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Bipartisan group of fifteen senators call upon Commerce Department to investigate China's currency manipulations
Howard Richman, 3/1/2010

[Here is the text of the letter:]

We write to express our serious concern that the Commerce Department has failed to properly consider allegations that China's manipulation of its currency is a countervailable subsidy. U.S. manufacturers have filed at least 12 allegations - most recently on January 13 in the Coated Paper investigation - that the Chinese government is actively engaged in keeping the value of its currency artificially low to promote the growth of export-oriented industries. We urge the Department to properly consider the allegation and the information provided by petitioners in determining whether to investigate China's actions.

Around mid-July 2008, China abandoned any pretense of letting its currency appreciate. After a few years of modest progress, China's government, once again, has fixed the value of yuan against the dollar and walked away from its commitments to reform its currency policies. The result is continued undervaluation of China's currency - by some estimates as much as 40 percent - and serious economic harm to U.S. manufacturers forced to compete against subsidized Chinese imports.

For example, the value of China's paper and paperboard exports to the United States increased by 21 percent between 2006 and 2008, jumping from $1.9 billion to $2.3 billion. The dramatic increase in exports is due in large part to substantial Chinese government subsidies. Those government subsidies include China's continued devaluation of its currency vis-à-vis the U.S. dollar, a government policy designed to promote and fuel continued growth in export-oriented industries. As senators from key paper product-producing states, we are very concerned that domestic paper manufacturers and paper industry workers are substantially harmed by subsidized Chinese imports.

China's mercantilist policies are undermining the health of many U.S. industries - industries that inject billions of dollars into the U.S. economy and employ hundreds of thousands of American workers. In the face of China's actions to subsidize its exports at the expense of U.S. manufacturers and workers, the Department needs to act.

In a November 19 letter to the Commerce Department, Senators Schumer and Graham urged the Department to give due consideration to allegations that China's currency manipulation is a countervailable subsidy. In your December 22 response, you assured the Senators that subsidy allegations involving China's currency practices would be assessed "no differently than any other subsidy allegation." The lack of agency action on this issue to date suggests otherwise.

Moreover, we are concerned that the agency's failure to investigate China's actions regarding its currency derives from a flawed interpretation of the legal standard for the Department's assessment of a subsidy allegation. According to your December 22 letter, in determining whether to investigate an alleged subsidy, the Department will consider if the allegation demonstrates "whether there is a financial contribution that is specific to an industry or group of industries which confers a benefit" (emphasis added). This is not the statutory standard for assessment of a subsidy allegation.

A subsidy allegation need not prove the elements of the financial contribution, benefit and specificity. Rather, the law requires that the Department initiate an investigation to determine whether a countervailable subsidy is being provided if the domestic industry "alleges" the elements necessary for the imposition of a countervailing duty and provides "information reasonably available" to the domestic industry supporting the allegations (emphasis added). 19 USC 1671a(c)(1)(A)(i) and (2). In other words, an allegation must contain information reasonably available to petitioners with respect to each of the elements of a countervailable subsidy - not definitive proof. The legislative history of the Trade Agreements Act of 1979 confirms this standard and reflects Congress' unequivocal intent that the Department "act upon all petitions which, based upon facts reasonably available to the petitioner, make reasonable allegations of the presence of the elements necessary for the imposition of a countervailing duty." H.R. Rep. No. 317, 96th Cong., 1st Sess. 51 (1979) (emphasis added).

Our review of the 11 Commerce Department determinations not to investigate petitioners' allegations concerning China's currency manipulation suggests that the Department has prejudged the outcome of a subsidy investigation it has yet to do, rather than assessed the sufficiency of the allegation on the basis of "information reasonably available" to petitioners to determine whether to launch an investigation. This is troubling and suggests that the Department is treating allegations involving China's actions on currency differently than it has treated other allegations, including other currency-related allegations involving other countries.

For example, we are aware that the administering authority previously investigated currency-related subsidy allegations in at least three other countervailing duty proceedings involving Mexico, Germany and Uruguay, and contemplated how currency restrictions could constitute a subsidy in the proceeding involving Canada. The fact that the Department and its predecessor agency have previously investigated currency-related subsidies reinforces our belief that the Department knows how to apply the correct legal standard for assessment of a subsidy allegation and has the authority under current law to investigate the most recent series of subsidy allegations involving China's currency manipulation.

There can be no doubt that China's policy of large-scale intervention in the exchange markets and the significant undervaluation of its currency acts as a subsidy to Chinese exports to the United States. We respectfully urge the Department to properly assess the most recent allegation that China's manipulation of its currency is a countervailable subsidy. In its assessment, the Department should give due consideration to whether petitioners have alleged the elements necessary for imposition of a countervailable subsidy and provided information reasonably available in support of their allegation.

During these difficult economic times, it is more critical than ever that the Department take every step possible to address these unfair practices. Assuming petitioners have properly alleged the elements necessary for the imposition of a countervailing duty and provided information reasonably available to petitioners, the Department has an obligation to investigate.

Thank you for your prompt attention to this matter.

Sincerely,

Senators Charles E. Schumer (D-NY), Lindsey Graham (R-SC), Robert Byrd (D-WV), Carl Levin (D-MI), Barbara Mikulski (D-MD), Russ Feingold (D-WI), Susan Collins (R-ME), Olympia Snowe (R-ME), Sam Brownback (R-KS), Jim Bunning (R-KY), Debbie Stabenow (D-MI), Ben Cardin (D-MD), Sherrod Brown (D-OH), Bob Casey (D-PA) and Arlen Specter (D-PA).

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    Wikipedia:

  • [An] extensive argument for balanced trade, and a program to achieve balanced trade is presented in Trading Away Our Future, by Raymond Richman, Howard Richman and Jesse Richman. “A minimum standard for ensuring that trade does benefit all is that trade should be relatively in balance.” [Balanced Trade entry]

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  • [Trading Away Our Future] Examines the costs and benefits of U.S. trade and tax policies. Discusses why trade deficits matter; root of the trade deficit; the “ostrich” and “eagles” attitudes; how to balance trade; taxation of capital gains; the real estate tax; the corporate income tax; solving the low savings problem; how to protect one’s assets; and a program for a strong America....

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  • In Trading Away Our Future   Richman ... advocates the immediate adoption of a set of public policy proposal designed to reduce the trade deficit and increase domestic savings.... the set of public policy proposals is a wake-up call... [February 17, 2009 review by T.H. Cate]