the renminbi will only increase costs and will not result in a balanced trade account with China, pointing to failure of the rise of the yen in the 80s to remedy the U.S. trade imbalance with Japan. 
 
“It makes little sense to give China a legitimate reason to retaliate against U.S. exports or an excuse to hassle U.S. businesses with no prospect that this legislation would be effective,” Pfister said.
 
As an alternative solution, NRF agrees that 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.
 
Supporters of the bill point out that the U.S. Department of Treasury has consistently refused to name China a currency manipulator in its reports to Congress and that diplomatic outreach to China by President Obama and others in his administration has failed to adequately address the currency undervaluation.  

There is near uniform consensus that China's currency is undervalued (some say by as much as 40 percent or more), and that the undervaluation is a direct result of intervention by the Chinese government, but there is wide disagreement as to how to best address the situation.  However, a volatile mix of high unemployment, America's rising trade deficit with China and mid-term elections are drawing record bipartisan support for the bill. 

In the House, Ranking Member Dave Camp (R-MI) voted in favor of the legislation in committee and stated his support for the bill on the House floor Wednesday, saying passage should be followed up with high level discussions at next month's G20 conference.

Republicans have also thrown their support behind companion bills in the Senate – most notably S. 1254 sponsored by Sen. Chuck Shumer, D-NY. Those  bills are not likely to be addressed before the Senate adjourns this week.  One or more of the Senate bills may be brought up for a vote after the election, but Majority Leader Harry Reid has not confirmed that.

Multiple sources have confirmed that should currency reform legislation pass Congress and be enacted by President Obama, there will absolutely be CVD cases brought to Commerce by domestic industry and possibly self initiated by Congress.

 

 

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