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The proposal, drafted by Senator Charles Grassley, the chairman of the powerful Senate Finance Committee, and Max Baucus, the committee’s leading Democrat, would threaten new sanctions against countries that are found to have “currency misalignments” with the US, according to people with knowledge of the proposal.
If a country were found to have a “misalignment”, it would be given six months to move towards a resolution of the problem. If it failed to act, the administration would be required to use a range of sanctions that would include blocking any increase in the country’s voting rights at the International Monetary Fund, and barring the country from receiving insurance and guarantees for US investors offered by the Overseas Private Investment Corporation, a US government agency that supports US companies investing abroad.
The Grassley-Baucus legislation is likely to receive wide support in Congress and is intended in part to draw away support from more draconian legislation that would impose 27.5 per cent tariffs on all Chinese imports to the US.
Senators Charles Schumer and Lindsey Graham, the sponsors of that measure, have scheduled a news conference on Tuesday with John Snow, the US Treasury secretary, at which they are expected to announce a willingness to continue delaying any Senate vote on their proposal. The two senators recently returned from a trip to China.
The US Treasury has angered many lawmakers by refraining from branding China a currency manipulator in its twice-yearly reports to Congress on exchange rates and trade. Frustration has been building in Congress over the administration’s gentle, diplomatic efforts to convince China to revalue its currency.
The proposals by Senators Grassley and Baucus would make it harder to avoid chastising China officially for its currency policies.
Under the current rules, the Treasury has been able to avoid branding China as a currency manipulator because those rules require that a country intends to competitively undervalue a currency. The Treasury has argued that China has not met this very strict definition of a currency manipulator, since it has a fixed currency. Under the proposed new rules, no intent would be required. Instead of using the term “currency manipulator”, the Treasury would be asked to seek out “currency misalignments”.
The existing rules also do not require any immediate action if a country fails to respond to US pressure. When a country is dubbed a “currency manipulator” the Treasury is required only to enter into negotiations with the offending country.
The Grassley-Baucus legislation is also expected to include a range of other measures, including giving US companies hurt by Chinese imports the option of seeking import tariffs if they can prove that their Chinese competitors are receiving government subsidies. Similar legislation was passed in the House of Representatives last year.
The congressional action comes ahead of a visit to Washington next month by Hu Jintao, the Chinese president. China has sent signals that it is willing to respond to US concerns over trade issues such as piracy of US intellectual property, but has said that no significant revaluation of the renminbi is likely in advance of the trip.
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