[Senate Report 110-248]
[From the U.S. Government Publishing Office]





                                                       Calendar No. 293
110th Congress                                                   Report
                                 SENATE
 1st Session                                                    110-248

======================================================================



 
          CURRENCY EXCHANGE RATE OVERSIGHT REFORM ACT OF 2007

                                _______
                                

               December 14, 2007.--Ordered to be printed

                                _______
                                

   Mr. Baucus, from the Committee on Finance, submitted the following

                                 REPORT

                         [To accompany S. 1607]

      [Including cost estimate of the Congressional Budget Office]

    The Committee on Finance, to which was referred the bill 
(S. 1607) to provide for identification of misaligned currency, 
require action to correct the misalignment, and for other 
purposes, reports favorably thereon with an amendment and 
recommends that the bill, as amended, do pass.

             I. Background and General Reasons for the Bill

    The Finance Committee's consideration of the Currency 
Exchange Rate Oversight Reform Act of 2007 takes place in the 
context of significant developments in the global economy over 
the past two decades. These developments include increased 
global integration and the growing economic significance of 
rapidly expanding developing economies, the importance of 
international trade to U.S. and global economic growth, the 
development of large current account imbalances, the massive 
accumulation of central bank reserves by certain U.S. trading 
partners, and recent reforms by the International Monetary Fund 
(IMF) of its currency oversight regime.

          A. THE OMNIBUS TRADE AND COMPETITIVENESS ACT OF 1988

    In 1988, Congress passed the Omnibus Trade and 
Competitiveness Act (the ``1988 Act''). One of the purposes of 
the 1988 Act was to address the possibility that countries 
could ``manipulate the rate of exchange between their 
currencies and the U.S. dollar for purposes of preventing 
effective balance of payments adjustments or gaining unfair 
competitive advantage in international trade.'' Congress also 
wanted to ``increase the accountability of the Secretary of the 
Treasury for economic policies that affect the nation's level 
of foreign borrowing and its trade balance.''
    Congress addressed these concerns in part through section 
3004 of the 1988 Act, which requires the Secretary of the 
Treasury, in consultation with the International Monetary Fund, 
to analyze on an annual basis the exchange rate policies of 
foreign countries, and determine whether countries manipulate 
the rate of exchange between their currency and the U.S. dollar 
for purposes of preventing effective balance of payments 
adjustments or gaining unfair competitive advantage in 
international trade. If the Secretary finds such manipulation 
with respect to countries that have material global current 
account surpluses, and significant bilateral trade surpluses 
with the United States, the Secretary must take action to 
initiate negotiations with the countries. The Act requires 
Treasury to report the Secretary's findings and actions to 
Congress twice annually.
    In the twenty years since Congress created the reporting 
requirement, the Secretary of the Treasury has cited Taiwan 
(1988, 1989, 1992), Korea (1988, 1989), and the People's 
Republic of China (1992, 1993, 1994) for manipulating their 
exchange rates, and the Secretary has initiated negotiations in 
each case as required. The Secretary has not, however, cited 
any country since 1994. In more recent reports, the Secretary 
has found that certain countries' currencies were undervalued, 
but the Secretary has been unable to conclude that the 1988 
Act's legal standard for a finding of ``manipulation'' was 
satisfied. In most cases, the Secretary has been unable to 
determine that the exchange rate policy in question was carried 
out for the purpose of preventing effective balance of payments 
adjustment or gaining unfair competitive advantage in 
international trade.

              B. CHANGES TO THE GLOBAL ECONOMY SINCE 1988

    The global economy of today differs considerably from the 
prevailing economic landscape in 1988. The growing economic 
significance of newly industrialized and large developing 
economies has introduced new stakeholders into the 
international economic system, many of which are already 
integrated into the global economy. Other economies play a less 
significant role than they did in the past, while still others, 
like the Soviet Union, have ceased to exist altogether.
    Today's economies, old and new, are increasingly reliant on 
international trade and investment for economic growth and 
development. Worldwide, international trade flows and foreign 
investment have surged, fostering international interdependence 
for economic growth, investment, industrial development, and 
job creation. Global economic integration is credited with 
rapid economic transformation of developing countries, the 
improvement of living standards, and the alleviation of 
poverty. In the United States today international trade has 
significantly improved household welfare on average. 
International trade is a growing portion of the American 
economy, with exports alone contributing 11 percent of gross 
economic output in 2006.

