Color on the Currency Reform for Fair Trade Act

The US House Ways and Means Committee approved the Currency Reform for Fair Trade Act before the weekend. The full House of Representatives will vote on the measure, and likely approve it on Wed. It then goes to the Senate. The Senate version is a bit different and would need to be reconciled with the House version, if it passed the Senate. The word from Washington is that the Senate is less inclined to take up the measure before leaving for the pre-election recess on Oct 10.

The bill would allow US companies to petition for higher duties on imports from China to compensate for an under-valued Chinese yuan. The bill sponsors appear to have altered the wording to increase the likelihood that it is compliant with the WTO treaty. It does not automatically allow for countervailing duties because the yuan is under-valued. Instead, it is to be decided on a case-by-case basis by the Commerce Dept.

Recall that last month the Commerce Dept rejected precisely such claims by the paper and aluminum industries seeking countervailing duties. A weak currency, it found, is not a subsidy to a specific industry as required under WTO. The Obama Administration has not taken a position yet on the bill. The legislation is thought to make easier to demonstrate harm and more difficult for Commerce to reject the claims. It could be embarrassing and ultimately self-defeating if US efforts to enforce fair trade with China get ruled illegal by the WTO.

Over the weekend China imposed anti-dumping duties of as much as 105.4% on chicken broiler products, claiming that the subsidized feed is unfair subsidy. China did not just pick this out of the air. Six months ago its initial investigation uncovered this issue and in late August additional discussions were held. Tyson, for example, faces a 50.3% tariff and Pilgrim Pride’s tariff is 53.4%, according to initial reports.

Unlike when the US was confronting Japan on numerous trade issues, China has allies in the US. Caterpillar, Wal-mart and Cii, for example argued against the House bill. Recall that around half of China’s manufacturing exports come from companies with multinational businesses.

As the US Trade Representative Office has made clear, the US-China trade tensions run well beyond the currency to intellectual property rights, favoring domestic producers, and the large role of the state in various companies.