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111th Congress Report
HOUSE OF REPRESENTATIVES
2d Session 111-646
======================================================================
CURRENCY REFORM FOR FAIR TRADE ACT
_______
September 28, 2010.--Committed to the Committee of the Whole House on
the State of the Union and ordered to be printed
_______
Mr. Levin, from the Committee on Ways and Means, submitted the
following
R E P O R T
together with
ADDITIONAL VIEWS
[To accompany H.R. 2378]
[Including cost estimate of the Congressional Budget Office]
The Committee on Ways and Means, to whom was referred the
bill (H.R. 2378) to amend title VII of the Tariff Act of 1930
to clarify that fundamental exchange-rate misalignment by any
foreign nation is actionable under United States countervailing
and antidumping duty laws, and for other purposes, having
considered the same, report favorably thereon with amendments
and recommend that the bill as amended do pass.
The amendments are as follows:
Strike all after the enacting clause and insert the
following:
SECTION 1. SHORT TITLE.
This Act may be cited as the ``Currency Reform for Fair Trade Act''.
SEC. 2. CLARIFICATION REGARDING DEFINITION OF COUNTERVAILABLE SUBSIDY.
(a) Benefit Conferred.--Section 771(5)(E) of the Tariff Act of 1930
(19 U.S.C. 1677(5)(E)) is amended--
(1) in clause (iii), by striking ``and'' at the end;
(2) in clause (iv), by striking the period at the end and
inserting ``, and''; and
(3) by inserting after clause (iv) the following new clause:
``(v) in the case in which the currency of a
country in which the subject merchandise is
produced is exchanged for foreign currency
obtained from export transactions, and the
currency of such country is a fundamentally
undervalued currency, as defined in paragraph
(37), the difference between the amount of the
currency of such country provided and the
amount of the currency of such country that
would have been provided if the real effective
exchange rate of the currency of such country
were not undervalued, as determined pursuant to
paragraph (38).''.
(b) Export Subsidy.--Section 771(5A)(B) of the Tariff Act of 1930 (19
U.S.C. 1677(5A)(B)) is amended by adding at the end the following new
sentence: ``In the case of a subsidy relating to a fundamentally
undervalued currency, the fact that the subsidy may also be provided in
circumstances not involving export shall not, for that reason alone,
mean that the subsidy cannot be considered contingent upon export
performance.''.
(c) Definition of Fundamentally Undervalued Currency.--Section 771 of
the Tariff Act of 1930 (19 U.S.C. 1677) is amended by adding at the end
the following new paragraph:
``(37) Fundamentally undervalued currency.--The administering
authority shall determine that the currency of a country in
which the subject merchandise is produced is a `fundamentally
undervalued currency' if--
``(A) the government of the country (including any
public entity within the territory of the country)
engages in protracted, large-scale intervention in one
or more foreign exchange markets during part or all of
the 18-month period that represents the most recent 18
months for which the information required under
paragraph (38) is reasonably available, but that does
not include any period of time later than the final
month in the period of investigation or the period of
review, as applicable;
``(B) the real effective exchange rate of the
currency is undervalued by at least 5 percent, on
average and as calculated under paragraph (38),
relative to the equilibrium real effective exchange
rate for the country's currency during the 18-month
period;
``(C) during the 18-month period, the country has
experienced significant and persistent global current
account surpluses; and
``(D) during the 18-month period, the foreign asset
reserves held by the government of the country exceed--
``(i) the amount necessary to repay all debt
obligations of the government falling due
within the coming 12 months;
``(ii) 20 percent of the country's money
supply, using standard measures of M2; and
``(iii) the value of the country's imports
during the previous 4 months.''.
(d) Definition of Real Effective Exchange Rate Undervaluation.--
Section 771 of the Tariff Act of 1930 (19 U.S.C. 1677), as amended by
subsection (c) of this section, is further amended by adding at the end
the following new paragraph:
``(38) Real effective exchange rate undervaluation.--The
calculation of real effective exchange rate undervaluation, for
purposes of paragraph (5)(E)(v) and paragraph (37), shall--
``(A)(i) rely upon, and where appropriate be the
simple average of, the results yielded from application
of the approaches described in the guidelines of the
International Monetary Fund's Consultative Group on
Exchange Rate Issues; or
``(ii) if the guidelines of the International
Monetary Fund's Consultative Group on Exchange Rate
Issues are not available, be based on generally
accepted economic and econometric techniques and
methodologies to measure the level of undervaluation;
``(B) rely upon data that are publicly available,
reliable, and compiled and maintained by the
International Monetary Fund or, if the International
Monetary Fund cannot provide the data, by other
international organizations or by national governments;
and
``(C) use inflation-adjusted, trade-weighted exchange
rates.''.
SEC. 3. REPORT ON IMPLEMENTATION OF ACT.
(a) In General.--Not later than 9 months after the date of the
enactment of this Act, the Comptroller General of the United States
shall submit to Congress a report on the implementation of the
amendments made by this Act.
(b) Matters to Be Included.--The report required by subsection (a)
shall include a description of the extent to which United States
industries that have been materially injured by reason of imports of
subject merchandise produced in foreign countries with fundamentally
undervalued currencies have received relief under title VII of the
Tariff Act of 1930 (19 U.S.C. 1671 et seq.), as amended by this Act.
Amend the title so as to read:
A bill to amend title VII of the Tariff Act of 1930 to
clarify that countervailing duties may be imposed to address
subsidies relating to a fundamentally undervalued currency of
any foreign country.
I. SUMMARY AND BACKGROUND
Purpose and Summary
The bill, H.R. 2378, the ``Currency Reform for Fair Trade
Act'', as amended, contains sections amending Title VII of the
Tariff Act of 1930 to clarify that countervailing duties may be
imposed to address subsidies relating to a fundamentally
undervalued currency.
Background and Need for Legislation
In recent years the People's Republic of China (China),
and, to a lesser extent, other countries, have engaged in
protracted, large-scale intervention in foreign exchange
markets. As a result, these countries have accumulated vast
foreign currency reserves and assets that greatly exceed levels
to insure against capital account or current account crises, or
to meet external debt payment obligations. These interventions
in the foreign exchange markets are not necessary to counter
disorderly market conditions and serve no other legitimate
purpose. In the case of China, the Government accumulates
roughly $1 billion each day in foreign assets as a result of
these interventions. China now holds more than $2.4 trillion in
foreign assets--reserves that are far greater than those of any
other country today and generally believed to be greater than
those held by any other country in history.\1\
---------------------------------------------------------------------------
\1\International Monetary Fund, International Financial Statistics,
1940 to 2009, foreign exchange reserves, data series 1D.SZF and 1D.DZF.
In fact, China currently has more foreign exchange reserves than the
entire world did in 2000.
---------------------------------------------------------------------------
The Committee held three hearings on the issue of China's
currency policy over the last year: March 24, 2010, September
15, 2010 and September 16, 2010. In the course of those
hearings, the Committee learned that China's exchange rate
policy (1) contributes to large trade deficits in the United
States\2\ (and other economies), putting a drag on economic
growth and job creation; (2) has a negative impact on trade
policies, as some countries are reluctant to open their
economies further to imports (including in WTO Doha
negotiations); (3) depresses interest rates, and may have
contributed to the financial crisis\3\; and (4) distorts
investment patterns, as China looks to invest overseas the
dollars it accumulates to keep the RMB undervalued.