                C. THE PERSISTENCE OF GLOBAL IMBALANCES

    The same interconnected economic relationships that promote 
economic benefits also threaten systemic global disruptions if 
imbalances are mismanaged or left unaddressed. In recent years, 
the global economy has in fact been characterized by 
significant and growing imbalances that, in the Committee's 
view, are neither desirable nor sustainable. The United States 
economy in particular continues to accumulate massive, growing, 
and unprecedented annual current account deficits. The U.S. 
current account deficit has nearly doubled since 2000, growing 
to $811 billion or nearly 7 percent of GDP in 2006. The U.S. 
deficit is balanced globally by massive and growing current 
account surpluses in other economies, and is in fact equal to 
nearly three-quarters of the world's surpluses. The growth and 
persistence of current account surpluses is most striking in 
export-oriented Asian economies and oil-exporting countries.
    The Committee is concerned that these global economic 
imbalances are unsustainable and potentially harmful to deficit 
economies, surplus economies, and the global economic system as 
a whole. Current account deficit countries like the United 
States face risks associated with the growing burden of 
financing their current account deficits, the growing cost of 
financing past deficits, and the consequences of higher 
interest rates. Current account surplus countries face risks 
including excess liquidity and inflation, valuation losses on 
large foreign currency holdings, as well as asset price bubbles 
and domestic economic imbalances. The systemic risks of 
international economic imbalances are also considerable. A 
sharp depreciation of currencies in deficit countries--
especially the U.S. dollar--could result in large capital 
losses world-wide, higher global interest rates and global 
borrowing costs, and significant dislocations and job losses 
across all sectors. More generally, minimizing global 
imbalances is critical to the smooth functioning of the world's 
trading system. The likelihood of orderly adjustment decreases 
the larger the imbalances grow and the longer they persist.

                   D. THE CAUSES OF GLOBAL IMBALANCES

    The causes of persistent and growing global economic 
imbalances are numerous and vary by country. Rising global 
energy prices drive current account deficits in some energy 
importing countries, including the United States, and trigger 
large current account surpluses in energy exporting countries 
like Saudi Arabia. Increased export competitiveness of emerging 
economies has eroded the export market share of established 
exporters. According to experts, some countries, including the 
People's Republic of China, can attribute a portion of their 
growing current account surpluses to their role as an ``export 
platform'' for other economies, importing high-value inputs for 
final assembly and export. Uneven global economic growth can 
also contribute to unbalanced consumption of exports.
    Savings also plays a role in imbalances. When national 
savings and receipts from a country's sales of exports and 
other current payments are insufficient to cover the cost of 
imports, the country must borrow the difference abroad on 
international capital markets. Over the past decade, high 
precautionary savings rates, a dearth of domestic investment 
opportunities, and weak domestic consumption have led to high 
levels of national savings in some developing countries. Some 
economists believe that these factors have created a savings 
``glut.'' Paired with today's greater ease of international 
capital flows and financial intermediation, this savings glut 
permitted the transfer of funds from high-savings, low 
consumption economies, to high consumption, low savings 
economies. Some analysts believe that this transfer has 
exacerbated imbalances, especially those influenced by trade 
flows.

                  E. THE ROLE OF EXCHANGE RATE REGIMES

    The Committee believes that exchange rate regimes also play 
an important role in causing and perpetuating global economic 
imbalances. Over the past decade, many export-driven economies 
have maintained fixed or heavily managed exchange rate regimes. 
It is apparent to the Committee that some of these countries 
have managed their regimes to promote a sound economic 
environment and minimize volatility. It appears, however, that 
others have manipulated their exchange rates to gain a 
competitive advantage for their exports and to accumulate 
current account surpluses.
    Evidence of exchange rate manipulation can take various 
forms. For example, when a country's currency value does not 
fluctuate relative to underlying economic and financial 
conditions, it can be said to be in fundamental misalignment 
with its equilibrium rate. As discussed further below, the 
International Monetary Fund views fundamental misalignment as a 
key indicator of manipulation. Certain explicit policy actions 
by governments can also provide telling evidence of 
manipulation. These actions include the maintenance and 
intensification of capital controls for balance of payments 
purposes; prolonged intervention in currency markets in one 
direction; and the official accumulation of foreign assets such 
as central bank reserves.

                 F. INTERNATIONAL MONETARY FUND REFORMS

    Recent reforms undertaken by the International Monetary 
Fund underscore the importance of exchange rates and the 
pursuit of prudent and acceptable exchange rate policies.
    Upon joining the IMF, member countries must adhere to 
obligations and principles contained in the IMF Articles of 
Agreement. These Articles are designed to ensure the smooth and 
mutually beneficial functioning of the international financial 
system. Article IV of the Articles of Agreement establishes 
member countries' obligations regarding exchange rate regime 
arrangements. Under that Article, member countries commit to 
undertake policies that foster orderly economic growth and 
price stability, promote a stable monetary system, and avoid 
manipulating exchange rates or the international monetary 
system in order to gain unfair competitive advance or prevent 
effective adjustment of balance of payments. Article IV also 
tasks the IMF with surveillance of member policies to ensure 
that members fulfill these obligations.
    The IMF expanded upon the obligations of member countries 
and procedures for IMF surveillance under Article IV in a 1977 
Decision by the IMF Executive Board. The 1977 Decision 
specified actions that should alert the IMF to a member 
country's shortcomings in living up to its Article IV 
obligations. These actions included protracted, large-scale 
intervention in one direction in the exchange market, 
unsustainable levels of official or quasi-official lending, the 
introduction or intensification of capital controls for balance 
of payments purposes, and behavior of the exchange rate that 
appeared to be unrelated to underlying economic and financial 
conditions.
    In July 2007, the IMF Executive Board adopted a new 
Decision that replaced the 1977 Decision. The IMF views the 
2007 Decision as a keystone of its efforts to upgrade and 
update its bilateral surveillance regime. The heart of the 2007 
Decision is the principle of external stability, which focuses 
the task of IMF surveillance and member country obligations on 
the international effects of domestic monetary and financial 
policies. By adding this new principle, the IMF made clear that 
members of the IMF should avoid exchange rate policies that 
result in external instability, regardless of their purpose.
    Like the 1997 Decision, the 2007 Decision describes various 
government actions that may provide evidence of manipulation, 
such as protracted large-scale intervention in one direction in 
the exchange market and the introduction and intensification of 
capital controls. In addition to these government actions, 
however, the 2007 Decision also highlights economic outcomes 
that may indicate manipulation. These outcomes include 
fundamental exchange rate misalignment, large and protracted 
current account surpluses or deficits, and large external 
vulnerabilities, including liquidity risks, arising from 
private capital flows.

