[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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