[Congressional Record Volume 149, Number 122 (Monday, September 8, 2003)]
[Senate]
[Pages S11187-S11189]
From the Congressional Record Online through the Government Publishing Office [www.gpo.gov]
By Mr. LIEBERMAN:
S. 1592. A bill to require negotiation and appropriate action with
respect to certain countries that engage in currency manipulation; to
the Committee on Finance.
Mr. LIEBERMAN. Mr. President, if you should find yourself hankering
for a hamburger, may I respectfully suggest that you go to Beijing?
That's where you'll find the world's cheapest hamburgers.
I have this useful information courtesy of the good people at The
Economist magazine, who for over 15 years have periodically compiled
their ``Big Mac'' index to chart the relative values of national
currencies. The index is based on what it costs to buy one of the
world's most ubiquitous commodities.
Now the recipe for a Big Mac is pretty much the same everywhere, and
in a perfect world it would presumably cost about the same everywhere.
The Economist uses this observation to gain an insight into currency
valuations. But we find that instead of costing about the same, as one
would expect, in Chinese yuan a Big Mac costs about 56 percent less
than it would in the average American city. This differential is
greater than that for any other country in the most recent Big Mac
index in April. Such a bargain.
Why does this massive price differential exist? It exists because the
yuan has been systematically kept at low value--an artificially low
value--pursuant to intervention by the Chinese government in currency
markets. The yuan been systematically undervalued by a lot. Fifty-six
percent--the differential in the April index--is probably a bit high.
Many experts put the figure at closer to 40 percent. That's plenty.
That's why China has the world's cheapest hamburgers. The Chinese
have held the yuan at a nearly fixed value relative to the dollar since
1994, and that value is about 40 percent lower than it should be in an
unfettered currency market.
How has China achieved this unnatural and non-market result? The
Chinese maintain the yuan's low value through mandatory foreign-
exchange purchases by their central bank, and since 1994 they have
bought almost 300 billion U.S. dollars to keep the yuan's value low.
What is so bad about cheap hamburgers in China and this intervention
in the currency markets? If we were only dealing with hamburgers, I
would not object, but the Big Mac Index explains a good deal about why
we have seen a catastrophic and growing trade deficit with China and
why this is causing massive layoffs in the U.S. manufacturing sector.
The undervalued currency is driving the Chinese export machine and
simultaneously smothering U.S. manufacturing. China has some very real
competitive advantages in international trade, including a low-cost,
hard-working labor force. But their exports start out with a 40 percent
price advantage based purely on their artificially undervalued
currency. This is artificial and unfair.
To keep the yuan's value down China is buying dollars at a rate of
about $120 billion a year, which happens to be about the same amount as
our trade deficit with China.
And we're seeing the results of this undervalued yuan on a daily
basis here in the Untied States. The results are vanished jobs in our
manufacturing industries, closed plants, a hollowing out of our
manufacturing sector. Last week we learned of an additional 44,000
manufacturing jobs lost in August alone, and that was a continuation of
a sad, sad trend.
Manufacturing employment has fallen monthly for 37 consecutive
months.
Two point seven million manufacturing jobs have been lost since July
2000. Manufacturing job losses have accounted for as much as 90 percent
of our total job losses in this so-called ``jobless recovery''. In
Connecticut we've lost more than 14 out of every 100 manufacturing jobs
that we had in July 2000.
And it's clear that trade plays a major role in this. Manufacturing
is deeply dependent on trade--manufactured goods make up 80 percent of
all U.S. merchandise exports. Our manufacturing trade deficit with
China is the worst bilateral manufacturing deficit in the world. Not
surprisingly,
[[Page S11188]]
when you consider that 40 percent price advantage, we have a trade
deficit with China in every major manufacturing industry except
aircraft, with electronics, machinery, textiles and apparel the worst.