                       G. ADMINISTRATION RESPONSE

    The Administration has stated that global economic 
imbalances, namely large current account deficits and 
surpluses, are a key issue on the international agenda, and 
that reducing these imbalances is a shared responsibility. The 
Administration has also stated that the central element to 
resolving these imbalances is rebalancing global demand. By 
increasing demand and decreasing savings in current account 
surplus countries, demand for U.S. goods and services will 
grow.
    In its biannual reports under the 1988 Act, the 
Administration has noted the undervaluation of currencies, 
their fluctuation in value, and the presence of policies, 
including extensive capital controls, intervention in currency 
markets in one direction, and persistent and growing current 
account surpluses. Over time, the report's analysis has focused 
less on specific exchange rate movements and more on underlying 
macroeconomic developments.
    Under the 1988 Act, if the Secretary of the Treasury finds 
that manipulation of exchange rates is occurring with respect 
to countries that have material global current account 
surpluses and have significant bilateral trade surpluses with 
the United States, the Secretary shall take action to initiate 
negotiations with such foreign countries. The Secretary has 
cited Korea, Taiwan, and China for manipulation in the past and 
engaged in required consultations. However, no country has been 
cited since 1994, as successive Administrations have found that 
no country meets the technical requirements for designation.
    In recent years, the exchange rate regime of the People's 
Republic of China, and the value of its currency, the renminbi 
(RMB) or yuan, has been a matter of extensive concern in the 
United States. The Administration has sought to address these 
concerns by raising the issue with Chinese authorities, 
including Group of 7 discussions with China, Group of 20 
discussions, and IMF Board deliberations. The administration 
has also established a biannual cabinet-level Strategic 
Economic Dialogue (SED) with China, where China's currency 
regime has featured prominently.

                        H. CONGRESSIONAL ACTION

    Congressional action on global economic imbalances has been 
focused on China given its tightly managed exchange rate 
regime, rapidly growing bilateral and global current account 
surplus, and massive accumulation of foreign asset reserves. 
Many Members contend that the pace of China's currency reforms 
and the level of the yuan's appreciation against the dollar 
have been too slow, and they have expressed frustration that 
the Secretary of the Treasury has failed to cite China as a 
currency manipulator in its biannual exchange rate reports. 
Many Members of Congress have introduced legislation to 
encourage the Chinese government to speed reforms or to enable 
U.S. producers to use U.S. trade law to address the impact of 
China's undervalued currency.
    In the 109th Congress, Members introduced a number of bills 
to address the value of China's currency. S. 295, a bill 
introduced by Senators Schumer and Graham, would have imposed 
27.5 percent tariffs on Chinese goods if China had failed to 
revalue its currency by the end of a 180-day negotiation 
period. Other bills introduced in the 109th Congress would have 
made ``exchange rate manipulation'' actionable under both U.S. 
countervailing duty law and product-specific safeguard 
mechanisms (H.R.1498--Hunter); made it easier for the 
Department of the Treasury to designate China and other 
countries as currency manipulators (S. 984--Snowe); or 
instituted proceedings under relevant U.S. and international 
trade laws (S. 377--Lieberman). Senators Grassley and Baucus 
introduced S. 2467, which did not address China specifically 
but would have triggered a series of penalties in cases where 
negotiations failed to resolve the fundamental misalignment of 
a currency relative to the U.S. dollar.
    In the 110th Congress, H.R. 321 (English) would increase 
tariffs on imported Chinese goods if Treasury determined that 
China manipulated its currency and would require the United 
States to file a World Trade Organization (WTO) dispute 
settlement case against China over its currency policy. H.R. 
1002 (Spratt) would impose 27.5 percent in additional tariffs 
on Chinese goods unless the President certifies that China is 
no longer manipulating its currency.
    S. 364, introduced by Senator Rockefeller, would apply the 
U.S. countervailing duty law to products imported from non-
market economies such as China, and would make currency 
manipulation actionable under the law. H.R. 782 (Ryan) and S. 
796 (Bunning) would also make exchange rate ``misalignment'' 
actionable under the U.S. countervailing duty law and would 
include currency misalignment as a factor in determining 
safeguard measures on imports of Chinese products that cause 
market disruption.
    H.R. 2942 (Ryan) would apply the countervailing duty law to 
non-market economy countries, make an undervalued currency a 
factor in determining antidumping duties, require Treasury to 
identify fundamentally misaligned currencies, and list those 
currencies meeting the criteria for priority action. If 
consultations fail to resolve the currency issues, the United 
States Trade Representative would be required to take action in 
the WTO.
    S. 1677, introduced by Senator Dodd, would require Treasury 
to identify countries that manipulate their currencies 
regardless of their intent and submit an action plan for ending 
the manipulation to Congress. It would also give Treasury the 
authority to file a case in the WTO.
    In addition to the proposed legislation, Members of 
Congress have filed four Section 301 petitions with USTR on the 
detrimental trade effects of China's exchange rate regime. The 
Administration rejected all four petitions, arguing that 
Section 301 action was not an appropriate or productive way to 
achieve the goal of moving China to a more flexible currency 
regime.
    Finally, the Senate Finance Committee has held hearings on 
the U.S. economic relationship with China, including a March 
2007 hearing entitled ``Risks and Reform: The Role of Currency 
in the U.S.-China Relationship.'' Four economists testified at 
the hearing, thoroughly discussing the importance and urgency 
of exchange rate reform and its potential impact on the Chinese 
and U.S. economies.