---------------------------------------------------------------------------
\2\President George W. Bush recognized this more than six years
ago, in 2004, and again in 2007: ``We still have got a huge trade
deficit with China which then causes us to want to work with them to
adjust--to let their currency float. We think that would be helpful in
terms of adjusting trade balances.''
\3\See, e.g., Sebastian Mallaby, ``What OPEC Teaches China,''
Washington Post, January 25, 2009 (``[China's currency] manipulation is
arguably the most important cause of the financial crisis''.); see also
White House Press Release, December 21, 2008 (``[T]he most significant
factor leading to the housing crisis was cheap money flowing into the
U.S. from the rest of the world so that there was no natural restraint
on flush lenders to push loans on Americans in risky ways'').
---------------------------------------------------------------------------
With regard to trade, the undervalued RMB makes China's
exports cheaper than they would be if China allowed its
currency to appreciate, leading many economists to describe
China's policy as effectively operating as an export
subsidy.\4\ It also makes U.S. and other countries' exports to
China more expensive. The Committee notes that U.S. trade
deficit with China is by far the largest contributor to the
overall U.S. trade deficit, which has been at record levels
over the past ten years.
---------------------------------------------------------------------------
\4\See, e.g., Federal Reserve Chairman Ben Bernanke, December 2006
(and reiterated in July 2010): Describing China's exchange rate policy
as an ``effective subsidy that an undervalued currency provides for
Chinese firms that focus on exporting rather than producing for the
domestic market.'' And Martin Wolf, Chief Economics Commentator for the
Financial Times, December 2009: ``[T]he policy of keeping the exchange
rate down is equivalent to an export subsidy . . . in other words, to
protectionism.''
---------------------------------------------------------------------------
Several economists have estimated the effect of China's
policy on the U.S. trade deficit, economy, and employment.
Peter Morici, the former chief economist of the International
Trade Commission recently estimated that the U.S. trade deficit
with China will reduce U.S. GDP in 2010 by more than $400
billion, or nearly 3 percent.\5\ Paul Krugman, winner of the
2008 Nobel Prize in Economics, estimates that China's exchange
rate policy reduces U.S. GDP by 1.4 to 1.5 percentage points
annually and reduces U.S. employment by 1.4 or 1.5 million
jobs.\6\ Fred Bergsten, Director of the Peterson Institute for
International Economics, testified recently before the
Committee that eliminating the Chinese misalignment would
create about half a million U.S. jobs, mainly in manufacturing
and with above-average wages, over the next couple of years. He
also noted that the budget cost of this effective stimulus
effort would be zero.
---------------------------------------------------------------------------
\5\Ariana Eunjung Cha and Sonja Ryst, ``Stocks Plunge as U.S. Trade
Deficit Is Wider Than Expected,'' Washington Post, August 12, 2010.
\6\See Paul Krugman, ``Chinese New Year,'' New York Times, January
1, 2010 (China ``follows a mercantilist policy, keeping its trade
surplus artificially high. And in today's depressed world, that policy
is, to put it bluntly, predatory.''); and Comments at Economic Policy
Institute Forum, March 12, 2010.
---------------------------------------------------------------------------
The National Association of Manufacturers recently reported
that ``NAM members, especially smaller manufacturers, have made
it clear that the number-one factor affecting their exports is
the value of the dollar.''\7\ Based on a historical analysis
going back to 1972, NAM concluded that, if the dollar is
overvalued relative to other currencies, ``there is virtually
no chance of doubling U.S. exports in five years [an objective
of President Obama's]--or even seeing any amount of significant
growth.''\8\ NAM therefore urged the Administration to ``spare
no effort to see that other currencies are market-determined
and free of government intervention[.]''\9\
---------------------------------------------------------------------------
\7\``Blueprint to Double Exports in Five Years,'' National
Association of Manufacturers, July 26, 2010.
\8\Id.
\9\Id.
---------------------------------------------------------------------------
Efforts to date to address this issue through dialogue have
failed to resolve the issue. For the past seven years, the
United States has pressed China to revalue its currency in
various bilateral and multilateral fora. U.S. officials have
raised the issue at the highest levels of government, including
in bilateral meetings of the U.S-China Strategic and Economic
Dialogue and the U.S.-China Joint Commission on Commerce and
Trade (JCCT). The issue is also regularly discussed at the IMF,
as the IMF's Articles of Agreement prohibit members from
``manipulating exchange rates . . . to gain an unfair
competitive advantage over other members[.]'' IMF staff review
the exchange ratepolicies of Members, but the IMF is a
consensus-based organization, and China has blocked any meaningful
action on the issue. (Unlike the WTO, the IMF has no real mechanism to
resolve disputes between its members.)
The United States also recently initiated multilateral
discussions of global imbalances in the G-20 summit meetings.
In particular, at the September 2009 Summit in Pittsburgh, the
G-20 leaders recognized, apparently for the first time, the
need to work together to manage the transition ``to a more
balanced pattern of global growth.'' They launched a
``Framework for Strong, Sustainable, and Balanced Growth'' and
pledged to work together, and with the IMF, to ``ensure that
our fiscal, monetary, trade, and structural policies are
collectively consistent with more sustainable and balanced
trajectories for growth.'' This initiative was widely
understood to include discussions of exchange rate policies.
On June 16, 2010, in a letter to his G-20 counterparts
shortly before a G-20 Summit in Toronto, President Obama
expressed concern with ``continued heavy reliance on exports by
some countries with already large external surpluses.''
According to the President, ``[o]ur ability to achieve a
durable global recovery depends on our ability to achieve a
pattern of global demand growth that avoids the imbalances of
the past.'' The President ``underscore[d] that market-
determined exchange rates are essential to global economic
vitality.''
While the Government of China announced that it would begin
to allow some flexibility in the exchange rate on June 19,
2010, the Government of China continues to intervene massively
in the currency markets and has allowed the RMB to appreciate
less than two percent against the dollar in the past three
months. Thus, the currency continues to be ``substantially
undervalued,'' in the assessment of the IMF. According to one
often cited estimate by the Peterson Institute of International
Economics, the RMB is undervalued by about 24 percent against
the dollar.
The bill, as amended in the Chairman's amendment in the
nature of a substitute, responds directly to the problem by
providing relief for American companies and workers materially
injured by mercantilist exchange rate policies--and it does so
in a manner that is fully consistent with U.S. obligations
under the Agreement Establishing the World Trade Organization.
At the same time, it does not foreclose the need for continued
multilateral engagement with China and other countries
employing mercantilist exchange rate policies, which will be
critical to addressing the whole spectrum of trade issues which
result from such exchange rate policies. Secretary Geithner
made this point in testimony before the Committee: ``[Y]ou
raise the important question of what is the right mix of
multilateral or U.S. actions. And my own view on these things--
and I am talking more broadly about the trade challenges we
face in the relationship--is that we have to use all those
devices. Many of the things we are talking about today that we
care about in the United States are a huge concern to China's
other trading partners as well; and the more effective we are
in making these international issues multilateral issues, in my
view, the more likely we are going to have an impact on their
behavior.'' (Testimony of Secretary Geithner, September 16,
2010.)
