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FOR IMMEDIATE RELEASE: March 3, 2004

CITING US FAILURE TO GET TOUGH WITH CHINA ON FLOATING CURRENCY, BIPARTISAN GROUP OF SENATORS SEEK EMERGENCY WHITE HOUSE MEETING

Senators have urged action over last nine months & Congress has passed resolutions expressing concern about impact of Yuan on jobs but White House has yet to act

Schumer, Graham, Voinovich, Durbin want US to pressure Chinese on specific timetable for floating currency, including WTO & IMF penalties if Beijing doesn't act

Complaining that the White House has failed to do enough to pressure China to float its currency, a bipartisan group of US Senators today requested an emergency meeting with President Bush, Treasury Secretary Snow, and US Trade Representative Zoellick to discuss concrete actions the federal government can take to address the continuing illegal undervaluation of the yuan. The yuan's undervaluation has been accused of playing a role in the loss of 2.6 million US manufacturing jobs since March 2001 and is cited as a major cause of the migration of service and engineering jobs to China.

"The Chinese have been flouting the rules of the WTO and free trade at the expense of American workers for way too long. It's not good enough to talk the talk on China, it's time for the Administration to walk the walk and take concrete steps to get the Chinese to establish a specific timetable for floating the yuan," Schumer said. "Republican and Democratic Senators have been raising this issue for nine months. We want some substantive action, not band-aid steps tailored to make the White House look good on the evening news."

In a letter being sent to the President, Schumer along with Republican Senators Lindsey Graham, George Voinovich, and Democratic Senator Richard Durbin wrote "we have raised this issue with you and others in the Administration on numerous occasions over the past nine months. In addition, the Senate and the House of Representatives have passed resolutions by an overwhelming margin expressing their deep concern over China's currency manipulation and its impact on their constituents. As you know, there are several concrete steps the United States can take to ensure China acts within the rules of the world trading system it has joined and the free market competition that underlies it. We have waited for any of those actions to commence, yet to date we have seen no concrete action taken."

The Senators outlined a series of steps that the US has so far failed to explore or undertake with regard to getting the Chinese to float the yuan currency, including:
• Under Section 3004 of the US Omnibus Trade and Competitiveness Act of 1988, the Secretary of the Treasury is obligated to consider whether any countries manipulate the rate of exchange between their currency and the dollar to prevent effective balance of payments adjustments or gaining unfair advantage in international trade. If such violations are found, the Treasury Secretary is required to undertake negotiations with the manipulating countries that are running significant trade surpluses.

• Treasury has authority to push for action under International Monetary Fund (IMF) rules. According to the IMF, a pattern of “protracted large-scale intervention in one direction in the exchange market” is a principal indicator of currency manipulation. The IMF Articles of Agreement, which China has agreed to, prohibit currency manipulation to gain unfair advantage over other members.

• Under Article XV, “Exchange Agreements,” of the General Agreement on Tariffs and Trade (GATT), a party that is contract to the Agreement, like China, “shall not, by exchange action, frustrate the intent of the provisions of this Agreement, nor by trade action, the intent of the Articles of Agreement of the International Monetary Fund.”

• China's undervalued currency could be a violation of the World Trade Organization (WTO) Subsidies Agreement, which could lead to action under the WTO dispute settlement procedures.

"Mr. President, in your recent State of the Union address, you made it clear that the United States does not need a 'permission slip' to enforce international laws or protect its national interests. Given that China's currency manipulation violates international rules, and its ongoing damage to U.S. strategic industrial sectors, trade deficits, job creation, and economic security, we call on you to use your authority to initiate corrective actions under the above mentioned agreements, protocols and acts to rectify this inequity. We ask that you do this on behalf of our constituents who grow increasing aware and disturbed by the continued flouting of China’s international and bilateral agreements," the Senators wrote.

The yuan has been pegged to the US dollar since 1994 (approximately 8.28 yuan to the dollar). During that time, China’s economy has grown dramatically, averaging over 8% per year. If the yuan freely floated in the market, as is the case with virtually all major world currencies, it would have appreciated substantially reflecting China's underlying economic strength. However, it has remained at the same pegged value, and the result is that many economists estimate that the yuan is now undervalued by between 15 and 40 percent.

The undervaluation of the yuan makes China's exports relatively less expensive for foreigners, and it makes foreign products relatively more expensive for Chinese consumers and discourages imports. The effective result is a significant subsidization of China's exports and a virtual tariff on foreign imports. Consequently, China has enjoyed enormous export success – exports grew 22% in 2002 to $125 billion, they were $62 billion in 1997 – and a much more modest increase in imports – China’s imports from the U.S. have increased to $19 billion from $13 billion in 1997. The result is that China’s trade surpluses are at record highs, and its economic growth continues unabated, even in the face of the SARS health crisis.

Schumer, Graham, and Durbin as well as Senators Bunning, Dole, Enzi, Specter, Clinton, Bayh, Dodd, Kohl Stabenow and Levin are sponsoring bipartisan legislation, S. 1586, to impose an across-the board 27.5% tariff on Chinese imports in an effort to reduce China's currency advantage. The legislation would apply a "symmetrical" tariff of 27.5% in line with China's currency undervaluation that would be applied across the board to products from China. It would allow the President to remove sanctions once he certifies that China has moved to a market-based currency. The tariffs would kick in after a grace period of 180 days to ensure that Treasury officials have adequate time to work with the Chinese government to institute reforms.

A copy of the Senators' letter is attached.

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