                        II. Summary of the Bill

    The Currency Exchange Rate Oversight Act of 2007 has 
fourteen sections.
    The legislation would repeal the currency provisions of the 
1988 Act and replace them with a new framework that would 
require Treasury to develop a biannual report identifying two 
categories of currencies: (1) a general category of 
``fundamentally misaligned currencies'' based on observed 
objective criteria and (2) a select category of ``fundamentally 
misaligned currencies for priority action'' that would address 
misalignments caused by clear policy actions of the relevant 
governments.
    The legislation would require Treasury to engage in 
immediate consultations with all countries cited in the report. 
In addition, for ``priority'' currencies, Treasury would seek 
advice from the International Monetary Fund and assistance from 
key trading partners in eliminating the misalignment.
    For ``priority'' currencies, important consequences would 
take effect should consultations fail to result in the adoption 
of appropriate policies to eliminate the misalignment. 
Immediately upon designation, the U.S. government 
representative to the IMF would oppose IMF governance changes 
that would benefit a country whose currency is designated for 
priority action. The Department of Commerce would further take 
the fact of priority designation into account in determining 
whether to grant a country ``market economy'' status for 
purposes of the U.S. antidumping law.
    If a country with a priority currency has failed to adopt 
appropriate policies, and taken identifiable action, to 
eliminate the fundamental misalignment after 90 days, five 
additional consequences would take effect. First, the 
Department of Commerce would reflect the currency 
undervaluation in dumping calculations for products produced or 
manufactured in the designated country. Second, the Federal 
government would no longer procure goods and services from the 
designated country unless the country was a member of the WTO 
Government Procurement Agreement. Third, the Administration 
would be required to request the IMF to engage the country in 
special consultations over its misaligned currency. Fourth, the 
Overseas Private Investment Corporation (OPIC) would be 
forbidden from engaging in financing or insurance for projects 
in the country. Fifth, the Administration would oppose new 
multilateral bank financing for projects in the designated 
country.
    The legislation would allow the President to waive any of 
the actions if taking the action would cause serious harm to 
national security, or if it was in the vital economic interest 
of the United States to do so, and taking the action would have 
an adverse impact greater than the benefits of the action.
    If the country has failed to adopt appropriate policies, 
and taken identifiable action, to eliminate the fundamental 
misalignment, after 360 days, the legislation would provide for 
two additional consequences. First, it would require the U.S. 
Trade Representative to request dispute settlement 
consultations in the World Trade Organization with the 
government responsible for the currency. Second, the 
legislation would require Treasury to consult with the Federal 
Reserve Board and other central banks to consider intervention 
in currency markets to remedy the impact of the currency 
manipulation. In order to waive either of these actions on 
economic grounds, or to extend a previously granted waiver, the 
President would need to find that taking the action would have 
an adverse impact substantially out of proportion to the 
benefits of the action. Furthermore, any Member of Congress 
could thereafter introduce a disapproval resolution concerning 
the President's waiver.
    Finally, the legislation would create a new, nine-member 
body with which Treasury must consult during the development of 
its report. The President would select one of the nine members, 
and the other eight would be selected by the Chairmen and 
Ranking Members of the Senate Finance and Banking Committees, 
and the House Ways and Means and Financial Services Committees.

                  III. General Description of the Bill


Section 1. Short title

    Section 1 entitles the bill the ``Currency Exchange Rate 
Oversight Act of 2007.''

Section 2. Definitions

    Section 2 defines key terms used throughout the bill.

