Short title

This Act may be cited as the

Chinese Currency Act of 2005

Findings

Congress makes the following findings: (1)The economy and national security of the United States are critically dependent upon a vibrant manufacturing base. (2)The good health of the United States manufacturing industry requires, among other things, unfettered access to open markets abroad and fairly traded raw materials and products in accord with the international legal principles and agreements of the World Trade Organization and the International Monetary Fund. (3)Since 1994, the People’s Republic of China has aggressively intervened in currency markets to peg the Chinese currency, known as the renminbi or yuan, at a fixed rate of approximately 8.28 yuan to the United States dollar. (4)Economists generally agree that this policy by the People’s Republic of China has resulted in substantial undervaluation of the renminbi, perhaps by 40 percent or more. (5)Evidence of this undervaluation can be found in the large and growing annual trade surpluses of the People’s Republic of China, foreign-direct investment in China, and rapidly increasing aggregate amount of foreign-currency reserves. (6)The renminbi’s undervaluation acts as both a subsidy for exports from the People’s Republic of China and a non-tariff barrier against imports into China, to the serious detriment of the United States manufacturing industry. (7)(A)As a member of both the World Trade Organization and the International Monetary Fund, the People’s Republic of China has assumed a series of international legal obligations that proscribe subsidization of exports and exchange-rate manipulation. (B)These prohibitions are most prominently set forth in Articles VI, XV, and XVI of the GATT 1994 (as defined in section 2(1)(B) of the Uruguay Round Agreements Act (19 U.S.C. 3501(1)(B)), in the Agreement on Subsidies and Countervailing Measures (as defined in section 101(d)(12) of the Uruguay Round Agreements Act (19 U.S.C. 3511(d)(12)), and in Articles IV and VIII of the International Monetary Fund’s Articles of Agreement. (8)In addition, as a further condition of its accession agreement to become a member of the World Trade Organization on December 11, 2001, the People’s Republic of China agreed to a transitional product-specific safeguard mechanism to address market disruption to an importing member’s domestic industry due to increased imports of products of Chinese origin. (9)Despite its international legal obligations, and notwithstanding extended and ongoing negotiations with the United States, the People’s Republic of China has given no indication of any intent to correct the renminbi’s undervaluation in the foreseeable future. (10)Under the foregoing circumstances, it is consistent with the international legal obligations of the People’s Republic of China and with the corresponding international legal rights of the United States to amend relevant United States trade laws to make explicit that exchange-rate manipulation is actionable as either or both a countervailable export subsidy and as a cause of present or threatened market disruption to United States domestic producers.

Clarification to include exchange-rate manipulation as countervailable subsidy under title VII of the Tariff Act of 1930

(a)

Amendments to definition of countervailable subsidy

(1)

Financial contribution

Section 771(5)(D) of the Tariff Act of 1930 (19 U.S.C. 1677(5)(D)) is amended— (A)by striking The term and inserting (i) The term; (B)by redesignating clauses (i) through (iv) as subclauses (I) through (IV), respectively; and (C)by adding at the end the following:

(ii)In addition to clause (i), the term provides a financial contribution means to engage in exchange-rate manipulation (as defined in paragraph (5C)).

(2)

Benefit conferred

Section 771(5)(E) of the Tariff Act of 1930 (19 U.S.C. 1677(5)(E)) is amended— (A)in clause (iii), by striking , and and inserting a comma; (B)in clause (iv), by striking the period at the end and inserting , and; and (C)by adding at the end the following new clause:

(v)in the case of exchange-rate manipulation (as defined in paragraph (5C)), if the price of exported goods is less than what the price of such goods would be absent the exchange-rate manipulation.

(3)

Specificity

Section 771(5A)(B) of the Tariff Act of 1930 (19 U.S.C. 1677(5A)(B)) is amended by adding at the end before the period the following: , such as exchange-rate manipulation (as defined in paragraph (5C)). (b)

Definition of exchange-rate manipulation

Section 771 of the Tariff Act of 1930 (19 U.S.C. 1677) is amended by inserting after paragraph (5B) the following new paragraph:

(5C)

Definition of exchange-rate manipulation

(A)

In general

For purposes of paragraphs (5) and (5A), the term exchange-rate manipulation means protracted large-scale intervention by an authority to undervalue its currency in the exchange market that prevents effective balance-of-payments adjustment or that gains an unfair competitive advantage over any other country. (B)

Factors

In determining whether exchange-rate manipulation is occurring and a benefit thereby conferred, the administering authority in each case— (i)shall consider the exporting country’s— (I)bilateral balance-of-trade surplus or deficit with the United States; (II)balance-of-trade surplus or deficit with its other trading partners individually and in the aggregate; (III)foreign direct investment in its territory; (IV)currency-specific and aggregate amounts of foreign currency reserves; and (V)mechanisms employed to maintain its currency at a fixed exchange rate relative to another currency and, particularly, the nature, duration, and monetary expenditures of those mechanisms; (ii)may consider such other economic factors as are relevant; and (iii)shall measure the trade surpluses or deficits described in subclauses (I) and (II) of clause (i) with reference to the trade data reported by the United States and the other trading partners of the exporting country, unless such trade data are not available or are demonstrably inaccurate, in which case the exporting country’s trade data may be relied upon if shown to be sufficiently accurate and trustworthy. (C)

Type of economy

An authority found to be engaged in exchange-rate manipulation may have either a market economy or a nonmarket economy or a combination thereof.

(c)

Effective date

The amendments made by this section apply with respect to a countervailing duty investigation initiated under subtitle A of title VII of the Tariff Act of 1930 before, on, or after the date of the enactment of this Act.

