Grassley, Baucus Seek To Force China's Hand On Currency.

Navigation: Main page

Author: Vaughan, Martin

Trade

Senate Finance Chairman Grassley and ranking member Max Baucus, D-Mont., weighed in today with a proposal to force China and other countries to stop intervening in exchange rates in a way that undermines market forces. At the same time, Sens. Charles Schumer, D-N.Y., and Lindsey Graham, R-S.C., again backed down from their threat to force a vote on separate China currency legislation by this Friday, postponing that deadline until Sept. 29. Grassley and Baucus put forward their proposal in part as an alternative to the Schumer-Graham bill, which they believe would violate U.S. global trade commitments. "Sen. Baucus and I hope our bill will offer an outlet for the frustration of many of our colleagues over trading partners that don't meet their obligations," Grassley said at a news conference announcing the legislation. But both senators said that, regardless of the fate of the Schumer-Graham bill, they will seek to move their legislation ahead. "We're moving this bill forward, because it's the right thing to do," said Baucus. "We believe that this is a fair, more comprehensive, more balanced approach to deal with currency imbalances." They declined to provide a specific time frame for action on the bill.

The Grassley-Baucus bill would apply to any country whose currency is not in line with the market, not just China. It would replace the current Treasury Department system for identifying exchange rate problems abroad, and provide specific consequences for countries that Treasury finds do not value their currencies fairly. While Treasury now must determine whether a country is manipulating its currency to gain a trade advantage, the Grassley-Baucus bill would require Treasury to determine if a currency is "fundamentally misaligned" and if that misalignment causes a "material adverse impact" to the U.S. economy. That finding would trigger a negotiation with Treasury officials aimed at correcting the currency imbalance; if negotiations were unsuccessful, the United States would oppose new loans from international institutions like the International Monetary Fund, the country would become ineligible for Overseas Private Investment Corporation insurance, and the United States would retain non-market economy status for the country in the application of antidumping laws. "Current law essentially asks 'Now what?' Our bill says, 'Do this,'" said Grassley.

Schumer and Graham announced the postponement of the vote on their bill after meeting with Treasury Secretary Snow today. "We're keeping our legislation at the ready so that if progress should not be made, we can introduce it," Schumer said. Still, Schumer and Graham said that, based on their meetings with Chinese officials in China last week, they believe China is committed to gradually moving the yuan to a market-based float. They credited their legislation, and Snow's efforts at diplomacy, with a 3 percent appreciation in the yuan's value since last July. "On certain days, we were the 'bad cop' and [Treasury officials] were the 'good cop,'" said Schumer. Graham said the legislation still provides plenty of leverage to spur further action on the yuan, despite the series of postponements. "If we ever have to take this vote, we can look every colleague on the floor in the eye and say we have done everything in our power. We are stronger, not weaker because of this delay," he said.

~~~~~~~~

By Martin Vaughan