Section 3. Report on international monetary policy and currency 
        exchange rates

    Section 3 establishes a requirement for the Secretary to 
prepare semiannual reports on international monetary policy and 
currency exchange rates and to submit the reports to Congress.
    Section 3(a) provides that the Secretary shall submit the 
reports by March 15 and September 15 of each year. Section 3(a) 
also requires the Secretary to appear, if requested, before the 
Senate Committees on Banking and Finance and the House 
Committees on Financial Services and Ways and Means to provide 
testimony on the reports.
    Section 3(b) sets out the required content of the reports, 
including, inter alia, an analysis of currency market 
developments and the relationship between the United States 
dollar and major foreign currencies; an evaluation of the 
domestic and global factors that underlie conditions in the 
currency markets; a list of currencies designated as 
fundamentally misaligned currencies pursuant to section 4(a)(2) 
of the bill; a list of currencies designated for priority 
action pursuant to section 4(a)(3) of the bill; and an 
identification of the nominal value associated with the medium-
term equilibrium exchange rate, relative to the United States 
dollar, for each currency designated for priority action.
    Section 3(c) requires the Secretary to consult with the 
Chairman of the Board of Governors of the Federal Reserve and 
the Advisory Committee on International Exchange Rate Policy, 
established by section 13 of the bill, with respect to the 
preparation of the reports.

Section 4. Identification of fundamentally misaligned currencies

    Section 4 requires the Secretary to analyze, on a 
semiannual basis, the prevailing real effective exchange rates 
of foreign currencies, and to identify currencies that are in 
fundamental misalignment. It also requires the Secretary to 
designate a subset of the currencies for priority action if the 
foreign government is taking certain enumerated actions.
    Section 4(a) establishes the requirement for the Secretary 
to conduct the analysis. The Secretary must identify foreign 
currencies that are in fundamental misalignment and designate 
each such currency as a fundamentally misaligned currency. The 
Secretary must designate a fundamentally misaligned currency 
for priority action if the foreign government responsible for 
the currency is engaging in protracted large-scale intervention 
in one direction in the currency exchange market, particularly 
if accompanied by partial or full sterilization; engaging in 
excessive and prolonged official or quasi-official accumulation 
of foreign assets, for balance of payments purposes; 
introducing or substantially modifying currency controls, for 
balance of payment purposes, inconsistent with the goal of 
achieving full currency convertibility; or pursuing any other 
policy or action that, in the Secretary's view, warrants 
designation for priority action.
    The Committee has used the concept of ``fundamental 
misalignment'' in order to be consistent with the new approach 
that the IMF adopted in its 2007 Decision. The government 
policies that would lead to a ``priority'' designation are 
similarly modeled on the IMF's own indicators. It is the 
expectation of the Committee that any findings by the Secretary 
would, as a consequence, be complementary to the IMF's 
surveillance efforts.
    The bill does not establish any particular methodology for 
the Secretary to use in determining whether a currency is in 
fundamental misalignment. The Committee expects that the 
Secretary would use a variety of accepted economic approaches 
to determine the level of misalignment, such as the purchasing 
power parity approach, the macroeconomic balance approach, the 
real exchange rate approach, and the trade-weighted exchange 
rate approach.
    Section 4(b) of the bill requires the Secretary to include 
a list of any currency designated under section 4(a) in each 
report required by section 3.

Section 5. Negotiations and consultations

    Section 5 provides for consultations with respect to 
fundamentally misaligned currencies.
    Section 5(a) requires the Secretary to seek bilateral 
consultations with any country whose currency is designated 
under section 4(a) in order to facilitate the adoption of 
appropriate policies to address the fundamental misalignment.
    Section 5(b) requires the Secretary, with respect to any 
currency designated for priority action, to seek the advice of 
the International Monetary Fund with respect to the Secretary's 
findings in the report submitted pursuant to section 3; and to 
encourage other governments to join the United States in 
seeking the adoption of appropriate policies by the relevant 
country to eliminate the fundamental misalignment.

Section 6. Failure to adopt appropriate policies

    Section 6 requires the Secretary to determine, not later 
than 90 days after a currency is designated for priority 
action, whether the relevant country has adopted appropriate 
policies, and taken identifiable action, to eliminate the 
fundamental misalignment. Section 6 establishes several actions 
that will apply if the Secretary's determination is negative, 
and it sets out the standard for Presidential waivers of the 
required actions.
    Section 6(a) sets out the required actions. Section 6(a)(1) 
requires the Department of Commerce to take the level of 
fundamental misalignment into account in antidumping 
investigations and reviews of merchandise imported from the 
country. Section 6(a)(2) prohibits Federal procurement of 
products or services from the country, unless the country is a 
member of the WTO Agreement on Government Procurement. Section 
6(a)(3) requires the Secretary to request that the Managing 
Director of the IMF consult with the country regarding the 
observance of its obligations under article IV of the IMF 
Articles of Agreement. Section 6(a)(4) prohibits Overseas 
Private Investment Corporation financing or insurance with 
respect to a project located within the country. Section 
6(a)(5) requires the Secretary to instruct the United States 
Executive Director at each multilateral bank to oppose the 
approval of any new financing to the government of the country 
or for a project located within the country.
    Section 6(b) allows the President to waive any action 
provided for under subsection (a) if the President determines 
that taking the action would cause serious harm to the national 
security of the United States; or that the waiver is in the 
vital economic interest of the United States, and the adverse 
impact of taking the action is greater than the benefits.
    Section 6(c) requires the Secretary to describe any action 
or determination under section 6(a) or (b) in the report 
required by section 3 of the bill.