I've used China as an example of this pernicious manipulation of
currency values, but it does not stand alone in this black art. Last
month Japan outdid China in currency market intervention, spending $11
billion to defend the yen, which is estimated to be undervalued by
approximately 20 percent. Central banks in Taiwan and South Korea have
been purchasing dollars aggressively as well, holding down the values
of their currencies. Together those four countries hold about $1.21
trillion in currency reserves, and the vast majority of these reserves,
perhaps as high as 90 percent, are thought to be in dollars.
Significantly, those same four countries--China, Japan, Taiwan and
South Korea--account for about 60 percent of the U.S. trade deficit in
manufactured goods.
To date the Bush Administration response to this assault on our
manufacturing sector has been belated, tepid and ineffectual. It tried
to ignore it. Lately, when it became clear even to the Administration
that they could no longer ignore the depressing job losses, Treasury
Secretary Snow traveled to Beijing to try his hand at persuading the
Chinese to let their currency rise to its natural market level. He got
the brush off. Why should the Chinese government take this
Administration seriously about the currency issue when it is clear that
the Administration isn't, in fact, serious about it? Why should this be
a priority to China when it's not a priority of the United States?
We can no longer afford to make gestures regarding these issues. We
have to be serious to be taken seriously. To this end, I am today
introducing legislation to require prompt and firm action against those
nations that most egregiously manipulate their currencies to achieve an
unfair trade advantage.
The Bush Administration has options under the international trade
laws to deal with this situation, options it is not yet willing to
pursue. Under my legislation the Administration will be pressed to
defend legitimate U.S. interests and avail ourselves of our rights and
authority under a variety of international trade agreements.
These options include taking action under the articles of the
International Monetary Fund that prohibit currency manipulation by
member states in order to achieve an unfair competitive advantage. They
include action under the General Agreement on Tariffs and Trade and the
World Trade Organization that members will not use currency exchange
rates to frustrate the organization goals of reciprocal and mutually
advantageous trade. We also have rights under U.S. trade law and our
bilateral agreements, including Section 301 and Section 406.
I introduce this legislation knowing full well that these are complex
issues and that trade policy decisions does occur in a vacuum.
Certainly some in the U.S. receive benefits from cheaper imports. If
not cheaper hamburgers than certainly cheaper electronics, cheaper
clothing, and cheaper machinery are flooding our markets. What we gain
at the checkout counter, however, we are losing at the payroll window.
When some here gain from cheap imports because of illegal and unfair
manipulation of currencies, the gains are not worth the price that they
extract from U.S. companies seeking a fair opportunity to compete with
these imports or to export U.S. products. They are not worth the price
we pay in terms of U.S. credibility in standing up for our legitimate
rights and interests.
I am well aware that China, like Japan, deploys its massive currency
reserves to buy up U.S. debt. This helps us finance the U.S. debt at
low interest rates. Given the Bush Administration fiscal policy, we are
now headed towards doubling the national debt, making us more dependent
on foreign funding of our debts. This is a form of dependency that
comes at a price, much like our dependency on foreign oil. If the
Administration were to become serious about currency manipulation, it
could strengthen its hand; it would adopt a fiscal policy that reduces
our dependence on foreigners to finance our national debt. While I am
concerned about our ability to finance our government debt, I believe
that there are ample reasons why China, Japan and others will maintain
these investments even if they abandon their intervention in the
currency markets.
I am also aware that the United States maintains a multifaceted
strategic relationship with China and Japan. We and the rest of the
world would benefit, for example, from China's assistance in
negotiations with North Korea. But again, this is no reason not to be
forceful with these countries when they transgress the international
norms and laws for international trade.
There are many vital and strategic issues at stake in our
relationships with China and Japan, but when all is said and done we
cannot afford to turn a blind eye to these illegal and unjustified
currency manipulation games. We simply cannot give away our
manufacturing sector and manufacturing jobs.
If we tolerate these manipulations, we lose credibility in dealing
with other policy issues that arise in these relationships.
