–Senate Finance Chief: Has Been ‘Lack of Balance’ In China’s FX Policy
–Sen Baucus: China’s Recent Steps Have ‘Opened The Door’ For FX Reform
–Sens. Baucus, Schumer Vow New Push On Currency Legislation
–USTR’s Kirk, Commerce’s Locke Say Admin Will Monitor China FX Reform

By John Shaw

WASHINGTON (MNI) – Several senior members of the Senate Finance
Committee said Wednesday that they welcome China’s announced changes in
its currency policy, but believe the U.S. must be vigilant in making
sure major currency reform occurs.

Key lawmakers also said they will revive this summer several
currency bills that are largely directed at China.

In a hearing with Commerce Secretary Gary Locke and U.S. Trade
Representative Ron Kirk, the Finance panel’s chairman, Max Baucus, said
China’s weekend currency announcement “opened the door” for important
changes.

But Baucus said the U.S. needs to make sure these reforms take
hold.

He said he fears the Obama administration has “backtracked” on
currency issues as it has tried to work with China on a range of
“strategic concerns.”

Baucus described China’s weekend currency announcement as “one
little baby step” that is not sufficient. “We got to move more
aggressively … . We got to show them we’re serious,” he said.

Baucus said he is planning to re-introduce currency legislation
that he first introduced several years ago which cleared his panel but
was never taken to the floor of the Senate for a vote.

Sen. Chuck Schumer, a leading proponent of separate currency reform
legislation, dismissed China’s recent currency moves, saying they were
designed only to “fend off pressure” from the U.S. and others.

“We are not placated by this policy announcement,” Schumer said.

Schumer vowed a “serious push” by congressional advocates of
currency legislation, adding that he wants a Senate vote “shortly.”

Schumer is co-sponsoring a bill with Sen. Lindsey Graham and four
other senators. The legislation 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.

But 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 likely administration opposition.

In his testimony, Locke said the administration will be attentive
to the implementation of China’s currency reforms.

He said that Treasury Secretary Tim Geithner “will be closely
monitoring how far and how fast the Chinese let their currency
appreciate and will continue to raise this issue with Chinese
officials.”

Locke later said the administration was “very pleased” with China’s
currency statement, but will remain vigilant.

He added that he expects currency policies to be a “very central
part” of the coming G-20 talks in Toronto.

Kirk also said that China’s announced currency reforms are “not the
end of the discussion.” He said the administration will continue to be
attentive to currency issues with China.

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

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