Section 7. Persistent failure to adopt appropriate policies

    Section 7 requires the Secretary to determine, not later 
than 360 days after a currency is designated for priority 
action, whether the relevant country has adopted appropriate 
policies, and taken identifiable action, to eliminate the 
fundamental misalignment. Section 7 establishes additional 
actions that will apply if the Secretary's determination is 
negative, and it sets out the standard for Presidential waivers 
of the required actions.
    Section 7(a) sets out the required actions. Section 7(a)(1) 
requires the United States Trade Representative to request 
consultations at the World Trade Organization regarding the 
consistency of the country's actions with its obligations under 
the WTO Agreement. Section 7(a)(2) requires the Secretary to 
consult with the Board of Governors of the Federal Reserve 
System to consider undertaking remedial intervention in 
international currency markets in response to the fundamental 
misalignment of the currency designated for priority action.
    Section 7(b) requires the Secretary to notify Congress when 
the country adopts appropriate policies to eliminate the 
fundamental misalignment, and to publish notice of the action 
in the Federal Register.
    Section 7(c) allows the President to waive any action 
provided for under subsection (a) if the President determines 
that taking the action would cause serious harm to the national 
security of the United States; or that the waiver is in the 
vital economic interest of the United States, and that taking 
the action would have an adverse impact on the United States 
economy substantially out of proportion to the benefits of the 
action.
    Section 7(d) allows a Member of either House of Congress to 
introduce a joint resolution of disapproval with respect to any 
decision by the President to waive an action required by 
section 7(a) or to extend a waiver of an action required by 
section 6(a).
    Section 7(e) requires the Secretary to describe any action 
or determination under section 6(a), (b), or (c) in the report 
required by section 3 of the bill.

Section 8. Congressional disapproval of waiver

    Section 8 sets out the procedures for any Resolution of 
Disapproval introduced pursuant to section 7(d).

Section 9. International financial institution governance arrangements

    Section 9 requires the Secretary, before approving any 
proposed change in the governance arrangement of an 
international financial institution, to determine whether the 
change would provide a benefit (in the form of increased voting 
shares or representation) to a country with a currency 
designated for priority action. If the answer is affirmative, 
the United States must oppose the proposed change.

Section 10. Adjustment for fundamentally misaligned currency designated 
        for priority action

    Section 10 amends section 772(c)(2) of the Tariff Act of 
1930 to implement section 6(a)(1) of the bill, which requires 
the Department of Commerce to take the fundamental misalignment 
of a priority currency into account in antidumping 
investigations and reviews of merchandise imported from the 
country. Section 10 also amends section 771 of the Tariff Act 
of 1930 by adding a new paragraph 37, which sets out the 
calculation methodology that the Commerce Department must apply 
when making the adjustment pursuant to section 6(a)(1).

Section 11. Nonmarket economy status

    Section 11 amends section 771(18)(B) of the Tariff Act of 
1930 to add the fact that a currency has been designated for 
priority action to the list of factors that the Commerce 
Department considers when deciding whether to grant a country 
market economy status under the antidumping law.

Section 12. Application to Canada and Mexico

    Section 12 clarifies that section 6(a)(1) and the 
amendments made by sections 10 and 11 apply with respect to 
goods from Canada and Mexico. The bill makes the clarification 
pursuant to article 1902 of the North American Free Trade 
Agreement.

Section 13. Advisory Committee on International Exchange Rate Policy

    Section 13 establishes an Advisory Committee on 
International Exchange Rate Policy. The Advisory Committee 
shall be responsible for advising the Secretary in the 
preparation of the semiannual reports pursuant to section 3 and 
advising the Congress and the President with respect to 
international exchange rates and financial policies and the 
impact of such policies on the U.S. economy. The Advisory 
Committee shall be composed of 9 members, none of whom shall be 
from the Federal Government. The President pro tempore of the 
Senate shall recommend four members, upon the recommendation of 
the Chairmen and Ranking Members of the Committees on Finance 
and Banking, Housing and Urban Affairs; the Speaker of the 
House of Representatives shall recommend four members, upon the 
recommendation of the Chairmen and Ranking Members of the 
Committees on Ways and Means and Financial Services; and the 
President shall appoint one member. All members shall be 
selected on the basis of their objectivity and demonstrated 
expertise in finance, economics, or currency exchange.
    Section 13 provides that the Committee shall hold at least 
two public meetings each year for the purpose of accepting 
public comments. The Committee shall also meet as needed at the 
call of the Secretary or at the call of two-thirds of the 
members of the Committee.

Section 14. Repeal of the Exchange Rates and International Economic 
        Policy Coordination Act of 1988

    Section 14 repeals the Exchange Rates and International 
Policy Coordination Act of 1988 (22 U.S.C. 5301-5306).

                               IV. Votes

    In compliance with paragraph 7(b) of rule XXVI of the 
Standing Rules of the Senate, the following statement is made 
concerning roll call votes in the Committee's consideration of 
S. 1607.

                       MOTION TO REPORT THE BILL

    The bill (S. 1607) was ordered favorably reported, as 
amended by the Chairman's amendment in the nature of a 
substitute by a roll call vote of 20 ayes and 1 nay on July 26, 
2007. The vote, with a quorum present, was as follows:
    Ayes--Baucus, Rockefeller (proxy), Conrad (proxy), Bingaman 
(proxy), Kerry, Lincoln, Wyden, Schumer, Stabenow, Salazar 
(proxy), Grassley, Hatch (proxy), Lott, Snowe, Kyl, Smith, 
Bunning, Crapo, Roberts, Ensign (proxy).
    Nays--Cantwell.

