Sens. Charles Schumer (Democrat-New York) and Lindsey Graham (Republican-South Carolina) introduced legislation (S. 1254) on 11 June designed to put additional pressure on China to further increase the value of the yuan vis-à-vis the U.S. dollar. The legislation is substantially similar to a bill introduced in June 2007 by these two senators and the Senate Finance Committee leadership. The main difference between the two efforts is that Senate Finance Committee Chairman Max Baucus (Democrat-Montana) and Ranking Republican Chuck Grassley (Iowa) are not co-sponsoring the most recent bill, which strongly indicates that addressing the alleged undervaluation of the yuan will not be a high priority for Congress this year.
Indeed, the probability that this bill will be considered by the Finance Committee, let alone the full Senate, appears to be very slim at the present time. Schumer and Graham have acknowledged that the prospects of naming China a currency manipulator are not good given current global economic conditions, but they hope that legislative action will persuade Beijing to make additional progress in this area. The outlook for this legislation could certainly change next year as the United States and its trade partners emerge from the economic recession, especially if the value of the yuan does not appreciate in any significant fashion.
S. 1254 would require Treasury to identify fundamentally misaligned currencies to Congress twice a year and to classify specific currencies for "priority action" if the misalignment is clearly caused by a foreign government's economic policies. Treasury would be required to consult with countries found to have fundamentally misaligned currencies, to seek the advice of the International Monetary Fund with respect to those countries and to encourage other governments to join the U.S. in seeking to eliminate the misalignment.
The legislation imposes a number of consequences for countries designated for priority action. If such a country fails to take appropriate action within three months, Treasury would have to take the currency misalignment into account when making anti-dumping calculations for products exported from the designated country. Other consequences would include suspension of U.S. government procurement from the designated country, requests for special consultation by the IMF, and the suspension of new financing from the Overseas Private Investment Corporation and multi-lateral development banks for projects in the designated country.
If the designated country fails to take appropriate action to address its misaligned currency within one year, the legislation would require the U.S. Trade Representative to begin dispute settlement proceedings at the World Trade Organisation and require the Treasury Secretary to consult with the Federal Reserve Board and other central banks on undertaking remedial intervention in international currency markets.
The President would be able to waive the bill's consequences if they pose a threat to national security or U.S. economic interests. However, the bill would also increase congressional input by giving members of Congress the ability to override the presidential waiver and by creating a new body - appointed by the President and the leaders of relevant congressional committees - with which Treasury must consult as it identifies misaligned currencies.