I believe that everyone in this chamber recognizes that I am strongly
committed to free trade. But I cannot defend free trade unless it is
also fair. And what we have today with these currency manipulations is
not fair trade. It's manipulation, it confers an unfair competitive
advantage, and it is hurting Americans. It is long past time to act, it
is time to take this challenge seriously, and it is time to defend
legitimate American interests. We are acting assertively in pursuit of
our national interest in Iraq, and it is time to do the same with
countries that seek to secure an unfair competitive advantage in
international trade.
I ask unanimous consent that the text of the bill be printed in the
Record.
There being no objection the bill was ordered to be printed in the
Record, as follows:
S. 1592
Be it enacted by the Senate and House of Representatives of
the United States of America in Congress assembled,
SECTION 1. SHORT TITLE.
This Act may be cited as the ``Fair Currency Enforcement
Act of 2003''.
SEC. 2. FINDINGS.
Congress makes the following findings:
(1) The manufacturing sector is an important driver of the
United States economy, contributing almost 30 percent of our
economic growth during the 1990's, and twice the productivity
growth of the service sector during that period.
(2) The manufacturing sector contributes significantly to
our Nation's development of new products and technologies for
world markets, performing almost 60 percent of all research
and development in the United States over the past two
decades.
(3) The manufacturing sector provides high quality jobs,
with average weekly wages in 2002 nearly 26 percent higher
than jobs in the service sector.
(4) The manufacturing growth creates a significant number
of jobs and investments in other sectors of the economy, and
this ``multiplier effect'' is reckoned by economists to be
larger (2.43 to 1) than for any other significant sector of
the economy.
(5) The ``jobless recovery'' from the recent recession has
witnessed the worst job slump since the Great Depression and
the weakest employment recovery on record.
(6) The manufacturing sector has been hit the hardest by
the jobless recovery, with more than 2,700,000 jobs lost
since July 2000, accounting for nearly 90 percent of the
total United States jobs lost.
(7) A significant factor in the loss of valuable United
States manufacturing jobs is the difficulty faced by United
States manufacturers in competing effectively against lower
priced foreign products.
(8) A significant obstacle to United States manufacturers
in competing against foreign manufacturers is the practice of
some governments of intervening aggressively in currency
markets to maintain their own currencies at artificially low
valuations, thus subsidizing their export sales and raising
price barriers to imports from the United States.
(9) Certain Asian countries exemplify this practice. China,
Japan, South Korea, and Taiwan together have accumulated
approximately $1,200,000,000,000 in foreign currency
reserves, about \1/2\ of the world's total reserves. The vast
majority of these reserves, perhaps as high as 90 percent,
are in dollars. These same 4 countries account for 60 percent
of the United States world trade deficit in manufactured
goods. These reserves are symptomatic of a strategy of
intervention to manipulate currency values.
(10) The People's Republic of China is particularly
aggressive in intervening to maintain the value of its
currency, the renminbi, at an artificially low rate. China
maintains this rate by mandating foreign exchange sales at
its central bank at a fixed exchange rate against the dollar,
in effect, pegging the
[[Page S11189]]
renminbi at this rate. This low rate represents a significant
reason why China has contributed the most to our trade
deficit in manufactured goods. The United States trade
deficit with China increased from $57,000,000,000 in 1998 to
$103,000,000,000 in 2002, while China accumulated dollar
reserves totaling over $345,000,000,000 as of June 2003,
keeping the value of the renminbi essentially flat since
1994.
(11) Economists estimate that as a result of this
manipulation of the Chinese currency, the renminbi is
undervalued by between 15 and 40 percent, effectively
creating a 15- to 40-percent subsidy for Chinese exports and
giving Chinese manufacturers a significant price advantage
over United States and other competitors.
(12) Japan held foreign currency reserves worth
$526,600,000,000 as of June 2003, and for the previous 6
months increased its reserves by an average of
$12,500,000,000 per month. Experts estimate that the yen is
undervalued by approximately 20 percent or more, giving
Japanese manufacturers a significant price advantage over
United States competitors.
