China commission provides Congress with recommendations on dealing with China

Manufacturing & Technology News, April 7, 2005

The U.S.-China Economic and Security Review Commission (USCC), disputing the Bush administration's contention that progress toward establishing a market-based exchange rate system for China's currency has been adequate, is calling upon Congress to press for a "near-term upward revaluation of the yuan by at least 25 percent."

In a letter to Senate President Pro Tempore Ted Stevens (R-Alaska) and House Speaker Dennis Hastert (R-Ill.), USCC charged that undervaluation of the yuan "has contributed to a loss of U.S. manufacturing," something it called "a national security concern for the United States."

Meanwhile, "despite high-level dialogue" between officials of the two countries, "there has been no concrete movement by the Chinese government to address the undervaluation of its currency," the letter charged.

The first of 10 recommendations that the Commission transmitted to Stevens and Hastert outlined a "three-track policy" aimed to get things moving:

* "Congress should press the Administration to file a WTO dispute regarding China's exchange rate practices"--which, according to USCC, "violate a number of its WTO and IMF membership obligations"--as well as "working with U.S. trading partners to bring to bear on China the mechanisms of all relevant international institutions."

* "Congress should consider imposing an immediate, across-the-board tariff on Chinese imports" that would be "set at a level approximating the impact of the undervalued yuan."

* Through amending the 1988 Omnibus Trade Act, "Congress should reduce the ability of the Treasury Department to use technical definitions to avoid classifying China as a currency manipulator."

In two recommendations that likewise target forms of subsidy, USCC urged Congress to effect the extension of countervailing duties so that they cover imports from China and to order an investigation of subsidies provided by China's government specifically to its manufacturers.

Countervailing duties on Chinese imports cannot be sought by U.S. producers because, under a 20-yearold Department of Commerce practice, their application has not been allowed in the case of nonmarket economies. Pointing out that this practice "is not required by law," USCC urged Congress to direct Commerce to reverse it. Manufacturing subsidies that USCC wants Congress to have Commerce and the U.S. Trade Representative investigate include:

* Tax incentives;

* Preferential access to credit and capital from financial institutions owned or influenced by the state;

* Subsidized utilities; and

* Investment conditions requiring technology transfers.

Among other USCC recommendations are calls to strengthen the enforcement of intellectual property rights, to close loopholes that allow importers of Chinese goods to avoid antidumping duties, to evaluate the WTO's dispute-resolution mechanism, and to continue the practice of transferring payments of anti-dumping duties to U.S. producers that have been harmed by the dumped goods "notwithstanding the WTO determination that it is inconsistent with the WTO agreement."

Summing up the commission's thinking, USCC Chairman Richard D'Amato said in a statement that "it has become increasingly clear that China is not meeting key commitments it made when joining the WTO and that our trade laws have to date been insufficient in addressing these problems.

"In some cases our trade remedies need to be enhanced, in other cases they have been woefully underutilized. The end result has been a trading relationship that is undermining important U.S. economic interests."

USCC's letter to Stevens and Hastert, as well as a separate summary of the commission's recommendations to Congress, are available at www.uscc.gov.