Legislative History
H.R. 2378, a bill to amend Title VII of the Tariff Act of
1930 to clarify that fundamental exchange-rate misalignment by
any foreign nation is actionable under United States
countervailing duty and antidumping duty laws, and for other
purposes, was introduced on May 13, 2009, and referred to the
House Committee on Ways and Means.
The House Committee on Ways and Means marked up H.R. 2378
on September 24, 2010, and ordered the bill, as amended,
favorably reported by a voice vote, with a quorum present.
II. EXPLANATION OF THE BILL
Section 1. Short title
Section 1 sets forth the short title of the bill as the
``Currency Reform for Fair Trade Act.''
Section 2. Clarification Regarding Definition of Countervailable
Subsidy
PRESENT LAW
Current law generally provides for the imposition of a
countervailing duty where a government or any public entity of
a country (an ``authority'') provides a ``countervailable
subsidy'' with respect to the manufacture, production, or
export of merchandise imported into the United States, if an
industry in the United States is materially injured or is
threatened with material injury, or if the establishment of an
industry in the United States is materially retarded, by reason
of that merchandise.
A ``subsidy'' exists where an authority provides a
``financial contribution'' (such as a ``direct transfer of
funds'') to a person and ``a benefit is thereby conferred.'' A
subsidy is a ``countervailable subsidy'' if it is ``specific''
(i.e., if it is ``specific . . . to an enterprise or
industry'').
Current law provides that subsidies that are ``contingent
on export'' (i.e., where receipt of the subsidy is tied to
export performance, alone or as one of two or more conditions)
are deemed to be ``specific.'' These subsidies are known as
``export subsidies.''
Current law also clarifies how a determination is to be
made that a ``benefit is thereby conferred'' in four different
situations (involving government-provided equity infusions,
loans, loan guarantees, and the provision of goods or
services).
EXPLANATION OF THE PROVISION
The provision provides certain clarifications that apply in
assessing claims that a country has provided countervailable
subsidies in maintaining a ``fundamentally undervalued
currency.'' These clarifications include guidance: (1) On
evaluating whether a currency is ``fundamentally undervalued'';
(2) on how to measure the benefit provided by a subsidy related
to a ``fundamentally undervalued currency''; and (3) in
determining whether the subsidy related to a ``fundamentally
undervalued currency'' is export contingent.
Fundamentally Undervalued Currency. The provision defines a
``fundamentally undervalued currency'' as one where: (1) An
authority of the country engages in protracted, large-scale
intervention in one or more foreign exchange markets; (2) the
real effective exchange rate of the country is undervalued by
at least 5 percent; (3) the country has experienced significant
and persistent global current account surpluses; and (4) the
foreign asset reserves of the country are excessive.
The bill also lays out the methodology to calculate the
level of undervaluation for purposes of determining whether a
currency is ``fundamentally undervalued'' and for purposes of
determining the amount of the benefit (see discussion below).
Specifically, the bill directs Commerce to use of the
guidelines of the International Monetary Fund's Consultative
Group on Exchange Rate Issues (CGER), wherever possible. In
addition, the bill directs Commerce to rely on IMF results from
those models, if available.
Benefit. The provision clarifies that a ``benefit'' is
conferred in such cases when the currency of an allegedly
subsidizing country is exchanged for foreign currency (such as
U.S. dollars) obtained from export transactions. The bill
directs Commerce to measure the benefit conferred under such
circumstances as the difference between the amount of currency
provided and the amount of currency that would have been
provided if the currency of that country were not fundamentally
undervalued.
Specificity/Export Contingency. Finally, the bill provides
a clarification with respect to export contingency. The bill
clarifies that Commerce may not refuse to find that there is
export contingency in a given case based on the single fact
that a subsidy is available in circumstances in addition to
export. While this provision relates to the case of subsidy
claims relating to a fundamentally undervalued currency, the
Committee expects that Commerce would apply the same, WTO-
consistent principle broadly in other contexts as well.
REASONS FOR CHANGE
On August 30, 2010, in two pending countervailing duty
investigations (Aluminum Extrusions from the People's Republic
of China and Certain Coated Paper suitable for High-Quality
Print Graphics Using Sheet-Fed Presses from the People's
Republic of China), the Department of Commerce decided not to
investigate allegations that the undervaluation of the currency
of the People's Republic of China (the renminbi, or ``RMB'')
confers a countervailable subsidy. The petitioners in those
investigations noted that the subsidy would be provided if the
merchandise subject to the investigation (i.e., aluminum
extrusions, paper) were exported, but would not be provided if
that merchandise were sold in the Chinese market. The
petitioners also cited data showing that exporters account for
70 percent of China's foreign currency earnings.
This legislation clarifies that maintenance by a foreign
government of a fundamentally undervalued currency can be
considered to be contingent upon exportation, and so to
constitute a countervailable export subsidy, notwithstanding
that the subsidy is also available in circumstances other than
export. The change responds to the determinations described
above, in which Commerce found that the receipt of potential
subsidies through China's currency regime was not contingent
upon exportation, because such subsidies were provided not only
to exporters, but also to parties not engaged in exportation.
In the view of the Committee, the principle applied by the
Department (i.e., that a subsidy cannot be contingent upon
export if the subsidy can be provided in circumstances not
involving export) is more restrictive than required under WTO
disciplines. Moreover, it is at odds with World Trade
Organization (WTO) precedent recognizing that a subsidy may
still be export contingent, even if it is available in some
circumstances that do not involve export.
The WTO Agreement on Subsidies on Countervailing Measures
(SCM Agreement) specifically provides that the requirement of
``export contingency'' can be met either by showing there is a
link to export contingency in law (either express or implicit)
or ``when the facts demonstrate that the granting of a subsidy,
without having been made legally contingent upon export
performance, is in fact tied to actual or anticipated
exportation or export earnings.'' (Footnote 4 to the SCM
Agreement) The SCM Agreement does not support an approach that
would have a single fact--the existence of a subsidy recipient
other than an exporter--being determinative in all cases.
The WTO Appellate Body has affirmed this principle in the
context of de facto export subsidy claims (that is, where the
facts demonstrate export contingency).
[The SCM Agreement] makes it clear that de facto
export contingency must be demonstrated by the facts.
We agree with the Panel that what facts should be taken
into account in a particular case will depend on the
circumstances of that case. We also agree with the
Panel that there can be no general rule as to whatfacts
or what kinds of facts must be taken into account. (need citation to
Canada Aircraft)
WTO precedent also deals directly with the assessment of
``export contingency'' in situations where subsidies are
provided both for export and in circumstances not involving
export. Those cases deal primarily with de jure export subsidy
claims. However, as the Appellate Body has stated:
In our view, the legal standard expressed by the word
``contingent'' is the same for both de jure or de facto
contingency. There is a difference, however, in what
evidence may be employed to prove that a subsidy is
export contingent. De jure export contingency is
demonstrated on the basis of the words of the relevant
legislation, regulation or other legal instrument.
