Industry News

China Currency Bill Approved, Heads for Floor Vote in the House

September 27, 2010


On September 24, 2010 the House Ways and Means Committee approved the Currency Reform for Fair Trade Act (H.R. 2378), clearing the way for a floor vote on the bill sometime this week. Ways and Means Chairman Sander Levin (D-MI) noted during the Committee markup session that the original bill had bi-partisan support from 155 co-sponsors. Chairman Levin also said that he expects support for the bill to grow due to changes made by the committee to make it “consistent” with World Trade Organization Criteria.

As currently written, H.R. 2378 would amend U.S. countervailing duty law under 19 USC 1677 to allow countervailing duties to be imposed to address subsidies related to a “fundamentally undervalued currency.” The bill would consider a currency to be a “fundamentally undervalued currency” for CV duty purposes, if during an 18 month period, the following criteria were met:

·         Large-scale gov’t intervention in foreign exchange markets - the government of the country (including any public entity within the territory of the country) engages in protracted, large-scale intervention in one or more foreign exchange markets;

·         Currency undervalued 5% for 18 months - the real effective exchange rate of the currency is undervalued by at least 5 percent, on average (see bill for description of how this would be determined);

·         Persistent current account surpluses - the country has experienced significant and persistent global current account surpluses; and

·         Reserves exceed certain thresholds - the foreign asset reserves held by the government of the country exceed certain amounts.

 

The bill would also expand the definition of “export subsidy” under 19 USC 1677(5A)(B) by stating that in the case of a subsidy relating to a fundamentally undervalued currency the fact that the subsidy may also be provided in circumstances not involving export shall not, for that reason alone, mean that the subsidy cannot be considered contingent upon export performance to encourage the further analysis by the International Trade Administration (ITA).

Under the bill, the benefit of a “fundamentally undervalued currency” would be the difference between the amount of the fundamentally undervalued currency that was provided and the amount of the currency that would have been provided if the exchange rate were not undervalued.