(13) In addition to being placed at a competitive
disadvantage by foreign competitors' exports that are
unfairly subsidized by strategically undervalued currencies,
United States manufacturers also may face significant
nontariff barriers to their own exports to these same
countries. For example, in China a complex system involving
that nation's value added tax and special tax rebates ensures
that semiconductor devices imported into China are taxed at
17 percent while domestic devices are effectively taxed at 6
percent.
(14) The United States has the right and power to redress
unfair competitive practices in international trade involving
currency manipulation.
(15) Under section 3004 of the Omnibus Trade and
Competitiveness Act of 1988, the Secretary of the Treasury is
required to determine whether any country is manipulating the
rate of exchange between its currency and the dollar for the
purpose of preventing effective balance of payments
adjustments or gaining unfair advantage in international
trade. If such violations are found, the Secretary of the
Treasury is required to undertake negotiations with any
country that has a significant trade surplus.
(16) Article IV of the Articles of Agreement of the
International Monetary Fund prohibits currency manipulation
by a member for the purposes of gaining an unfair competitive
advantage over other members, and the related surveillance
provision defines ``manipulation'' to include ``protracted
large-scale intervention in one direction in the exchange
market''.
(17) Under Article XV of the Exchange Agreements of the
General Agreement on Tariffs and Trade, all contracting
parties ``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''. Such actions are actionable violations. The
intent of the General Agreement on Tariffs and Trade Exchange
Agreement, as stated in the preamble of that Agreement,
includes the objective of ``entering into reciprocal and
mutually advantageous arrangements directed to substantial
reduction of tariffs and other barriers to trade,'' and
currency manipulation may constitute a trade barrier
disruptive to reciprocal and mutually advantageous trade
arrangements.
(18) Deliberate currency manipulation by nations to
significantly undervalue their currencies also may be
interpreted as a violation of the Agreement on Subsidies and
Countervailing Measures of the World Trade Organization (as
described in section 101(d)(12)) of the Uruguay Round
Agreements Act, which could lead to action and remedy under
the World Trade Organization dispute settlement procedures.
(19) Deliberate, large-scale intervention by governments in
currency markets to significantly undervalue their currencies
may be a nullification and impairment of trade benefits
precluded under Article XXIII of the General Agreement on
Tariffs and Trade, and subject to remedy.
(20) The United States Trade Representative also has
authority to pursue remedial actions under section 301 of the
Trade Act of 1974.
(21) The United States has special rights to take action to
redress market disruption under section 406 of the Trade Act
of 1974 adopted pursuant to the provisions of the United
States-China Bilateral Agreement on World Trade Organization
Accession.
(22) While large-scale manipulation of currencies by
certain major trading partners to achieve an unfair
competitive advantage is one of the most pervasive barriers
faces by the manufacturing sector in the United States, other
factors are contributing to the decline of manufacturing and
small and mid-sized manufacturing firms in the United States,
including but not limited to non-tariff trade barriers, lax
enforcement of existing trade agreements, and weak or under
utilized government support for trade promotion.
SEC. 3. NEGOTIATION PERIOD REGARDING CURRENCY NEGOTIATIONS.
Beginning on the date of enactment of this Act, the
President shall begin bilateral and multilateral negotiations
for a 90-day period with those governments of nations
determined to be engaged most egregiously in currency
manipulation, as defined in section 7, to seek a prompt and
orderly end to such currency manipulation and to ensure that
the currencies of these countries are freely traded on
international currency markets, or are established at a level
that reflects a more appropriate and accurate market value.
The President shall seek support in this process from
international agencies and other nations and regions
adversely affected by these currency practices.
SEC. 4. FINDINGS OF FACT AND REPORT REGARDING CURRENCY
MANIPULATION.
