(Sandler and Travis)
On June 21, four House
Republicans introduced legislation (HR 3004) that provides for the automatic imposition of additional tariffs on all imported goods from China if the Treasury Department determines that China's exchange rate
policy meets the WTO definition of currency manipulation. Primary sponsor Phil English (PA) said the bill "represents a new approach to the relationship between the executive branch and the Congress on
trade disputes."
According to a joint press release, the Currency Harmonization Initiative through Neutralizing Action (CHINA) Act of 2005 would require Treasury, within 60 days of the bill's
enactment, to report to Congress on whether China's exchange rate policy deviates from the intent of General Agreement on Tariffs and Trade (GATT) 1994 or relevant International Monetary Fund (IMF)
agreements. Article XV of GATT 1994 prohibits WTO members from frustrating the intent of the provisions of that Agreement by exchange rate action or the intent of the IMF Articles of Agreement by trade
action. The IMF prohibits the use of currency manipulation as a method of gaining unfair trade advantage, defining such manipulation as large-scale and protracted intervention in one direction to gain an
unfair trade advantage.
If Treasury makes an affirmative determination, it would be required within 30 days of submitting the report to levy additional tariffs at a rate equal to the percentage of
manipulation found. These increased tariff rates would be adjusted each year based on Treasury's subsequent reports on China's exchange rate policies.
Update:
At a June 23 Senate Finance Committee hearing on U.S.-China economic relations, two senior Bush Administration officials strongly warned lawmakers against imposing trade sanctions on imports from China. The remarks by Federal Reserve Board Chairman Alan Greenspan and Treasury Secretary John Snow were a clear indication that the White House is increasingly concerned about how Congressional frustration with job losses and a soaring trade deficit could manifest itself legislatively. The two men cautioned that actually imposing the punitive actions against China that are being considered in Congress would not only strain bilateral ties but could also hinder regional and multilateral trade liberalization efforts.
Greenspan stated that forcing China to re-value its currency would have little effect on the U.S. economy but that punishing China for failing to take such action could have real, negative
consequences. He asserted that there is "no credible evidence" that a revaluation would "significantly increase manufacturing activity and jobs in the United States;" instead, it would
merely cause production to move from China to other Asian countries and thus do little to reduce overall U.S. imports. Imposing additional tariffs on imports from China would have a similar effect but would
also have much broader ramifications with respect to U.S. and international economic growth. Greenspan warned that such a "return to protectionism" would jeopardize continued increases in domestic
standards of living and send a message to trading partners that the U.S., "while accepting the benefits of broadened world trade, is not willing to absorb the structural adjustments that are often
necessary." This, in turn, could have a detrimental effect on the Doha Round and other market opening efforts.
Snow agreed, emphasizing that while he has "enormous sympathy" with the
concerns lawmakers have expressed about China, "resorting to isolationist trade policies would be ineffective, disruptive to markets and damaging to America's special role as the world's leading
advocate for open markets and fair trade." He stated that any action to impose punitive measures against China "would be counterproductive" and would have the "unintended
consequence" of causing China to delay concrete steps toward currency reform. More importantly, Snow said, "implementation of trade sanctions would lead to retaliatory policies against our exports,
damaging the U.S. and the global economy." |
