Oct 4, 2011

Q+A: Senate in fresh attempt at China currency bill


Lawmakers will take aim at one of China's core economic policies on Monday when the Senate begins debating legislation designed to press China to let its currency rise in value in the hope of spurring job creation.

Here are some questions and answers about the debate on China'scurrency policies:
WHY ARE U.S. LAWMAKERS FOCUSING ON THE CHINESE CURRENCY?
Democratic Party lawmakers, with increasing support from Republicans, have argued since 2005 that China fixes the value of its currency too low. The policy keeps Chinese goods artificially cheap, spurring imports of Chinese goods while making U.S. goods more expensive in China, critics say.
In an argument that has gained popularity with the unemployment rate stuck above 9 percent as next year's elections draw near, supporters of the bill say that if Beijing allowed the yuan, or renminbi, to rise more swiftly in value, Chinese imports would fall and exports would rise, creating jobs.
WHAT DOES THE LATEST CURRENCY BILL AIM TO DO?
The Currency Exchange Rate Oversight Reform Act of 2011 instructs the Commerce Department, at the request of a company, to investigate whether a foreign government is subsidizing its companies by undervaluing its currency.
The bill would make it easier for firms to persuade the department to impose countervailing duties against exports from countries with misaligned currencies on a case-by-case basis. It also requires that currency undervaluation be considered for determining anti-dumping duties.
In a provision aimed at China, it requires Treasury to designate certain countries for priority action if they have engaged in "protracted, large-scale intervention" in the currency exchange market or have engaged in "excessive and prolonged" accumulation of foreign exchange reserves.
Federal purchases of goods and services from the country would be prohibited unless the country is a member of the World Trade Organization's Government Procurement Agreement -- a pact China has yet to join.
WHAT STEPS WILL THE SENATE TAKE THIS WEEK?
Sponsors and most observers predict the bill easily will clear a 60-vote procedural vote on Monday evening to begin debate and consider amendments. One of the bill's authors, Democratic Senator Charles Schumer, has voiced confidence the legislation would pass with strong bipartisan support later in the week.
Analysts say a "clean" currency bill -- legislation without unrelated amendments tacked on to win over lawmakers' support -- has a greater likelihood of passing quickly.
WHAT ARE THE CURRENCY BILL'S PROSPECTS?
The bill is widely expected to pass the Democratic-controlled Senate, which would send it to the House of Representatives, a chamber run by traditionally free-trade-friendly Republicans.
Similar legislation passed the House last year with 99 Republicans votes, and supporters have lined up more than 200 co-sponsors for the bill this year -- just short of the 218 that would be needed for passage.
However, it remains unclear whether House Speaker John Boehner and Majority Leader Eric Cantor will bring the bill up for a vote.
Conservative and anti-tax groups that are the main inspiration for the Tea Party movement have come out against the bill and 51 U.S. industry groups wrote Congress warning it would spark a trade war.
President Barack Obama has not taken a formal position on the bill, but since he took office in 2009, the Treasury Department has declined to name China a currency manipulator in five semi-annual reports to Congress. Obama, who has preferred dialogue with China to punitive measures, sent a senior Treasury official to Beijing last week to hold talks.
HOW DOES CHINA VIEW THE CURRENCY DEBATE?
China stridently opposes the bill and rejects outside criticism of its exchange rate as interference in a sovereign policy decision and the politicization of trade issues. China's long-held stance is that the exchange rate was not to blame for the trade imbalance between the two countries or unemployment in the United States.
Chinese officials argue that as a result of exchange-rate-policy changes in 2005 and 2010, the yuan has appreciated about 30 percent. Rising wages and higher inflation in China are further eroding China's comparative advantage.


Source : Reuters

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