–Despite Vows, Sen. Schumer Has Yet To Offer His Plan On Senate Floor
–Senate Finance Chief Baucus Says He Will Reintroduce His 2007 Bill
–Packed Hill Agenda, Limited Calendar Complicate Any Legislative Bid

By John Shaw

WASHINGTON (MNI) – Despite frequent examples of overheated rhetoric
and sweeping hyperbole in Congress, important moments sometimes occur
quietly on Capitol Hill.

So it was that during the final moments of a two-hour hearing on
June 23 in the Senate Finance Committee on U.S.-China economic
relations, Sen. Max Baucus, the chairman of the panel, noted almost in
passing that he is going to reintroduce his currency bill from 2007.

Analysts trying to decode what Baucus is up to on the matter
speculated that he is trying to send a signal to Sen. Chuck Schumer that
Baucus, as chairman of the powerful committee, will set the agenda on
currency legislation, not Schumer.

A different speculation is that Baucus, perhaps working in concert
with the White House, is trying to slow down any effort to move a
currency bill this year.

As chairman of the Finance panel and the author of legislation,
Baucus could take his time to schedule hearings, re-examine the bill
carefully, and then hold a mark-up session.

This would have effect of effectively running out the clock for
this year, deferring a difficult and controversial issue until next year
while also appearing to work diligently on the bill.

Baucus was the lead sponsor of a bill was approved in July of 2007
by the Finance Committee. It provided a new framework for Treasury to
identify currencies that are in fundamental misalignment with the dollar
and to take steps to correct the problem.

It set aside U.S. law’s use of the “manipulation” concept and would
require Treasury to identify currencies that are “fundamentally
misaligned.” In those cases in which the misalignment is the result of
clear government policies, those countries would be subject to an
increasingly tough range of actions, ranging from bilateral
consultations with the U.S. to legal action in the World Trade
Organization.

The bill was approved by the Finance panel on a 20 to 1 vote.
Around the same time, a separate bill was approved by the Senate Banking
Committee. Efforts to craft a single Senate bill faltered and the matter
was dropped as lawmakers turned their attention to the coming housing
crisis and economic meltdown.

Schumer, a leading proponent of China currency legislation, has
repeatedly vowed this year to make a “serious push” on a currency bill.

He is co-sponsoring a bill with Sen. Lindsey Graham and four other
senators. The legislation is similar to the bill developed by Baucus. It
would compel Treasury to report to Congress biannually on what nations
have “fundamentally misaligned currencies” with the U.S.

If those countries, after having been identified by Treasury, do
not address this issue within 90 days, the administration would be
required to take action at the International Monetary Fund and end
federal procurement regarding these nations.

After 360 days, the U.S. Trade Representative would be required to
request dispute settlement proceedings at the World Trade Organization.

If the Commerce Department ruled that this currency imbalance
amounted to an impermissible subsidy, it could open the door to the
imposition of countervailing duties on Chinese imports on a
product-specific basis. It could also lead to anti-dumping remedies
being applied to products from China.

A number of experts have argued that using countervailing duty and
anti-dumping measures to punish China for its exchange rate policies
would be ruled illegal by the WTO.

Even this legislation, if enacted, would be far less draconian than
the bill Schumer drafted in 2005 that would have imposed a 27.5%
retaliatory tariff on Chinese imports if China failed to significantly
revalue its currency.

Schumer has said that he is inclined to propose his new approach as
an amendment to legislation that is moving through Congress. But so far
he has been unable or unwilling to offer his amendment. The Obama
administration has reportedly urged him not to push his plan as an
amendment, perhaps fearing it might pass with little scrutiny.

Treasury is expected to release its much awaited semi-annual
international economic and foreign exchange report in the coming days.

Several congressional panels are likely to call Treasury Secretary
Tim Geithner to testify on the report.

So it’s far from clear that either the House or Senate will pass a
currency bill this year given a packed agenda, a limited congressional
calendar and administration opposition.

Congress will only be in session for about three weeks in July and
then most of September before adjourning before the November elections.

** Market News International Washington Bureau: 202-371-2121 **

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