–Treasury Secretary To Testify To Key House, Senate Panel On FX Report
–Lawmakers Expected To Scold Geithner On Forex Report Released in July
–Congress’s Three Week Fall Session Makes Currency Bill Unlikely

By John Shaw

WASHINGTON (MNI) – Treasury Secretary Tim Geithner will spend most
of next Thursday on Capitol Hill, defending his department’s
international economic and foreign exchange report, and trying to
persuade lawmakers that he is making progress in getting China to reform
its currency.

Geithner will testify Thursday on the Treasury report before the
Senate Banking Committee at 10 a.m. and then again at 2 p.m. before the
House Ways and Means Committee on the same report.

Ironically, the Treasury secretary will be explaining the report
which was due on April 15 but released months late, just weeks before a
new report is due in October.

Geithner is likely to spend next Thursday on the defensive,
explaining Treasury’s Forex report to skeptical lawmakers.

Geithner released his department’s semiannual currency and foreign
exchange on July 8 and it concluded that no major trading partner,
including China, manipulated its currency.

But Geithner vowed to be vigilant in monitoring Chinese currency
reforms which were announced on June 19. “What matters is how far and
how fast the renminbi appreciates,” Geithner said.

“We will closely and regularly monitor the appreciation of the
renminibi and will continue to work towards expanded U.S. export
opportunities in China that support employment in the United States, in
close consultation with Congress,” he added.

The congressional reaction to the Treasury report when it was
released ranged from politely skeptical to derisive. After the report
was released, Senate Banking Committee Chairman Chris Dodd said the
Treasury report told an obvious truth.

“China continues to undervalue its currency,” Dodd said, adding
that his committee would hold a hearing with Geithner to “determine what
solutions we can deliver for American workers so they can secure jobs
and compete.”

Sen. Chuck Schumer, a member of both the Senate Banking and Finance
Committees and a champion of sanctions legislation, called the Treasury
report “as disappointing as it is unsurprising.”

Acting House Ways and Means Committee Chairman Sander Levin said
the report confirmed his view that China is using its currency as a tool
to promote its exports.

“There is no real question that China’s exchange-rate policy is
unfair,” he said, adding that the U.S. should consider taking the matter
to the WTO and arguing its currency is an unfair trade subsidy.

Sen. Chuck Grassley and Sen. Orrin Hatch, the top two Republicans
on the Senate Finance Committee, issued sharp criticisms regarding
Treasury’s decision not to call China a currency manipulator.

“Everyone knows China manipulates its currency,” Grassley said in a
statement. He warned the administration that if it “fails to address it
(China’s currency) in a meaningful way, Congress will have to act.”

Grassley renewed his suggestion that the Obama administration file
a WTO case against China, citing Article XV violations.

Hatch also blasted Treasury’s report. “I’d say this report is
laughable if the consequences weren’t so dire,” Hatch said. He said
Treasury’s failure to call China a currency manipulator was
“weak-kneed.”

The Treasury secretary is almost certain to tell lawmakers that he
shares their frustration with China, but will urge them to hold off on
any legislation this fall.

While some lawmakers want to press ahead now with currency
legislation, they face a daunting, nearly impossible, congressional
schedule.

The House and Senate are scheduled to be in session from Sept 14 to
Oct. 8 before breaking before the mid-term elections.

Analysts have said that Congress is likely to pass stop-gap
legislation that keeps the government fully funded this fall, but very
little else. House Majority Leader Steny Hoyer said in July that the
House could vote on a currency bill this fall.

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

He is co-sponsoring a bill with Sen. Lindsey Graham and four other
senators. 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.

Experts often argue 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.

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

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