Proving de facto export contingency is a much more
difficult task. There is no single legal document which
will demonstrate, on its face, that a subsidy is
``contingent . . . in fact . . . upon export
performance''. Instead, the existence of this
relationship of contingency, between the subsidy and
export performance, must be inferred from the total
configuration of the facts constituting and surrounding
the granting of the subsidy, none of which on its own
is likely to be decisive in any given case. (Appellate
Body Report, Canada--Aircraft, WT/DS70/AB/R, 2 August
1999, p. 43, para. 167.)
One such relevant WTO precedent arises out of the United
States--Tax Treatment for ``Foreign Sales Corporations''
Recourse to Article 21.5 of the DSU by the European
Communities, WT/DS108/AB/RW, adopted January 29, 2002. In that
case, Congress enacted the Extraterritorial Income Exclusion
Act of 2000 after the WTO ruled the Foreign Sales Corporation
(FSC) Act to be WTO inconsistent. Under the ETI Act, a tax
break would be available in two different situations: (1) when
goods were produced domestically and sold for use abroad (i.e.,
exported); and (2) when goods were produced abroad and sold for
use abroad. The WTO dispute settlement panel ruled that, in the
first situation, export is a ``necessary precondition'' for
receiving the subsidy, and therefore ``export contingency''
under WTO rules exists. The panel then stated that any
possibility for receiving the subsidy without exporting (i.e.,
the second situation) does not ``vitiate'' the export
contingency that exists with respect to goods produced in the
United States.
The Appellate Body reached the same conclusion:
We recall that the ETI measure grants a tax exemption
in two different sets of circumstances: (a) where
property is produced within the United States and held
for use outside the United States; and (b) where
property is produced outside the United States and held
for use outside the United States. Our conclusion that
the ETI measure grants subsidies that are export
contingent in the first set of circumstances is not
affected by the fact that the subsidy can also be
obtained in the second set of circumstances. The fact
that the subsidies granted in the second set of
circumstances might not be export contingent does not
dissolve the export contingency arising in the first
set of circumstances. (Appellate Body Report, p. 37,
para. 119; see also United States--Subsidies on Upland
Cotton, WT/DS267).
The Committee also notes with interest the line of
reasoning of the Panel and the Appellate Body that led to the
conclusion that the subsidy was contingent upon export
performance in the first set of circumstances. The panel noted
that, in the first set of circumstances, the subsidy was
available with respect to goods produced within the United
States that are exported, but ``the subsidy is not available in
relation to goods produced within the United States sold for
use within the United States[.] . . . Thus, in relation to
U.S.-produced goods, the words of the statute itself make it
clear that exporting is a necessary precondition to qualify for
the subsidy. . . . [T]he existence and amount of the subsidy
depends upon the existence of income arising from the
exportation of such goods.'' (Panel Report, United States--Tax
Treatment for ``Foreign Sales Corporations''--Recourse to
Article 21.5 of the DSU by the European Communities, WT/DS108/
RW, pp. 31-32, para. 8.60.) The Appellate Body took the same
approach to this issue. (Appellate Body Report, United States--
Tax Treatment for ``Foreign Sale Corporations''--Recourse to
Article 21.5 of the DSU by the European Communities, WT/DS108/
AB/RW, p. 36, para. 117).
In the view of the Committee, it is important and
appropriate to bring Commerce practice into line with the
above-cited SCM Agreement provisions and WTO precedent on the
issue of export contingency.
The provision also provides direction in how to determine
the amount of the benefit that results from a fundamentally
undervalued currency. While estimates of currency
undervaluation can vary, the Committee understands that the
International Monetary Fund's Consultative Group on Exchange
Rate Issues has developed approaches, and may continue to
refine approaches, to estimate as closely as possible the
degree of undervaluation of a currency. The bill also directs
Commerce to use IMF data which is ``publically available [and]
reliable.'' If such data is not available, the Committee
expects Commerce to use other public, reliable data, from an
institution such the World Bank. In addition, the Committee
understands that undervaluation is best estimated on a ``real''
(i.e., inflation-adjusted) and ``effective'' (i.e., trade-
weighted) basis, but that it will be necessary to convert the
estimate into a bilateral exchange rate (i.e., the difference
between the amount of domestic currency the recipient received
when the recipient exchanges its foreign currency and the
amount the recipient would have received if the domestic
currency were not fundamentally undervalued).
Finally, in the view of the Committee, it would be
inappropriate to impose countervailing duties in cases in which
a currency is not ``fundamentally'' undervalued. For example,
in some cases a government or other public entity may intervene
in the foreign exchange markets to accumulate foreign exchange
reserves for reasons such as to provide a defense against
substantial and rapid capital outflows. (See Annex to Report to
Congress on International Economic and Exchange Rate Policies,
U.S. Department of the Treasury, July 8, 2010.)
EFFECTIVE DATE
The provision goes into effect on the date of enactment.
Section 3. Report on Implementation of Act.
PRESENT LAW
No provision.
EXPLANATION OF PROVISION
The provision requires the Comptroller General of the
United States to report to Congress on the implementation of
the amendments made by this Act. The report is to include a
description of the extent to which U.S. industries that have
been materially injured by reason of imports of subject
merchandise produced in countries with fundamentally
undervalued currencies received relief.
REASON FOR CHANGE
The implementation of this Act will help to ensure that
U.S. companies and workers who are materially injured by
unfairly traded imports obtain relief, and this report will
facilitate the Committee's oversight functions in connection
with the trade remedy laws.
Effective Date
The provision goes into effect on the date of enactment.
III. VOTES OF THE COMMITTEE
In compliance with clause 3(b) of rule XIII of the Rules of
the House of Representatives, the following statements are made
concerning the votes of the Committee on Ways and Means in its
consideration of H.R. 2378, the ``Currency Reform for Fair
Trade Act,'' was ordered favorably reported by a voice vote.
MOTION TO REPORT RECOMMENDATIONS
The bill, H.R. 2378, the ``Currency Reform for Fair Trade
Act,'' as amended, was ordered favorably reported by a voice
vote.
Mr. Camp offered an amendment which would require the
Comptroller General of the United States to consider the effect
of the Act on United States manufacturers that are industrial
users of imported products subject to countervailing duties
under this Act. The amendment was defeated by a voice vote.
IV. BUDGET EFFECTS OF THE BILL
Committee Estimate of Budgetary Effects
In compliance with clause 3(d)(2) of rule XIII of the Rules
of the House of Representatives, the following Statement is
made concerning the effects on the budget of this bill, H.R.
2378, as reported:
The bill is estimated to have the following effects of
Federal budget receipts for fiscal years 2008-2017:
The estimated budgetary impact of H.R. 2378 is shown in the
following table. This legislation's effects on federal spending
fall within budget function 150 (international affairs) and 370
(commerce and housing credit).
