Page 2 of 2 China, US in search of a
level playing field By Benjamin A Shobert
trade legislation was not a
priority under the last leadership, and Congress
is fired up to work on these issues."
Those rare moments when both parties agree
that a matter is serious enough to warrant
legislation typically result in real movement on
issues previously allowed to stagnate. The
alignment of genuine bipartisan support for the
FCA, coupled with
a
coalition including organized labor and America's
manufacturers, suggests that legislative action is
likely on the question of China's currency
manipulation.
In its current form, the FCA
would make four changes to US law.
First,
even non-market-economy countries would be subject
to the countervailing-duty law (a countervailing
duty is one applied in an amount equal to the
amount of the currency manipulation in question).
This would make it difficult, if not impossible,
to argue on China's behalf that it is a non-market
economy and as such subject to a relaxed set of
standards.
Ryan's spokesman was quick to
point out, "The Chinese currency is used as a
model. The FCA is aimed at any currency that is
not properly valued." Currency manipulation is not
a new concern or one unique to China: the US
Treasury Department found that from 1988 to 1994,
China violated the currency-manipulation
provisions within the 1988 Trade Act five times,
while Taiwan was guilty on four occasions and
South Korea three.
Second, if a government
undervalues its currency, this is classified as a
"prohibited export subsidy", with the ensuing
consequences that would then apply.
Third,
as Ryan said in his March 29 testimony at the
US-China Economics and Security Review Commission,
the FCA "instructs the US International Trade
Commission to evaluate whether exchange-rate
misalignment exists in determining if market
disruption is present ... If market disruption is
found, the president may 'proclaim increased
duties or other import restrictions' with China
'for such period as the president considers
necessary to prevent or remedy the market
disruption'."
Fourth, the Treasury
Department's semi-annual reporting on currency
manipulation is to be "modernized".
When
currency manipulation is suspected, the impacted
companies (either as an individual entity or a
larger group) file a complaint with the Department
of Commerce. The department then evaluates whether
currency manipulation has negatively impacted the
group in question. If this is found to be the
case, a countervailing duty is applied to imports
from the country in question within the industry
sector of concern.
The specter of
protectionism inevitably finds its way to those
opposed to the FCA; however, advocates of the bill
such as the China Currency Coalition of Washington
are quick to state that what they desire is a
level playing field, which Beijing's artificially
low currency valuation makes impossible.
In response to the accusation that the FCA
is a protectionist tactic, the group says: "It is
actually countervailable subsidies themselves,
most flagrantly export-contingent subsidies, that
are protectionist by virtue of their hampering
healthy, unimpeded trade that is responsive to the
dictates of the marketplace."
The group
goes on to say, "Equally with all other WTO
members, China bound itself under public
international law ... when China jointed the WTO
in December 2001 ... The FCA's provisions treating
undervalued exchange-rate misalignment as a
prohibited countervailable export subsidy are
designed to implement in US domestic law the WTO's
public international legal rules."
The FCA
is a limited device, designed to focus
specifically on China's manipulation of its
currency. While important, this issue has to be
seen within the broader context of China's
mercantilism: its nexus of government, business
and banking, which creates a significant portion
of the country's unfair competitive advantage.
A Treasury Department report illustrated
how incestuous China's currency policies can be by
showing that the capital controls employed by
China include: "forced repatriation of profits,
households' access to foreign exchange curtailed,
open market operations to 'sterilize' excess yuan,
increasing banking-sector reserve requirements,
foreign-exchange surrender requirements, [and]
restrictions on foreign-exchange holdings".
The FCA cannot speak toward China's
internal policies, it can only elevate the role
currency manipulation plays in the country's
competitive advantage and empower Washington to
act if such manipulation creates an unfair
benefit, with the hope Beijing will adjust its
policies accordingly.
It is unlikely
Beijing will be the only player resisting the FCA
as it attempts to make its way toward law; the
administration of President George W Bush will
almost certainly fight passage of the bill. The
AFL-CIO stated in support of the FCA: "The Bush
administration also has rejected bipartisan calls
from Congress to act, claiming it can't pinpoint
any 'technical' violations of international
currency rules."
This raises a number of
questions, how hard the administration is looking
being the easiest to ask; however, the deeper and
more problematic question is whether the FCA
represents a threat to upset the apple cart of
expectations between the US and China.
More troubling still is the sense that
legislation like the FCA threatens the welfare of
large corporations such as Wal-Mart, which must
see a revalued yuan as potentially devastating to
their businesses' profitability. It might be
necessary to go back several generations to find a
time when the disconnect between policies that
helped big business were so deleterious in their
impact to the average American and the small
businesses that have historically embodied the
American dream.
Yes, the FCA is just one
bill in a growing body of newly proposed
legislation that seeks to hold China more
accountable to its treaty obligations than past US
Congresses and presidents have been willing to do.
And how the FCA is greeted by Congress as a whole
and the Bush administration in part will reflect
not only the policies embodied within the bill
itself, it will explore much deeper disconnects
between the disparate needs of two parts of the
US: not its citizens and its business community,
but between two parts of business, one small and
one large, one relying on an undervalued Chinese
currency, and another determined to play fair or
not to play at all.
Benjamin A
Shobert is the managing director of Teleos Inc
(www.teleos-inc.com), a consulting firm dedicated
to helping Asian businesses bring innovative
technologies into the North American market.
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