House Ways and Means Passes China Currency Bill

The House Committee on Ways and Means has approved critical legislation to address China’s fundamental undervaluation of its currency.  The Committee adopted an Amendment in the Nature of a Substitute to H.R. 2378, the Currency Reform for Fair Trade Act, offered by Chairman Sander M. Levin (D-MI), who led the body in pressing for passage of this bill to hold China accountable and enforce the rules of international trade.

“Today’s passage signals an important advance in U.S. trade policy,” said Chairman Levin.  “By taking a stand today, this Committee takes the lead in standing up for American workers and businesses, and holding China accountable for the manipulation of its currency.  The measures included in this bill provide the Administration with additional tools for enforcing the rules of trade and are consistent with our WTO obligations.  It will also bolster the Administration’s efforts to bring about a multilateral framework for addressing this global issue.  I look forward to working with my colleagues to bring this measure before the House for a vote.”

According to the Committee, the most important element of the bill, as amended, reverses a long-standing Commerce Department practice that is far more restrictive than required under U.S. law and WTO disciplines. Specifically, in the past, Commerce has resisted finding an export subsidy if the subsidy is not limited exclusively to circumstances of export (i.e., when non-exporters may benefit). The Currency Reform for Fair Trade Act, as amended, precludes Commerce from imposing this bright-line rule and, instead, requires Commerce to consider all the facts in making its determination of export contingency, according to the Committee.

The Currency Reform for Fair Trade Act, as amended, also provides important guidance to Commerce in assessing whether a “benefit” exists in circumstances involving material currency undervaluation resulting from government intervention. Specifically, the Commerce Department is directed to assess “benefit” in terms of the additional currency the exporter receives as a result of the undervaluation and to use widely-accepted IMF methods for determining the level of undervaluation.

In all cases, however, the Act, as amended, preserves Commerce’s authority – and responsibility – to consider each case on its facts and make a determination as to whether all the necessary legal elements of an export subsidy are met.

As amended, H.R. 2378 is WTO-consistent because countervailing duties may only be imposed when Commerce finds, based on an assessment of all the facts, that the WTO criteria for an export subsidy have been satisfied, i.e., only if: (1) the foreign government’s interventions in the currency markets result in a “financial contribution”; (2) a “benefit” is thereby conferred; and (3) the resulting subsidy is “contingent on export,” the Committee explained.

The key element of the amended bill – indicating to Commerce that it may no longer dismiss a claim based on the single fact that a subsidy is available in circumstances in addition to export – is consistent with WTO precedent. One relevant case is the U.S.-FSC case, which expressly stated that a subsidy may still be export contingent, even if it is available in some circumstances that do not involve export.

Importantly, the amended bill does not legislatively “deem” that a finding of fundamental currency undervaluation satisfies the requirement of export contingency, as the original bill did. With the elimination of this requirement, as well as other changes, the amended bill avoids the WTO vulnerabilities that may have been attributed to earlier versions of the legislation.

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