                     V. Budget Effects of the Bill


S. 1607--Currency Exchange Rate Oversight Reform Act of 2007

    Summary: S. 1607 would change the way the Department of the 
Treasury performs oversight of foreign currencies. It would 
require the department to identify any currency that is 
significantly undervalued relative to its equilibrium rate of 
exchange with the U.S. dollar, designate that currency as 
fundamentally misaligned (on each March 15 and September 15), 
and penalize--under antidumping law and through changes in 
international monetary policy--the countries involved should 
they fail to eliminate the misalignment within 90 days. If a 
country fails to act on the misalignment within 360 days, the 
bill would require that the U.S. Trade Representative seek 
recourse through the World Trade Organization. The President 
would be able to waive such requirements, but the Congress 
would be able to disapprove of such waiver. This legislation 
would only apply to currencies of countries that have 
significant trade with the United States or are of significance 
to the health of global capital markets.
    The Congressional Budget Office estimates that enacting S. 
1607 would increase revenues by $3 million in 2008, $27 million 
over the 2008-2012 period, and $29 million over the 2008-2017 
period. Assuming appropriation of the necessary amounts, CBO 
estimates that implementing S. 1607 would cost $4 million in 
2008, $20 million over the 2008-2012 period, and $40 million 
over the 2008-2017 period. CBO estimates that the bill would 
not affect direct spending.
    CBO has determined that S. 1607 contains no 
intergovernmental mandates as defined in the Unfunded Mandates 
Reform Act (UMRA) and would impose no direct cost on state, 
local, or tribal governments.
    CBO has also determined that S. 1607 would impose private-
sector mandates, as defined in UMRA, on certain importers. CBO 
expects that the cost to those importers to comply with the 
mandates would fall below the annual threshold for private-
sector mandates established by UMRA ($131 million in 2007, 
adjusted annually for inflation).
    Estimated cost to the Federal Government: The estimated 
budgetary impact of the bill over the 2008-2017 period is shown 
in the following table.

--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                                                       By fiscal year, in millions or dollars--
                                                             -------------------------------------------------------------------------------------------
                                                               2008   2009   2010   2011   2012   2013   2014   2015   2016   2017  2008-2012  2008-2017
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                                   CHANGES IN REVENUES

Estimated Revenues..........................................      3      9      7      5      4      2      *      *      *      *        27         29

                                                      CHANGES IN SPENDING SUBJECT TO APPROPRIATION

Estimated Authorization level...............................      4      4      4      4      4      4      4      4      4      4        20         40
Estimated outlays...........................................      4      4      4      4      4      4      4      4      4      4        20        40
--------------------------------------------------------------------------------------------------------------------------------------------------------
Notes: Numbers may not add to totals due to rounding.
* = gain of less than $500,000.

    Basis of estimate: For this estimate, CBO assumes that the 
bill will be enacted by October 1, 2007.

Revenues

    S. 1607 would require the Treasury to designate as 
``fundamentally misaligned'' any currency if its prevailing 
real effective exchange rate is undervalued from its medium-
term equilibrium level. If, after 90 days, the country involved 
has not eliminated the misalignment, the export price used for 
calculating antidumping duties would be increased to reflect 
its currency's misalignment, (Antidumping duties are levied 
when a country sells a product in the United States for less 
than the product's sale price in its home market or at a price 
lower than the cost of production.)
    For this estimate, CBO identified currencies that would 
likely qualify as misaligned under the bill and estimated the 
effects of the bill accordingly. CBO does not expect the 
designation of currency misalignment would be common. Based on 
those assumptions, CBO estimates that this provision would 
increase revenues by $3 million in 2008, by $27 million over 
the 2008-2012 period, and by $29 million over the 2008-2017 
period. CBO expects that the effects of the legislation would 
decline over time because such currency misalignments would 
gradually wane in the absence of legislation.

Spending subject to appropriation

    S. 1607 would impose additional reporting requirements on 
the Department of the Treasury regarding international monetary 
policy and exchange rates. Those requirements would include 
identifying misaligned currencies and recommending specific 
actions to be taken in response to the currency undervaluation 
with the World Trade Organization and the International 
Monetary Fund. In addition, the legislation would establish an 
Advisory Committee on International Exchange Rate Policy, which 
would advise the Treasury on international policy and exchange 
rates. Based on the costs of similar reporting requirements and 
advisory committees, CBO estimates that implementing these 
provisions would cost $4 million annually, assuming 
appropriation of the necessary amounts.
    Estimated impact on state, local, and tribal governments: 
CBO has determined that S. 1607 contains no intergovernmental 
mandates as defined in UMRA and would impose no direct cost on 
state, local, or tribal governments.
    Estimated impact on the private sector: S. 1607 would 
impose private-sector mandates, as defined in UMRA, on certain 
importers. The bill would require the Administration to take a 
series of actions against a country whose currency has been 
determined to be misaligned and has failed to adopt appropriate 
policies or has not taken identifiable action. Such actions 
would include increasing the price used to establish 
antidumping duties on products imported from that country. 
Those duties would most likely be paid by importers of such 
products. CBO expects that the cost to importers to comply with 
the mandate would fall below the annual threshold for private-
sector mandates established by UMRA ($131 million in 2007, 
adjusted annually for inflation).
    Estimate prepared by: Federal revenues: Emily Schlect; 
Federal spending: Matthew Pickford; Impact on state, local, and 
tribal governments: Elizabeth Cove; Impact on the Private 
Sector: Paige Piper/Bach.
    Estimate approved by: G. Thomas Woodward, Assistant 
Director for Tax Analysis; Peter H. Fontaine, Deputy Assistant 
Director for Budget Analysis.

