May 10,2006

Grassley: China Report Shows Need for Better Way to Enforce Trade Partners’ Currency Manipulation


To: Reporters and Editors
Re: U.S. Treasury report on China's currency
Da: Wednesday, May 10, 2006

Sen. Chuck Grassley, chairman of the Committee on Finance, today made the following
comment on the U.S. Treasury Department's report that declined to brand China a manipulator of
its currency.

“Everyone knows China isn't allowing market forces to influence the value of its currency.
China just isn't living up to its obligations as a mature economy that's benefitting greatly from open
international trade. The country has made some reforms, but it isn't even letting those reforms work
freely. Today's report from Treasury shows our current law isn't working. And even if the report had
cited China as a currency manipulator, there would've been no real consequences. The next step
would've been to talk more, and we're already talking. So we need to get rid of the entire process of
deciding whether to name a country a currency manipulator and replace it with something better. I've
introduced legislation with Senator Baucus that does just that. Our bill would completely overhaul
our currency oversight laws, which date to 1988. We need more structured engagement when major
currencies are imbalanced, both bilaterally and multilaterally. And, there need to be consequences
if other governments don't fix their imbalances. Our bill accomplishes these necessary goals. I look
forward to working with my colleagues to see this important legislation enacted into law this year."

A summary of the Grassley-Baucus United States Trade Enhancement Act of 2006 follows.
Addressing Today's Trade Concerns:

The United States Trade Enhancement Act of 2006

Senators Chuck Grassley and Max Baucus, Chairman and Ranking Member of the Senate
Finance Committee, introduced legislation on March 28, 2006, to significantly enhance the trade
relations of the United States. The bill has two key elements. One, it addresses sustained imbalances
in currency exchange rates that harm the U.S. economy. The bill represents the most significant
overhaul of U.S. legislation to monitor currency practices since 1988. It puts more teeth in the
enforcement process and imposes hard triggers for action to address misaligned currencies that hurt
the U.S. economy. Two, the legislation bolsters U.S. trade enforcement capabilities to focus on trade
barriers of greatest significance to U.S. manufacturers, farmers, ranchers, innovators, and service
providers. The bill will improve trade enforcement in the Office of the United States Trade
Representative and will enhance congressional oversight of such efforts. To accomplish these
objectives, the Act would:

--Replace current currency provisions with a new regime to give the United States additional tools
to address currencies whose imbalance harms the U.S. economy;

--Require the Secretary of the Treasury to identify fundamentally misaligned currencies that
adversely affect the U.S. economy;

--Provide new tools to address such currencies -- including negotiation, consultations with the
International Monetary Fund (IMF), and opposition to loans and governance changes in international
financial institutions, and create a new Assistant Secretary at the Treasury Department to improve
oversight of currency issues and exchange imbalances;

--Disallow non-market economy countries with harmful, fundamentally misaligned currencies from
achieving market economy status under U.S. antidumping law;

--Require the United States Trade Representative (USTR) to work more closely with Congress to
identify and resolve the most significant market access barriers;

--Create at USTR a Senate-confirmed official to enforce trade commitments; and

--Close the loophole in U.S. trade remedy law that permits new shippers to evade antidumping and
countervailing duties.

Provisions of the Act include:

--Identification of Currencies in Fundamental Misalignment. The Act repeals the outdated 1988
Exchange Rates and International Economic Policy Coordination Act and provides a new mechanism
to address fundamentally misaligned currencies that adversely affect the U.S. economy. These new
provisions would require the Secretary of the Treasury to issue a semi-annual report that identifies
such currencies and take real action to address the imbalance.

--New Levers to Promote Currency Adjustment. For any fundamentally misaligned currency that
adversely affects the U.S. economy, the Act requires negotiation with the country concerned. Should
these fail, the Act authorizes the appropriate U.S. agency to oppose multilateral bank financing,
disapprove loans from the Overseas Private Investment Corporation, refuse to increase an offending
country's voting share in the IMF, and consider such currency in determining whether to grant the
relevant country market economy status.

--Identification of Priority Foreign Country Trade Practices. The Act requires USTR, in close
consultation with Congress, to identify annually the most significant market access and investment
barriers to U.S. companies.

--Other Trade Enforcement Measures. The Act elevates the USTR General Counsel to a Senateconfirmed
position with statutory authority to investigate and resolve trade enforcement cases. It also
suspends the ability of new shippers to post bonds in lieu of cash deposits for the entry of goods
covered by antidumping or countervailing duty orders.