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China Warns Again Against US Currency Bill

by Mary Swire,, Hong Kong

21 October 2011

In a press conference, whilst also warning that current global uncertainties could seriously affect China’s foreign trade in the final quarter of this year, and early in the next, the Ministry of Commerce’s spokesman Shen Danyang confirmed that the Chinese government would definitely respond, if the United States anti-renminbi currency bill came into force.

While not mentioning the RMB by name, the Currency Exchange Rate Oversight Reform Act would, after an analysis of those currencies adjudged to be “fundamentally misaligned”, allow countervailing import duties to be imposed as an offset to the calculated amount of currency undervaluation. Countervailing duties would be available to any US industry that could demonstrate that it has been injured by imports from the country with the undervalued currency.

The US Senate passed the currency bill earlier this month, and it should now proceed for consideration by the House of Representatives. However, it is still doubtful if it will be ultimately approved, as business groups, Republican leaders and President Obama have expressed a wariness that unilateral action by the US could lead to disputes with China at the World Trade Organization and retaliation against US exports to China.

In response to a question from Xinhua, Danyang went a long way to confirming their fears. When asked what specific measures the Chinese government could take, if the Act was approved, he re-confirmed previous Ministry comments that any attempt by the US to force its trading partners to appreciate their currencies would be a “grave violation of international rules,” and would “seriously damage mutually-beneficial Sino-US relations.”

If the US insists on this action, he added that China would have to make “further responses.” He quoted the proverb that, “if you are ill, you do not force other people to take the medicine.”

Perhaps a wish to avoid the chance of precipitate action by some US politicians led the Treasury to announce recently that it will delay publication of its semi-annual report to Congress on other countries’ exchange rate policies.

In its report published in May 2011, Treasury had decided that “the broadly unchanged level of China’s real effective exchange rate, especially given rapid productivity growth in the traded goods sector; and the projected widening of current account surpluses, all indicate that the real effective exchange rate of the RMB remains substantially undervalued.”

However, it has now decided that it should delay publication of the report due this month to Congress until later this year to give it “a chance to assess progress following several international meetings” next month, including the G-20 Leaders Summit, and the Asia-Pacific Economic Cooperation Finance Ministers and Leaders Meetings.

TAGS: tax | economics | China | trade disputes | United States | import duty | currency | trade

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