--------------------------------------------------------------------------------------------------------------------------------------------------------
By fiscal year, in millions of dolllars--
-------------------------------------------------------------------------------------------
2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2011-2015 2011-2020
--------------------------------------------------------------------------------------------------------------------------------------------------------
CHANGES IN REVENUES
Estimated Revenues.......................................... 0 5 15 15 20 20 15 15 10 10 55 125
CHANGES IN SPENDING SUBJECT TO APPROPRIATION
Estimated Authorization Level............................... 8 8 8 9 9 9 9 10 11 11 42 93
Estimated Outlays........................................... 7 8 8 9 9 9 9 10 11 11 41 92
--------------------------------------------------------------------------------------------------------------------------------------------------------
Statement Regarding New Budget Authority or Tax Expenditures
In compliance with clause 3(c)(2) of rule XIII of the Rules
of the House of Representatives, the Committee states that the
bill involves new or increased budget authority. The Committee
further states that the revenue-reducing tax provisions involve
increased tax expenditures. (See amounts in the Congressional
Budget Office estimate provided below and in the table in Part
IV.A., above.)
Cost Estimate Prepared by the Congressional Budget Office
In compliance with clause 3(c)(3) of rule XIII of the Rules
of the House of Representatives, requiring a cost estimate
prepared by the CBO, the following report prepared by the CBO
is provided.
U.S. Congress,
Congressional Budget Office,
Washington, DC, September 28, 2010.
Hon. Sander M. Levin,
Chairman, Committee on Ways and Means,
House of Representatives, Washington, DC.
Dear Mr. Chairman: The Congressional Budget Office has
prepared the enclosed cost estimate for H.R. 2378, the Currency
Reform for Fair Trade Act.
If you wish further details on this estimate, we will be
pleased to provide them. The CBO staff contact is Kalyani
Parthasarathy.
Sincerely,
Robert A. Sunshine,
(For Douglas W. Elmendorf, Director.)
Enclosure.
H.R. 2378--Currency Reform for Fair Trade Act
Summary: H.R. 2378 would expand the definition of
countervailing subsidies--financial benefits granted by
governments to certain domestic exporting firms--that could
trigger the imposition of additional import tariffs under
current U.S. countervailing duty law. This bill would add to
the list of such subsidies the benefit enjoyed by a firm
exporting from a country with a ``fundamentally undervalued''
currency. The bill specifies the mechanisms for determining the
size of this subsidy and for identifying a fundamentally
undervalued currency. The bill would also provide that export
subsidies by such countries could not be disregarded for
purposes of assessing countervailing duties solely because the
subsidy is also provided to non-exporters.
Because enacting H.R. 2378 would increase customs duties
and thus federal revenues, pay-as-you-go procedures apply. CBO
estimates those additional revenues would total $125 million
over the 2011-2020 period. Enacting H.R. 2378 would not affect
direct spending.
Based on information from the International Trade
Administration (ITA) and the International Trade Commission
(ITC), the two agencies that determine whether countervailing
duties should be levied, CBO estimates that implementing H.R.
2378 would cost $41 million over the 2011-2015 period, assuming
appropriation of the necessary amounts.
H.R. 2378 contains no intergovernmental mandates as defined
in the Unfunded Mandates Reform Act (UMRA) and would impose no
costs on state, local, or tribal governments.
The bill would impose a private-sector mandate, as defined
in UMRA, on importer goods that would be subject to higher
tariffs imposed under the bill. The cost of the mandate would
depend on the number and value of imports affected and the
increase in the tariff rate. Based on information from ITC,
ITA, and industry sources, CBO estimates that the cost of the
mandate would fall below the annual threshold established in
the Unfunded Mandates Reform Act for private-sector mandates
($141 million in 2010, adjusted annually for inflation) during
each of the first five years that the mandate would be in
effect.
Estimated cost to the Federal Government: The estimated
budgetary impact of H.R. 2378 is shown in the following table.
This legislation's effects on federal spending fall within
budget function 150 (international affairs) and 370 (commerce
and housing credit).
--------------------------------------------------------------------------------------------------------------------------------------------------------
By fiscal year, in millions of dollars--
-------------------------------------------------------------------------------------------
2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2010-2015 2010-2020
--------------------------------------------------------------------------------------------------------------------------------------------------------
CHANGES IN REVENUES
Estimated Revenues.......................................... 0 5 15 15 20 20 15 15 10 10 55 125
CHANGES IN SPENDING SUBJECT TO APPROPRIATION
Estimated Authorization Level............................... 8 8 8 9 9 9 9 10 11 11 42 93
Estimated Outlays........................................... 7 8 8 9 9 9 9 10 11 11 41 92
--------------------------------------------------------------------------------------------------------------------------------------------------------
Basis of estimate: For this estimate, CBO assumes that the
bill will be enacted late in calendar year 2010.
Revenues
Under current law, if ITA identifies that a countervailing
subsidy has been conferred on certain goods, and if ITC
determines that a U.S. industry has been materially injured by
that subsidy, countervailing duties--additional import
tariffs--are imposed on those goods. In the past few years, no
such duties have been collected as a result of successful
petitions alleging that countervailing subsidies were conferred
on products that were exported from countries likely to meet
the definition of having a ``fundamentally undervalued
currency'' as defined in the bill. However, H.R. 2378 would
expand the set of actionable subsidies under current law and
would stipulate that export subsidies from countries with
fundamentally undervalued currencies would be actionable even
if also provided to non-exporters; thus, the bill would likely
increase the amount of countervailing duties applied.
Based on information provided by ITC, ITA, and industry
experts, CBO estimates that a small share of imports from
countries with undervalued currencies would be found to cause
such material injury to domestic firms; therefore, enacting
H.R. 2378 would lead to an increase of $125 million in federal
revenues (net of income and payroll tax offsets) over the 2011-
2020 period. CBO expects that countervailing duties would
increase to an amount that would make them smaller than
existing antidumping duties applied to countries potentially
having undervalued currencies as defined by the bill.
The estimated revenue effect is lower than it would
otherwise be in part because the bill does not affect the
determination of material injury to a U.S. industry. In
addition, many imports do not injure domestic firms because
there are no competitors currently operating in the United
States. Finally, a projected decline in the value of the U.S.
dollar would also reduce any potential revenues. The estimate
is subject to considerable uncertainty with respect to how the
provisions would be implemented and the relative values of
various currencies.
Spending subject to appropriation
Based on information from both ITA and ITC, CBO estimates
that implementing H.R. 2378 would cost $41 million over the
2011-2015 period, assuming appropriation of the necessary
amounts, for salaries, benefits, and administrative expenses to
hire 36 additional staff at ITA and for additional
administrative activities at ITC to conduct investigations
under the new requirements. The number of countervailing duty
petitions that could arise under the bill is very uncertain,
and the agencies' administrative costs could be higher if the
volume of cases increased significantly.
Pay-as-you-go considerations: The Statutory Pay-As-You-Go
Act of 2010 establishes budget reporting and enforcement
procedures for legislation affecting direct spending or
revenues. CBO estimates that enacting H.R. 2378 would increase
revenues and would not affect direct spending.
The changes in revenues that are subject to pay-as-you go
procedures are shown in the following table.
