US pass on China currency stirs Senate action
(Reuters)Updated: 2007-06-15 14:42
U.S. senators unveiled a long-awaited bill on Wednesday boosting pressure on China to let its currency rise in value after the U.S. Treasury declined to brand the "undervalued" yuan a deliberate trade ploy.
The bill reflects growing frustration in Congress over the huge U.S. trade deficit with China, which hit a record $233 billion in 2006. Many lawmakers believe China's currency practices contribute to the deficit by giving Chinese companies an unfair price advantage in trade.
By setting out remedies up to and including potential coordinated currency intervention by the Federal Reserve and other central banks, the Senate proposal represents a rejection of Treasury Secretary Henry Paulson's efforts to get China to change through persuasion, not legislation.
The bill also potentially allows U.S. companies to seek anti-dumping duties on Chinese goods to offset the price advantage of Beijing's currency policies.
The legislation was crafted by Senate Finance Committee Chairman Max Baucus, a Montana Democrat; Sen. Charles Grassley, an Iowa Republican; Sen. Charles Schumer, a New York Democrat, and Sen. Lindsey Graham, a South Carolina Republican, who pledged last year to pursue a tough bill to pressure China without violating World Trade Organization rules.
In July 2005, China abandoned a decade-long policy of holding the value of the yuan, or renminbi (RMB), fixed against the U.S. dollar, revaluing it by 2.1 percent. Since then, however, it has risen only about 6 percent.
Treasury noted China's currency was "undervalued," but said it was "unable to determine that China's exchange rate policy was carried out for the purpose of preventing effective balance of payments adjustment or gaining unfair competitive advantage in international trade."
Schumer called that decision "mind-boggling," while Baucus said it showed U.S. currency policy was badly outdated and needed the overhaul the senators have proposed.
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