Sept. 16 (Bloomberg) -- The Obama administration, facing growing complaints in Washington that it hasn’t persuaded China to increase the value of its currency, filed two trade cases against the world’s largest exporter of goods.
The complaints at the World Trade Organization yesterday -- one on payment-processing companies and the other on steel duties -- followed demands in Congress hours earlier that the U.S. push China to accept a stronger yuan. Today, Treasury Secretary Timothy F. Geithner is scheduled to appear before the same lawmakers to discuss China’s trade and its currency.
“People are losing patience as economic conditions here don’t improve and China says they will make changes, and then they don’t,” William Reinsch, the president of the Washington-based National Foreign Trade Council, said in an interview. “The currency debate has taken on a life of its own, and I don’t think the WTO cases will stop that.”
Economists such as C. Fred Bergsten of the Peterson Institute for International Economics in Washington say China’s purchase of dollars has depressed the value of its currency by as much as 25 percent, adding as much as $500 billion to its current-account surplus and cutting U.S. growth and employment.
“China’s exchange-rate policy is one of China’s most mercantilist policies that distorts trade and investment,” Representative Sander Levin, a Michigan Democrat and chairman of the House Ways and Means Committee, said at a hearing of his panel yesterday.
While his fellow Democrats called for legislation to increase tariffs on imports of some products from China to compensate for the weak currency, Levin said he wants Obama to file a WTO case against China on the issue and said he would consider legislation only after hearing Geithner’s testimony. Geithner is also scheduled to testify today to the Senate Banking Committee.
The U.S isn’t satisfied with the pace of yuan appreciation and is considering ways to encourage China to let the currency rise faster, Geithner plans to tell lawmakers.
“We are concerned, as are many of China’s trading partners, that the pace of appreciation has been too slow and the extent of appreciation too limited,” Geithner said in testimony prepared for the Senate panel. “We are examining the important question of what mix of tools, those available to the United States and multilateral approaches, might help encourage the Chinese authorities to move more quickly.”
Lobbyists for business groups that oppose the bill, such as Christopher Wenk of the U.S. Chamber of Commerce, predict the House of Representatives will pass some type of China measure before leaving to campaign for re-election next month.
The filing of the complaints yesterday wasn’t related to pressure from lawmakers or to the hearings, said Carol Guthrie, a spokeswoman for the U.S. Trade Representative’s office. “We file cases when they are ready,” she said.
$723 Billion Market
The payment-processing case involves companies such as Visa Inc. and MasterCard Inc. China doesn’t let foreign companies issue their own bank cards denominated in its currency, build networks to support such cards or process interbank point-of-sale transactions. Foreign banks must “co-brand” with Chinese operators to supply these services and execute payments through Shanghai-based China UnionPay Data Co.
Those rules run counter to the pledge China made when it joined the WTO in 2001 to open up its credit- and debit-card market to foreign processing companies by the end of 2006, according to the U.S. complaint.
China “did not make any commitment regarding the supply of payments and clearing services by foreign non-financial institutions” when it joined the trade arbiter, the Chinese government said in a statement at a WTO meeting in 2007.
Payment-processing in China is a $723 billion business, Terry Xie, an analyst with Mercator Advisory Group, a research firm in Maynard, Massachusetts, said earlier this year. China will overtake the U.S. as the largest market for credit cards by 2020 with 900 million cards in circulation, MasterCard says.
The steel case involves dumping and countervailing duties China has placed on flat-rolled steel, which is made by companies such as AK Steel Holding Corp., the third-largest U.S. steelmaker.
Last December, China, the world’s biggest steel market, said it would impose anti-dumping and subsidy duties of as much as 25 percent on flat-rolled electrical steel products, used in transformers, reactors and electric machines.
China didn’t follow WTO procedures by failing to disclose the facts underlying its legal conclusions and not explaining its calculations, according to the U.S.
China will “carefully study” the two requests for consultation and will handle the issue according to WTO’s dispute settlement procedures, the Ministry of Commerce said in a faxed statement today.
China’s measures related to bank cards’ electronic processing abide by commitments to the World Trade Organization, the statement said.
“China’s imposition of anti-dumping duties on the relevant American electrical steel was based on a sound investigation,” Wang Baodong, a spokesman for the Chinese Embassy in Washington, said in an e-mail. “China will continue to faithfully implement its WTO obligations and at the same time firmly defend its legitimate rights.”
Under the rules of the WTO, a filing begins a 60-day period of mandatory consultations between officials from the two nations. After that the U.S. can request a WTO panel of judges to rule on the matter.
Lawmakers and analysts said in their testimony yesterday that China’s weak currency is the key to reducing the $227 billion trade deficit the U.S. has with China.
“China’s practice of manipulating its currency, along with other protectionist measures, has driven up our trade deficit and is having a devastating impact on our manufacturers,” Dan Dimicco, the chief executive of steelmaker Nucor Corp., testified to Congress yesterday.
China’s currency, which had been pegged to the dollar, climbed 0.06 percent yesterday to 6.7422 per dollar in Shanghai, according to the China Foreign Exchange Trade System. China’s currency surged 0.8 percent in the past five days, a change Reinsch described as “too little, too late.”
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