Clarification to include exchange-rate manipulation by the People’s Republic of China as market disruption under chapter 2 of title IV of the Trade Act of 1974

(a)

Market disruption

(1)

In general

Section 421(c) of the Trade Act of 1974 (19 U.S.C. 2451(c)) is amended by adding at the end the following new paragraph:

(3)For purposes of this section, the term under such conditions includes, but is not limited to, by reason of exchange-rate manipulation (as defined in paragraph (4)).

(2)

Definition of exchange-rate manipulation

Section 421(c) of the Trade Act of 1974 (19 U.S.C. 2451(c)), as amended by paragraph (1), is further amended by adding at the end the following new paragraph:

(4)(A)For purposes of this section, the term exchange-rate manipulation means protracted large-scale intervention by the Government of the People’s Republic of China or any other public entity within the territory of the People’s Republic of China to undervalue its currency in the exchange market that prevents effective balance-of-payments adjustment or that gains an unfair competitive advantage over the United States. (B)In determining whether exchange-rate manipulation is occurring, the Commission in each case— (i)shall consider China’s— (I)bilateral balance-of-trade surplus or deficit with the United States; (II)balance-of-trade surplus or deficit with its other trading partners individually and in the aggregate; (III)foreign direct investment in its territory; (IV)currency-specific and aggregate amounts of foreign currency reserves; and (V)mechanisms employed to maintain its currency at a fixed exchange rate relative to another currency and, particularly, the nature, duration, and monetary expenditures of those mechanisms; (ii)may consider such other economic factors as are relevant; and (iii)shall measure the trade surpluses or deficits described in subclauses (I) and (II) of clause (i) with reference to the trade data reported by the United States and the other trading partners of China, unless such trade data are not available or are demonstrably inaccurate, in which case China’s trade data may be relied upon if shown to be sufficiently accurate and trustworthy.

(b)

Critical circumstances

Section 421(i)(1) of the Trade Act of 1974 (19 U.S.C. 2451(i)(1)) is amended— (1)in subparagraph (A), by striking and at the end; (2)in subparagraph (B), by striking the period at the end and inserting ; and; and (3)by inserting after subparagraph (B) the following new subparagraph:

(C)in those instances in which the petition alleges and reasonably documents that exchange-rate manipulation is occurring, shall consider that factor as weighing in favor of affirmative findings under subparagraphs (A) and (B).

(c)

Standard for presidential action

Section 421(k)(2) of the Trade Act of 1974 (19 U.S.C. 2451(k)(2)) is amended by adding at the end the following new sentence: In those instances in which the Commission has made an affirmative determination that exchange-rate manipulation is occurring, the President shall consider that factor as weighing in favor of providing import relief in accordance with subsection (a).. (d)

Modifications of relief

Section 421(n)(2) of the Trade Act of 1974 (19 U.S.C. 2451(n)(2)) is amended by adding at the end the following new sentence: In those instances in which the Commission has made an affirmative determination that exchange-rate manipulation is occurring, the Commission and the President shall consider that factor as weighing in favor of finding that continuation of relief is necessary to prevent or remedy the market disruption at issue.. (e)

Extension of action

Section 421(o) of the Trade Act of 1974 (19 U.S.C. 2451(o)) is amended— (1)in paragraph (1), by adding at the end the following new sentence: In those instances in which the Commission has made an affirmative determination that exchange-rate manipulation is occurring, the Commission shall consider that factor as weighing in favor of finding that an extension of the period of relief is necessary to prevent or remedy the market disruption at issue.; and (2)in paragraph (4), by adding at the end the following new sentence: In those instances in which the Commission has made an affirmative determination that exchange-rate manipulation is occurring, the President shall consider that factor as weighing in favor of finding that an extension of the period of relief is necessary to prevent or remedy the market disruption at issue.. (f)

Effective date

The amendments made by this section apply with respect to an investigation initiated under chapter 2 of title IV of the Trade Act of 1974 before, on, or after the date of the enactment of this Act.

Prohibition on procurement by the Department of Defense of certain defense articles imported from the People’s Republic of China

(a)

Copy of petition, request, or resolution to be transmitted to the Secretary of Defense

Section 421(b)(4) of the Trade Act of 1974 (19 U.S.C. 2451(b)(4)) is amended by inserting , the Secretary of Defense after , the Trade Representative. (b)

Determination of Secretary of Defense

Section 421(b) of the Trade Act of 1974 (19 U.S.C. 2451(b)) is amended by adding at the end the following new paragraph:

(6)Not later than 15 days after the date on which an investigation is initiated under this subsection, the Secretary of Defense shall submit to the Commission a report in writing which contains the determination of the Secretary as to whether or not the articles of the People’s Republic of China that are the subject of the investigation are like or directly competitive with articles produced by a domestic industry that are critical to the defense industrial base of the United States.

(c)

Prohibition on procurement by the Department of Defense of certain defense articles

(1)

Prohibition

If the United States International Trade Commission makes an affirmative determination under section 421(b) of the Trade Act of 1974 (19 U.S.C. 2451(b)), or a determination which the President or the United States Trade Representative may consider as affirmative under section 421(e) of such Act (19 U.S.C. 2451(e)), with respect to articles of the People’s Republic of China that the Secretary of Defense has determined are like or directly competitive with articles produced by a domestic industry that are critical to the defense industrial base of the United States, the Secretary of Defense may not procure, directly or indirectly, such products of the People’s Republic of China. (2)

Waiver

The President may waive the application of the prohibition contained in paragraph (1) on a case-by-case basis if the President determines and certifies to Congress that it is in the national security interests of the United States to do so.