Pelosi Urges Action on China as Panel Considers Bill

The Ways and Means Committee will draft legislation allowing companies to petition for duties on imports to make up for a weak yuan

(Bloomberg) — House Democratic leaders began a final pre-election push for legislation that would authorize trade sanctions against China if the nation's currency remains undervalued.

"It is time for Congress to pass legislation that will give the administration leverage in its bilateral and multilateral negotiations with the Chinese government — so that U.S. businesses and workers have a more level playing field in world trade," House Speaker Nancy Pelosi said yesterday in a statement, as the Ways and Means Committee set a session for tomorrow to draft the legislation.

The committee will take up a measure that would let companies petition for duties on imports to compensate for what lawmakers say is a weak yuan, according to an e-mailed statement yesterday. The currency gives Chinese companies an unfair subsidy over their U.S. competitors, say lawmakers such as Representative Tim Ryan, an Ohio Democrat.

"China's mercantilist exchange-rate policy places a drag on U.S. economic growth and job creation," Chairman Sander Levin of Michigan said in the committee statement. "It is a major distortion in the international marketplace."

Chinese Premier Wen Jiabao rebutted that view late yesterday in remarks to U.S. business leaders in New York. Wen said that China "doesn't pursue a trade surplus intentionally" and that "the main cause of the U.S. trade deficit is not the exchange rate of the Chinese currency, but the structure of investment and savings."

Yuan Pledge

The yuan has risen less than 2 percent against the dollar since June 19, when the People's Bank of China said it would allow a more flexible exchange rate after keeping it at about 6.83 for almost two years. It closed around 6.7079 two days ago in Shanghai before Chinese autumnal holidays began.

Democratic leaders plan to bring the trade measure to the House floor next week, according to aides who were briefed on the schedule. The China measure is "a key part of our Make It in America agenda," Pelosi said. The Senate is considering similar legislation and hasn't yet voted.

Levin said he worked with officials from the U.S. Trade Representative's office to resolve concerns that the measure violates the terms of the World Trade Organization.

Trade Deficit

The U.S. trade deficit with China widened to $145 billion in the first seven months of this year, from $123 billion for the same period in 2009. The expanding deficit, the lingering unemployment rate at almost 10 percent and polls showing Democrats' seats at risk heading into the November elections may boost prospects for the bill, which has been discussed since 2005.

Representatives for companies such as Peoria, Illinois-based Caterpillar Inc., New York-based Citigroup Inc. and Redmond, Washington-based Microsoft Corp. have been lobbying lawmakers to block the legislation, which they say will be counterproductive.

Economists such as C. Fred Bergsten at the Washington-based Peterson Institute for International Economics say the yuan is as much as 25 percent undervalued, giving Chinese exporters an unfair advantage and cutting U.S. employment.

The U.S. Trade Representative's office is working with Levin on the legislation, and won't comment further on it, said Carol Guthrie, a spokeswoman.

WTO Rules

Levin said that he has amended a bill proposed by Ryan and Representative Tim Murphy, a Pennsylvania Republican, to make sure that it is compatible with the rules of the World Trade Organization. The changes eliminate the rationale the Commerce Department has used to reject complaints in the past, saying the currency intervention results in a subsidy for exporters.

"In all cases, however, the act, as amended, preserves Commerce's authority — and responsibility — to consider each case on its facts," the committee said in a statement. Those changes were backed by the coalition of domestic manufacturers and labor unions pushing for the measure.

"This pro-jobs, pro-growth and pro-investment legislation preserves the heart of the bipartisan Ryan-Murphy bill while improving upon it," said Charles Blum, executive director of the Fair Currency Coalition.

The legislation is H.R. 2378.

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