CONGRESSWOMAN ELISE STEFANIK
H.R. 2378 is expected to be considered on the floor of the House on Wednesday, September 29, 2010, likely under a closed rule. If any amendments are made in order by the Committee on Rules, a summary will be distributed when available.
The legislation was introduced by Rep. Tim Ryan (D-OH) on May 13, 2009. The Committee on Ways and Means approved the bill, which was amended by the Chairman’s amendment in the nature of a substitute, by voice vote on September 24, 2010.
As originally drafted, H.R. 2378 would have required the Department of Commerce to adjust its antidumping and countervailing duty calculations to account for an undervalued currency. The revised version, which was voice voted out of the Ways and Means Committee, no longer mandates any such action. The bill does not require any action by the Department of Commerce—which would raise serious concerns under U.S. WTO obligations. Instead, the bill would make two changes to the definitions of “export subsidy” and “benefit conferred,” which should have minimal legal effect.
The bill would clarify that the Department of Commerce can make a finding that a country has used an export subsidy (such as an undervalued currency) even if the subsidy is not limited exclusively to circumstances of export (i.e., when non-exporters may benefit). However, it does not require that Commerce make such a finding.
Requirements for Imposing Countervailing Duty: Under current law, countervailing duties can be imposed when (i) the U.S. industry seeking countervailing duties must also demonstrate that it has been "materially injured" by imports from the country with the undervalued currency; and (ii) the Commerce Department finds that the World Trade Organization (WTO) criteria for an export subsidy have been satisfied, i.e., only if:
• The foreign government's interventions in the currency markets result in a "financial contribution;"
• A "benefit" is thereby conferred; and
• The resulting subsidy is "contingent on export."
H.R. 2378 changes the definitions related to the second two tests, but leaves untouched the definition of “financial contribution.”
Definition of Real Effective Exchange Rate Undervaluation: Under H.R. 2378, the calculation of real effective exchange rate undervaluation would generally be the simple average of the results yielded from application of the approaches described in the guidelines of the International Monetary Fund's Consultative Group on Exchange Rate Issues. The bill mandates that the Department of Commerce use data that are maintained by the IMF, or if the IMF cannot provide the data, by other international organizations and national governments.
GAO Report: Finally, the bill would require the Government Accountability Office (GAO) to report to Congress on the implementation of the measure, including a description of the extent to which U.S. industries have been materially injured by imports of merchandise produced in foreign countries with undervalued currencies.
Possible Member Concerns: Some Members may be concerned that the measure may not affect the trade deficit and may distract from more pressing trade problems with China, such as its lack of intellectual property rights, pursuit of indigenous innovation, restraints on exports of raw materials and rare earth minerals, and program of directed lending, among others.
Some Members may be further concerned that this legislation would essentially represent a new consumption tax on Americans—via tariffs on imports—that would be unwise during the present economic climate, as Ambassador Terry Miller of the Heritage Foundation argues. Additionally, Derek Scissors of the Heritage Foundation notes that, “The extent of the yuan’s misalignment is unclear, and so designing real remedies is almost impossible. More importantly, undervaluation is not a major factor in the bilateral deficit and not a factor at all in the overall trade deficit. And there is very little evidence that the yuan’s undervaluation costs the U.S. a large number of jobs. China is often a poor economic partner, but retaliation aimed at the exchange rate will not fix anything.”
The RMB is the official currency of the People's Republic of China. China artificially suppresses the RMB’s value, making China's exports cheaper than they would be if China allowed its currency to be set by the market. The weaker currency also makes foreign imports into China more expensive. In June 2010, China announced that it would allow the RMB to appreciate for the first time since the middle of 2008. Since then, however, China has allowed the RMB to strengthen less than 2 percent against the dollar.
Some economists believe China's currency policy impedes U.S. economic growth and job creation. Others, however, believe that even if China were forced to allow its currency to appreciate, it would use other protectionist tools to continue its mercantilist policies. China uses a multitude of non-tariff barriers to build "national champion" Chinese companies that compete directly with foreign competitors. For example, in order to enter the Chinese market, foreign companies are often forced to share proprietary technology with domestic Chinese firms, many of whom use the information to compete directly with their foreign "partners."
Under current countervailing duty law, remedial tariffs can be imposed on imports that benefit from foreign government subsidies for export, if it is shown that imports benefitting from those subsidies cause or threaten injury to a U.S. industry producing the same or similar products. To date, however, the Commerce Department has declined to investigate foreign government currency practices as a subsidy ripe for countervailing duties.
Ways and Means Committee Ranking Member Dave Camp (R-MI): “There is no debate that China’s currency is fundamentally misaligned. We all agree that China must take prompt action to allow market forces to determine the value of its currency. But let’s not kid ourselves—there are far larger issues with regard to China and our trade imbalance. The majority has squandered the opportunity to address issues like intellectual property rights, indigenous innovation and a host of other non-tariff barriers that are wreaking havoc on American employers, their workers and our economy…The substitute we are considering today is substantially modified and addresses some of the concerns I and many others have expressed…Rather than tinker at the margin, the Chairman has completely thrown out the troublesome original version of HR 2378. The measure no longer mandates that the Department of Commerce automatically adjust antidumping and countervailing duty calculations to account for China’s currency policy. Rather, it removes the antidumping portion entirely and leaves the countervailing duty decision entirely in the discretion of the Department of Commerce, as under current law…While I remain deeply concerned about using the countervailing duty law to address China’s currency policy, I believe enacting this substitute does not result in such an automatic violation of our WTO obligations…While this legislation addresses an important issue, it will not advance the goal of doubling exports in five years.” (Committee Mark-Up Opening Statement, 9/24/10)
Subcommittee on Trade Ranking Member Kevin Brady (R-TX): “My view is that, on balance, the promises this bill makes to reduce the trade deficit with China and create U.S. jobs are largely unrealized. I’m convinced that where the priority is creating American jobs, a focus on tearing down more substantive barriers to U.S. access to China’s consumers—like protecting U.S. intellectual property rights, directed lending and artificial barriers to farm products—would benefit thousands of more American workers than a focus on China currency alone.” (Committee Mark-Up Opening Statement, 9/24/10)