                VI. Regulatory Impact and Other Matters

    Pursuant to the requirements of paragraph 11(b) of rule 
XXVI of the Standing Rules of the Senate, the Committee states 
that the resolution will not significantly regulate any 
individuals or businesses, will not affect the personal privacy 
of individuals, and will result in no significant additional 
paperwork.
    The following information is provided in accordance with 
section 423 of the Unfunded Mandates Reform Act of 1995 (UMRA) 
(Pub. L. No. 104-04). The Committee has reviewed the provisions 
of S. 1607 as approved by the Committee on July 26, 2007. In 
accordance with the requirement of Pub. L. No. 104-04, the 
Committee has determined that the bill contains no 
intergovernmental mandates, as defined in the UMRA, and would 
not affect the budgets of state, local, or tribal governments.

                      VII. Changes in Existing Law

     In compliance with paragraph 12 of Rule XXVI of the 
Standing Rules of the Senate, changes in existing law made by 
the bill, as reported, are shown as follows (existing law 
proposed to be omitted is enclosed in black brackets, new 
matter is printed in italic, existing law in which no change is 
proposed is shown in roman):

TARIFF ACT OF 1930

           *       *       *       *       *       *       *



TITLE VII--COUNTERVAILING AND ANTIDUMPING DUTIES

           *       *       *       *       *       *       *



                     Subtitle D--General Provisions


SEC. 771. DEFINITIONS; SPECIAL RULES.

           *       *       *       *       *       *       *


          (18) Nonmarket economy country.--

           *       *       *       *       *       *       *

                  (B) Factors to be considered.--In making 
                determinations under subparagraph (A) the 
                administering authority shall take into 
                account--

           *       *       *       *       *       *       *

                          (v) the extent of government control 
                        over the allocation of resources and 
                        over the price and output decisions of 
                        enterprises, [and]
                          (vi) whether the currency of the 
                        foreign country is designated a 
                        currency for priority action pursuant 
                        to section 4(a)(3) of the Currency 
                        Exchange Rate Oversight Reform Act of 
                        2007, and
                          [(vi)] (vii) such other factors as 
                        the administering authority considers 
                        appropriate.

           *       *       *       *       *       *       *

          (37) Percentage undervaluation--The administering 
        authority shall determine the percentage by which the 
        domestic currency of the producer or exporter is 
        undervalued in relation to the United States dollar by 
        comparing the nominal value associated with the medium-
        term equilibrium exchange rate of the domestic currency 
        of the producer or exporter, identified by the 
        Secretary pursuant to section 3(b)(7) of the Currency 
        Exchange Rate Oversight Reform Act of 2007, to the 
        official daily exchange rate identified by the 
        administering authority for purposes of antidumping 
        proceedings.

SEC. 772. EXPORT PRICE AND CONSTRUCTED EXPORT PRICE.

           *       *       *       *       *       *       *


  (c) Adjustments for Export Price and Constructed Export 
Price.--The price used to establish export price and 
constructed export price shall be--
          (1) increased by--

           *       *       *       *       *       *       *

          (2) reduced by--
                  (A) except as provided in paragraph (1)(C), 
                the amount, if any, included in such price, 
                attributable to any additional costs, charges, 
                or expenses, and United States import duties, 
                which are incident to bringing the subject 
                merchandise from the original place of shipment 
                in the exporting country to the place of 
                delivery in the United States, [and]
                  (B) the amount, if included in such price, of 
                any export tax, duty, or other charge imposed 
                by the exporting country on the exportation of 
                the subject merchandise to the United States, 
                other than an export tax, duty, or other charge 
                described in section 771(6)(C)[.]; and
                  (C) if required by section 6(a)(1) of the 
                Currency Exchange Rate Oversight Reform Act of 
                2007, the percentage by which the domestic 
                currency of the producer or exporter is 
                undervalued in relation to the United States 
                dollar.

           *       *       *       *       *       *       *


UNITED STATES CODE

           *       *       *       *       *       *       *



              TITLE 22--FOREIGN RELATIONS AND INTERCOURSE


               CHAPTER 62--INTERNATIONAL FINANCIAL POLICY


    Subchapter I--Exchange Rates and International Economic Policy 
Coordination

           *       *       *       *       *       *       *



[SEC. 5301. SHORT TITLE.

    [This subchapter may be cited as the ``Exchange Rates and 
International Economic Policy Coordination Act of 1988''.]

           *       *       *       *       *       *       *


                                  
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