--------------------------------------------------------------------------------------------------------------------------------------------------------
By fiscal year, in millions of dollars--
-----------------------------------------------------------------------------------------------------------
2010-
2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2010-2015 2020
--------------------------------------------------------------------------------------------------------------------------------------------------------
NET INCREASE OR DECREASE (-) IN THE DEFICIT
Statutory Pay-As-You Go Impact.............. 0 0 -5 -15 -15 -20 -20 -15 -15 -10 -10 -55 -125
--------------------------------------------------------------------------------------------------------------------------------------------------------
Intergovernmental and private-sector impact: H.R. 2378
contains no intergovernmental mandates as defined in UMRA and
would impose no costs on state, local, or tribal governments.
The bill would impose a private-sector mandate, as defined
in UMRA, on importers of goods that would be subject to higher
tariffs imposed under the bill. The cost of the mandate would
depend on the number and value of imports affected and the
increase in the tariff rate. Based on information from ITC,
ITA, and industry sources, CBO estimates that the cost of the
mandate would fall below the annual threshold established in
the Unfunded Mandates Reform Act for private-sector mandates
($141 million in 2010, adjusted annually for inflation) during
each of the first five years that the mandate would be in
effect.
Estimate prepared by: Federal Revenues: Kalyani
Parthasarathy; Federal Spending: Susan Willie and Sunita
D'Monte; Impact on State, Local, and Tribal Governments: Ryan
Miller; Impact on the Private Sector: Samuel Wice.
Estimate approved by: Theresa Gullo, Deputy Assistant
Director for Budget Analysis; Frank Sammartino, Assistant
Director for Tax Analysis.
Macroeconomic Impact Analysis
In compliance with clause 3(h)(2) of rule XIII of the Rules
of the House of Representatives, the following statement is
made by the Joint Committee on Taxation with respect to the
provisions of the bill amending the Internal Revenue Code of
1986: the effects of the bill on economic activity are so small
as to be incalculable within the context of a model of the
aggregate economy.
V. OTHER MATTERS TO BE DISCUSSED UNDER THE RULES OF THE HOUSE
A. Committee Oversight Findings and Recommendations
With respect to clause 3(c)(1) of rule XIII of the House of
Representatives (relating to oversight findings), the Committee
advises that it is appropriate and timely to consider H.R. 2378
as reported.
B. Statement of General Performance Goals and Objectives
With respect clause 3(c)(4) of rule XIII of the Rules of
the House of Representatives, the Committee advises that the
bill contains no measure that authorizes funding, so no
statement of general performance goals and objectives for which
any measure authorizes funding is required.
C. Constitutional Authority Statement
With respect to clause 3(d)(1) of rule XIII of the Rules of
the House of Representatives (relating to Constitutional
Authority), the Committee states that the Committee's action in
reporting this bill is derived from Article I of the
Constitution, Section 8 (``The Congress shall have Power To lay
and collect Taxes, Duties, Imposes and Excises . . .'').
D. Information Relating to Unfunded Mandates
This information is provided in accordance with section 423
of the Unfunded Mandates Act of 1995 (Pub. L. No. 104-4).
H.R. 2378 contains no intergovernmental mandates as defined
in UMRA and would impose no costs on state, local, or tribal
governments. The bill would impose a private-sector mandate, as
defined in UMRA, on importers of goods that would be subject to
higher tariffs imposed under the bill.
The Committee has determined that the revenue provisions of
the bill do not impose a Federal intergovernmental mandate on
State, local, or tribal governments.
E. Applicability of House Rule XXI 5(b)
Clause 5(b) of rule XXI of the Rules of the House of
Representatives provides, in part, that ``A bill or join
resolution, amendment, or conference report carrying a Federal
income tax rate increase may not be considered as passed or
agreed to unless so determined by a vote of not less than
three-fifths of the Members voting, a quorum being present.''
The Committee has carefully reviewed the provisions of the
bill, and states that the provisions of the bill do not involve
any Federal income tax rate increases within the meaning of the
rule.
F. Limited Tax Benefits
Pursuant to clause 9 of rule XXI of the Rules of the House
of Representatives, the Ways and Means Committee has determined
that the bill as reported contains no congressional earmarks,
limited tax benefits, or limited tariff benefits within the
meaning of that rule.
Changes in Existing Law Made by the Bill, as Reported
In compliance with clause 3(e) of rule XIII of the Rules of
the House of Representatives, changes in existing law made by
the bill, as reported, are shown as follows (existing law
proposed to be omitted is enclosed in black brackets, new
matter is printed in italic, existing law in which no change is
proposed is shown in roman):
TARIFF ACT OF 1930
* * * * * * *
TITLE VII--COUNTERVAILING AND ANTIDUMPING DUTIES
* * * * * * *
Subtitle D--General Provisions
SEC. 771. DEFINITIONS; SPECIAL RULES.
For purposes of this title--
(1) * * *
* * * * * * *
(5) Countervailable subsidy.--
(A) * * *
* * * * * * *
(E) Benefit conferred.--A benefit shall
normally be treated as conferred where there is
a benefit to the recipient, including--
(i) * * *
* * * * * * *
(iii) in the case of a loan
guarantee, if there is a difference,
after adjusting for any difference in
guarantee fees, between the amount the
recipient of the guarantee pays on the
guaranteed loan and the amount the
recipient would pay for a comparable
commercial loan if there were no
guarantee by the authority, [and]
(iv) in the case where goods or
services are provided, if such goods or
services are provided for less than
adequate remuneration, and in the case
where goods are purchased, if such
goods are purchased for more than
adequate remuneration[.], and
(v) in the case in which the currency
of a country in which the subject
merchandise is produced is exchanged
for foreign currency obtained from
export transactions, and the currency
of such country is a fundamentally
undervalued currency, as defined in
paragraph (37), the difference between
the amount of the currency of such
country provided and the amount of the
currency of such country that would
have been provided if the real
effective exchange rate of the currency
of such country were not undervalued,
as determined pursuant to paragraph
(38).
* * * * * * *
(5A) Specificity.--
(A) * * *
(B) Export subsidy.--An export subsidy is a
subsidy that is, in law or in fact, contingent
upon export performance, alone or as 1 of 2 or
more conditions. In the case of a subsidy
relating to a fundamentally undervalued
currency, the fact that the subsidy may also be
provided in circumstances not involving export
shall not, for that reason alone, mean that the
subsidy cannot be considered contingent upon
export performance.
* * * * * * *
(37) Fundamentally undervalued currency.--The
administering authority shall determine that the
currency of a country in which the subject merchandise
is produced is a ``fundamentally undervalued currency''
if--
(A) the government of the country (including
any public entity within the territory of the
country) engages in protracted, large-scale
intervention in one or more foreign exchange
markets during part or all of the 18-month
period that represents the most recent 18
months for which the information required under
paragraph (38) is reasonably available, but
that does not include any period of time later
than the final month in the period of
investigation or the period of review, as
applicable;
(B) the real effective exchange rate of the
currency is undervalued by at least 5 percent,
on average and as calculated under paragraph
(38), relative to the equilibrium real
effective exchange rate for the country's
currency during the 18-month period;
(C) during the 18-month period, the country
has experienced significant and persistent
global current account surpluses; and
(D) during the 18-month period, the foreign
asset reserves held by the government of the
country exceed--
(i) the amount necessary to repay all
debt obligations of the government
falling due within the coming 12
months;
(ii) 20 percent of the country's
money supply, using standard measures
of M2; and
(iii) the value of the country's
imports during the previous 4 months.