(a) In General.--During the 90-day negotiation period
described in section 3, the International Trade Commission
shall--
(1) ascertain and develop the full facts and details
concerning how countries have acted to manipulate their
currencies to increase their exports to the United States and
limit their imports of United States products;
(2) quantify the extent of this currency manipulation;
(3) examine in detail how these currency practices have
affected and will continue to affect United States
manufacturers and United States trade levels, both for
imports and exports;
(4) review whether and to what extent reduction of currency
manipulation and the accumulation of dollar-denominated
currency reserves and public debt instruments might adversely
affect United States interest rates and public debt
financing;
(5) make a determination of any and all available
mechanisms for redress under applicable international trade
treaties and agreements, including the Articles of Agreement
of the International Monetary Fund, the General Agreement on
Tariffs and Trade, the World Trade Organization Agreements,
and United States trade laws; and
(6) undertake other appropriate evaluations of the issues
described in paragraphs (1) through (5).
(b) Report.--Not later than 90 days after the date of
enactment of this Act, the International Trade Commission
shall provide a detailed report to the President, the United
States Trade Representative, the Secretary of the Treasury,
and the appropriate congressional committees on the findings
made as a result of the reviews undertaken under paragraphs
(1) through (6) of subsection (a).
SEC. 5. INSTITUTE PROCEEDINGS REGARDING CURRENCY
MANIPULATION.
At the end of the 90-day negotiation period provided for in
section 3, if agreements are not reached by the President to
promptly end currency manipulation, the President shall
institute proceedings under the relevant provisions of
international law and United States trade laws including
sections 301 and 406 of the Trade Act of 1974 with respect to
those countries that, based on the findings of the
International Trade Commission under section 4, continue to
engage in the most egregious currency manipulation. In
addition to seeking a prompt end to currency manipulation,
the President shall seek appropriate damages and remedies for
the Nation's manufacturers and other affected parties. If the
President does not institute action, the President shall, not
later than 120 days after the date of enactment of this Act,
provide to the appropriate congressional committees a
detailed explanation and accounting of precisely why the
President has determined not to institute action.
SEC. 6. ADDITIONAL REPORTS AND RECOMMENDATIONS.
(a) National Security.--Within 90 days of the date of
enactment of this Act, the Secretary of Defense shall provide
a detailed report to the appropriate congressional committees
evaluating the effects on our national security of countries
engaging in significant currency manipulations, and the
effect of such manipulation on critical manufacturing sectors
such as semiconductors.
(b) Other Unfair Trade Practices.--Within 90 days of the
date of enactment of this Act, the United States Trade
Representative and the International Trade Commission shall
evaluate and report in detail to the appropriate
congressional committees on other trade practices and trade
barriers by major East Asian trading nations potentially in
violation of international trade agreements, including the
practice of maintaining a value-added or other tax regime
that effectively discriminates against imports by
underpricing domestically produced goods.
(c) Trade Enforcement.--Within 90 days of the date of
enactment of this Act, the United States Trade Representative
and the International Trade Commission shall report in detail
to the appropriate congressional committees on steps that
could be taken to significantly improve trade enforcement
efforts against unfair trade practices by competitor trading
nations, including making recommendations for additional
support for trade enforcement efforts.
(d) Trade Promotion.--Within 90 days of the date of
enactment of this Act, the Secretaries of State and Commerce,
and the United States Trade Representative, shall prepare a
detailed report with recommendations on steps that could be
undertaken to significantly improve trade promotion for
United States goods and services, including recommendations
on additional support to improve trade promotion.
SEC. 7. CURRENCY MANIPULATION DEFINED.
In this Act, the term ``currency manipulation'' means--
(1) large-scale manipulation of exchange rates by a nation
in order to gain an unfair competitive advantage as stated in
Article IV of the Articles of Agreement of the International
Monetary Fund and related surveillance provisions;
(2) sustained, large-scale currency intervention in one
direction, through mandatory foreign exchange sales at a
nation's central bank at a fixed exchange rate; or
(3) other mechanisms, used to maintain a currency at a
fixed exchange rate relative to another currency.
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