Senate Democrats and Republicans joined forces to overwhelmingly pass legislation to address currency manipulation on October 11, 2011. The bill, known as The Currency Exchange Rate Oversight Reform Act of 2011, is designed to address currency manipulation through a combination of more rigorous oversight and use of traditional trade remedy tools -- including the countervailing duty law -- to address currency undervaluation. Although generally applicable to currency manipulation anywhere in the world, the legislation is very much designed to address China’s currency practices.
The legislation would strengthen oversight of currency manipulation by the U.S. Treasury Department (“Treasury”) and replaces the current standard for what constitutes “manipulation” with a new framework that requires Treasury to identify and combat currency manipulation more aggressively. The bill also would permit investigation of whether currency undervaluation by a foreign government constitutes a countervailable subsidy. Other key elements of the legislation include a more robust requirement for Treasury to inform Congress of misaligned currencies that could ultimately lead to the request for dispute settlement consultations in the World Trade Organization (“WTO”) absent appropriate elimination of currency practices by the country in question.
The bill’s prospects for passage are uncertain. House Republican leaders have given no indication that the bill will be considered in that chamber, and the Obama Administration has also signaled its concerns about whether certain aspects of the bill meet the international trade obligations of the United States. These attitudes and positions do not bode well for the legislation, although this is a fluid situation. For example, Republican presidential candidate Mitt Romney stated recently his intent on his first day in office to direct the U.S. Department of Commerce (“Commerce”) to assess countervailing duties on Chinese imports if China fails to move quickly to float its currency. He also has stated his belief that no new legislation is required to proceed in this manner. Thus, it is possible that many of the bill’s objectives may be realized even in the absence of final passage, though thus far the Obama Administration has declined to take the necessary steps.
The spotlight on China’s currency practices will continue to intensify. China’s currency practices have been at issue in multiple investigations, although, to date, Commerce has declined to initiate a countervailing duty investigation of currency undervaluation practices despite the presentation of information to initiate such an investigation. As a result, even if The Currency Exchange Rate Oversight Reform Act of 2011 does not become law as a stand-alone bill, it is possible that certain elements of the legislation could be implemented through trade remedy proceedings or other means should the U.S. trade agencies modify their practices.
U.S. manufacturers are not alone in attempting to deal with China’s currency practices. Brazil has undertaken an initiative designed to spark a currency discussion at the WTO. Mexican steel producers are urging the government of Mexico to place currency issues on the agenda of the 2012 G-20 summit, which will take place in Mexico. In sum, this issue will be front and center around the world for months to come