(38) Real effective exchange rate undervaluation.--
The calculation of real effective exchange rate
undervaluation, for purposes of paragraph (5)(E)(v) and
paragraph (37), shall--
(A)(i) rely upon, and where appropriate be
the simple average of, the results yielded from
application of the approaches described in the
guidelines of the International Monetary Fund's
Consultative Group on Exchange Rate Issues; or
(ii) if the guidelines of the International
Monetary Fund's Consultative Group on Exchange
Rate Issues are not available, be based on
generally accepted economic and econometric
techniques and methodologies to measure the
level of undervaluation;
(B) rely upon data that are publicly
available, reliable, and compiled and
maintained by the International Monetary Fund
or, if the International Monetary Fund cannot
provide the data, by other international
organizations or by national governments; and
(C) use inflation-adjusted, trade-weighted
exchange rates.
* * * * * * *
ADDITIONAL VIEWS
Although some of us support and some of us oppose H.R.
2378, as modified by the Chairman's amendment in the nature of
a substitute, we all share the following views. First, China's
currency is fundamentally misaligned. We all agree that China
must take prompt action to allow market forces to determine the
value of its currency. Since the Obama Administration took
office, the RMB has appreciated by less than 1.5%. In contrast,
from 2005-2008, under the Bush Administration, the RMB
appreciated by approximately 20%. The lack of progress over the
last 20 months is unacceptable.
WTO-Consistency is Essential
We all agree that any legislative action meant to address
currency undervaluation must be consistent with international
commitments and the overarching values of the multilateral
trading system.\1\ Legislation that is WTO-inconsistent exposes
the United States to WTO-sanctioned retaliation and undoubtedly
does more harm than good. Such legislation would set American
exporters and American workers up for significant legal
retaliation and would inevitably undermine multilateral efforts
to address China's undervalued currency. We cannot credibly
pursue remedies to China's WTO violations if we are acting
inconsistently with our own obligations.
---------------------------------------------------------------------------
\1\We note that while the original version of H.R. 2378 and the
Chairman's amendment in the nature of a substitute apply to any country
that undervalues its currency, the Committee's hearings and legislative
history make clear that China is the primary country of concern.
---------------------------------------------------------------------------
At our hearing on September 16, 2010, Secretary Geithner
emphasized the importance of our compliance with WTO rules,
explaining that legislation must ``be consistent with our
international obligations. We have to be confident that if we
take action under it, it will withstand challenge in the WTO.''
He added, ``If we took action that was inconsistent, that could
be challenged, then China or any other country involved could
then, under the WTO, take additional action that would
disadvantage other U.S. parties, including people completely
unrelated to the underlying case.''
The next day, Ranking Member Camp and Subcommittee on Trade
Ranking Member Brady sent a letter to Ambassador Kirk asking
him whether H.R. 2378, as originally drafted, is WTO
consistent. We are concerned that we still have not received an
answer and that an Administration official was not present
during Committee consideration of the bill to opine on its
consequences and how it would be applied.
Testimony at our hearing on September 15, 2010, clearly
identified pitfalls in the original version of H.R. 2378. At
that hearing, former USTR General Counsel Ira Shapiro expressed
serious doubt about the WTO-consistency of the original bill.
Similarly, in a memorandum that was discussed at length at the
hearing and included in the hearing record, former WTO
Appellate Body Chairman Jim Bacchus warned that legislation
amending the countervailing duty law to require Commerce to
apply antidumping and countervailing duties would likely run
afoul of our WTO obligations. We all believe that H.R. 2378, in
its original form, would have invited WTO-authorized
retaliation against U.S. exports.
Chairman's Substitute Addresses ``On Its Face'' WTO Violations
H.R. 2378, as modified by the Chairman's amendment in the
nature of a substitute, is substantially different than the
bill as introduced and addresses many of the concerns we
expressed over the course of the four hearings this Committee
held this year on China. Those of us who support the bill do so
only because the Chairman took into account the critical issues
that many witnesses and Republican Members raised at our
hearings, especially the importance of ensuring that the
legislation, on its face, is compliant with our WTO
obligations.
At the outset, the Chairman's amendment removes entirely
the antidumping portion of the original bill, which would have
required an adjustment to take account of currency
undervaluation even though the price in the United States
already reflects that undervaluation.
With respect to countervailing duties, the substitute does
not require the Administration to take action that would
violate our obligations, unlike the original version of H.R.
2378, which would have mandated that the Department of Commerce
automatically adjust countervailing duty calculations to
account for a country's currency policy. Instead, the
substitute leaves the decision to impose countervailing duties
entirely in the discretion of the Department of Commerce, as
under current law, allowing Commerce to consider many factors
in determining whether or not a country's currency policy
satisfies the technical definition of an export subsidy. It
does not presuppose an outcome.
In fact, contrary to majority staff testimony at the markup
and other statements by the majority, we are not convinced that
this legislation invalidates Commerce's reasoning to date, in
which Commerce has found that a country's currency policy does
not constitute a countervailable substitute.\2\ Specifically,
we do not believe the fact that the alleged subsidy is
available to non-exporters is the only reason for Commerce to
find that a country's currency policy does not constitute an
export subsidy.
---------------------------------------------------------------------------
\2\See, e.g., Memorandum to Ronald K. Lorentzen Deputy Assistant
Secretary for Import Administration regarding Countervailing Duty
Investigation: Aluminum Extrusions from the People's Republic of China,
August 30, 2010.
---------------------------------------------------------------------------
We also question whether reference to the FSC/ETI decision
made by majority staff during the Committee consideration of
this legislation to justify a finding that currency
undervaluation constitutes a countervailable subsidy is
appropriate here\3\ That case involved a de jure export
contingent subsidy--a subsidy that was written directly into
the law--that is not evident here. Under the ETI regime, the
law specified that a good was required to be sent overseas to
obtain the tax benefit. The same is not true of an exchange
rate regime such as China's. Rather, we would expect that the
WTO would use a de facto analysis, which, as USTR has
previously argued, requires the WTO to evaluate the totality of
the circumstances.\4\ Using such an analysis, it is hard to
imagine that China's currency policy would be considered export
contingent given that anyone who seeks to exchange currency,
whether an exporter, a tourist, an investor, or a Chinese
purchaser of imports, benefits.
---------------------------------------------------------------------------
\3\See Appellate Body Report, United States--Tax Treatment for
``Foreign Sales Corporations''--Recourse to Article 21.5 of the DSU by
the European Communities, WT/DS108/AB/RW, adopted 29 January 2002, DSR
2002:I, 55.
\4\See Panel Report, Australia--Subsidies Provided to Producers and
Exporters of Automotive Leather, WT/DS 126/R, adopted 16 June 1999, DSR
1999:III 951 at paras. 9.50-9.51 (``The United States argues that a
contingent-in-fact export subsidy will exist when actual or anticipated
exportation is merely one of several potential criteria influencing the
bestowal of benefits. Thus, if the totality of the circumstances reveal
that these benefits are signed to promote exports, then such benefits
fall within the broad definition of Article 3.1(a).'').
