New Legislation on Foreign Currency Manipulation (Treasury Finds no Currency Manipulation by China)

In addition, Senators Dodd and Shelby announced on June 12, 2007 that they would be introducing their own legislation, the Currency Reform and Financial Markets Access Act of 2007¹, to combat currency manipulation.

The timing of this new legislation coincides with the Treasury Department's semi-annual report on currency manipulation, which concluded that no country - including China - fit within the criteria for designation as a currency manipulator.

Bill on Misaligned Currency

Highlights of S. 1607 include (partial list):

Treasury required to identify "fundamentally misaligned" instead of "manipulated" currencies. S. 1607 would require Treasury to report biannually on misaligned currencies instead of manipulated currencies as is currently the practice. Treasury would identify two categories of currencies: i) fundamentally misaligned currencies and ii) fundamentally misaligned currencies "for priority action" (priority currencies). For all countries cited, Treasury would engage in immediate consultations, and for priority currencies, Treasury would seek advice from the International Monetary Fund (IMF) and from key trading partners.

Antidumping and other consequences for priority currencies.Immediately upon designation as a priority currency, the U.S. would take the priority currency designation into account when determining whether to grant that country market economy status for purpose of AD law. The U.S. would also oppose IMF governance changes that benefit the country with the priority currency.

After 180 days of failure to adopt appropriate policies, the U.S. would reflect currency undervaluation in dumping calculations for products produced or manufactured in the designated country, suspend loans and private insurance from the Overseas Private Investment Corporation (OPIC) to U.S. companies wishing to operate in that nation, etc.

After 360 days of failure to adopt appropriate policies, additional consequences would take effect, including requiring the U.S. Trade Representative to request WTO dispute settlement consultations regarding the currency problem, etc.

Temporary Presidential waiver of consequences, etc. The President would initially be able to waive the consequences after the first 180 days if such action would harm national security or the vital economic interests of the U.S. Members of Congress would be able to introduce a disapproval resolution concerning the President's waiver, provide input to Treasury, etc.

Bill on Manipulated Currency

Highlights of the Dodd-Shelby proposal¹ include (partial list):

Definition of "currency manipulation" would be strengthened. The Dodd-Shelby proposal would strengthen Treasury's definition of currency manipulation to identify countries that have both a material global current account surplus and a significant bilateral trade surplus with the U.S. as currency manipulators, without regard to intent.

Treasury required to report to Congress on plan to remedy manipulation. Treasury would be required to submit a plan of action to the Congress within 30 days of a finding of manipulation including specific timeframes and benchmarks, with the goal of remedying the manipulation. Treasury would be required to engage in bilateral and multilateral negotiations with countries that manipulate their currency, immediately seek IMF consultations when manipulation is found, and use Treasury's voice and vote at the IMF to that end. Treasury would also be given the authority to file a WTO Article XV case to remedy currency manipulation if the goals and benchmarks were not met within nine months.

Congress could disapprove Treasury finding of no manipulation. The proposal would create a process by which Congress could originate a joint resolution of disapproval when Treasury fails to cite manipulation.

(Note that in the last Congress, Senators Schumer and Graham introduced foreign currency legislation (which never passed) which called for the imposition of an additional 27.5% duty on all imports from China unless the President certified that China was no longer acquiring foreign exchange reserves to prevent the appreciation of its exchange rate with the U.S. dollar. See ITT's Online Archives or 07/08/05 and 09/26/06 news, 05070805 and 06092699 1, for BP summaries of the previous Schumer-Graham bill.)

Treasury's Report Finds No Currency Manipulation by China

On June 13, 2007, Treasury released its semi-annual report to Congress which found that under current law, no country fit within the criteria for designation as a currency manipulator. Treasury concluded that although the Chinese currency is undervalued, China did not meet the technical requirements for designation under the terms of Section 3004 of the Omnibus Trade and Competitiveness Act of 1988 during the period under consideration.

¹ The Dodd-Shelby proposal has been put into bill format, but has not yet been introduced

(See ITT's Online Archives or 05/29/07 news, 07052999 2, for BP summary of U.S. and China's Strategic Economic Dialogue ending with no breakthrough on currency issues.

See ITT's Online Archives or 06/12/07 news, 07061299 1, for BP summary of expected new bills regarding China's undervalued currency.)

U.S. Senate Committee on Finance press release, dated 06/13/07, available at http://finance.senate.gov/press/Bpress/2007press/prb061307.pdf

U.S. Senate Committee on Banking, Housing, and Urban Affairs press release, dated 06/12/07, available at http://www.banking.senate.gov/index.cfm?FuseAction=PressReleases.Detail&PressRelease_id=234&Month=6&Year=2007

Treasury report to Congress on International Economic and Exchange Rate Policies, dated June 2007, available at http://www.treasury.gov/offices/international-affairs/economic-exchange-rates/