---------------------------------------------------------------------------
Furthermore, we note that the substitute does not amend the
definition of ``financial contribution,'' another element of
the three-part test applied to determine whether a subsidy is
countervailable. Accordingly, Commerce will continue to analyze
this issue based on current law. At our hearings, we heard from
witnesses who questioned whether China's currency policy
satisfies the definition of ``financial contribution'' because
the exchange rate policy does not effect the government in one
of the ways contemplated under current law, which reflects the
obligations of the WTO Agreement on Subsidies and
Countervailing Measure.\5\ We are not convinced that it does.
---------------------------------------------------------------------------
\5\See Written Testimony of Ira Shapiro Before the Committee on
Ways and Means Hearing on China's Exchange Rate Policy, September 15,
2010. See also Memorandum from James L. Bacchus and Ira Shapiro to Jim
Jarrett, Chairman, International Economic Affairs Policy Group,
National Association of Manufacturers, regarding The Consistency with
the WTO Obligations of the United States of H.R. 1498, the Hunter-Ryan
bill, September 12, 2006.
---------------------------------------------------------------------------
Finally, with respect to the definition of ``benefit,'' the
final element in determining countervailability, we believe
that the Chairman's substitute merely restates the analysis
that Commerce already applies.
We all remain deeply concerned about using the
countervailing duty law to address China's currency policy.
However, while we continue to believe it is potentially
problematic to link the application of countervailing duty laws
to currency undervaluation, the bill does not appear to violate
our WTO obligations on its face. There is reason to believe
that Commerce, in carrying out these provisions should the
Chairman's substitute become law, would exercise its discretion
with respect to countervailing currency policy as it has been
doing, so the risk of an ``as applied'' violation is
substantially reduced.
We also have some concerns with ambiguities in the
legislation. For example, terms like ``significant and
persistent global account surpluses'' in section 2(c) (lines
21-2 of page 3) should be more precisely defined. Similarly,
the legislation would benefit if there were greater clarity
about what data the Department of Commerce should use if IMF
data is not available in section 2(d) (line 9 of page 5).
Commerce should limit its data collection to reputable
multilateral organizations that have well-developed expertise,
like the World Bank, rather than unspecified other
``international organizations.'' In addition, we question
whether the Department of Commerce is the appropriate
Administration agency to determine undervaluation given the
expertise at the Department of the Treasury. We hope that our
concerns will be taken into account should this bill move
forward in the legislative process.
Nevertheless, for those of us that are supportive of the
legislation, we believe that passage of the legislation sends a
clear signal to China that Congress's patience is running out.
Administration Should Improve Multilateral Efforts, A More Effective
Approach
Regardless of whether we support or oppose the legislation,
we all strongly agree that it is time for this Administration
to produce results. Congress has waited patiently for too long.
We firmly believe that the reason that we are considering
currency legislation at all is because this Administration has
not moved aggressively enough to combat China's currency
intervention. The Administration should promptly develop a more
robust plan to aggressively address China's currency policy in
high-level bilateral summits, including the Strategic and
Economic Dialogue, and in multilateral summits, including the
G-20.
In particular, the Administration must find ways to
strengthen and improve its efforts to work with our trading
partners to address global imbalances. We must work with our
partners in Europe, Japan, Brazil, India, and other Asian
countries to set a clear timeline for action. We believe that
the first step is to elevate the issue of global imbalances--
which naturally includes China's currency policy-- and include
it as a key deliverable at the November G-20 meetings in Seoul.
The Administration should also work to establish a robust,
multilateral process--perhaps through the G-20, a G-20 sub-
group, the IMF, or elsewhere--so that other countries,
particularly China's neighbors in Asia, can bring new points of
pressure to bear.
While rebalancing the global economy will take time, the
Administration must begin by developing a timetable for action
and a clear path for achieving its goals. In addition, we call
on the Administration to issue by the statutory deadline its
October report identifying currency manipulators.
Currency Legislation Fails To Resolve More Important Priorities With
China
Opinions vary as to whether this legislation will be
effective in getting China to revalue its currency to reflect
market norms, reduce the trade deficit, and create American
jobs. An undervalued RMB is only one issue that we face in our
complicated trading relationship with China. We all believe
that there are more important priorities in our trading
relationship, and bigger barriers to U.S. exports than China's
undervalued currency. We must assure that efforts to address
China's currency misalignment not undermine our ability to
address with China more pressing issues like intellectual
property rights, indigenous innovation and a host of other non-
tariff barriers that are wreaking havoc on American employers,
their workers, and our economy. Those issues impact a far
broader base of America's job creators, who are trying to sell
American goods and services to a growing Chinese market.
We are frustrated by China's continued bad faith and
aggressive pursuit of protectionist policies that jeopardize
our economic relationship. China must end its policy of
economic nationalism and open its market to American-made goods
and services and American investors. We cannot lose sight of
the more fundamental problems with China's economy that have a
greater impact on our trade balance, including the disturbing
increase in the economic dominance of state-owned enterprises,
the proliferation of non-tariff barriers preventing U.S.
companies from exporting to China, and a growth strategy
dominated by aggressive export expansion without developing a
strong domestic consumption base within China.
We must persuade China, through every tool at our disposal
including our trade laws and our rights under WTO agreements,
to address its woefully inadequate protection of intellectual
property, eliminate subsidies to Chinese companies, remove
harmful ``indigenous innovation'' policies, end its restraints
on exports of raw materials and rare earth minerals, and
eliminate the myriad other barriers to U.S. exports. China must
introduce global best practices into its banking sector, mature
its financial markets, move towards liberalizing its capital
account, and open more comprehensively to foreign direct
investment. It also must do more to ensure that Americans are
not injured by goods with dangerous features or harmful
ingredients.
While some of us support and some of us oppose this
legislation, we all agree that it is time to signal to China
and the Obama Administration that enough is enough. We must
work together to develop an action plan that will promptly
address China's undervalued currency, remove other barriers
that limit U.S. exports, and create American jobs by
establishing new markets for U.S. goods and services.
Majority's Lack of Trade Agenda Is a Lost Opportunity
Finally, we are disappointed that this bill amounts to the
sum total of the majority's trade agenda this Congress: this is
the only trade bill that we have moved to the floor this
Congress under regular order.
This legislation is no substitute for creating new U.S.
jobs by opening markets for U.S. goods and services. While this
legislation addresses an important issue, it will not advance
the goal of doubling exports in five years. We must move
expeditiously on the pending free trade agreements, work harder
to open new markets to our exports, and address our broader
economic issues all over the world and with China, including by
restarting the languishing bilateral investment treaty
negotiations.
Signed:
Dave Camp.
Sam Johnson.
Kevin Brady.
Eric Cantor.
John Linder.
Devin Nunes.
Pat Tiberi.
Ginny Brown-Waite.
Geoff Davis.
Dave Reichert.
Charles Boustany.
Dean Heller.
Peter Roskam.
