Special Global Issue

China Update

Treasury Demands Reform of China's Exchange Rate System . . . The U.S. Treasury Department last week released its semi-annual report on International Economic and Exchange Rate Policies. Leading up to the report's release, a number of manufacturing groups such as NAM's Sound Dollar Coalition, of which SPI is a member, as well as leaders in Congress, urged Treasury to cite China as engaging in currency manipulation. Although the Agency did not find that China's system met the technical requirements under the statute for finding currency manipulation, it emphasized its expectation that China move to a flexible exchange rate system very soon. The report noted "it is widely accepted that China is now ready and should move without delay in a manner and magnitude that is sufficiently reflective of underlying market conditions." Treasury also warned that China may be cited in its next report, which is due to be released in October, if it fails to "make progress" in this area over the next six months. A copy of the report and a press release including more details can be found online at www.treas.gov.

Congressional Activity on the Currency Issue . . . Global trade analysts anticipate that Treasury's failure to cite China as engaging in currency manipulation will likely intensify efforts for legislative action this summer. One particular Senate bill, S. 295, which would impose retaliatory tariffs of 27.5 percent on all Chinese imports, is scheduled for a vote before the August recess. The legislation, introduced in early April by Sens. Chuck Schumer (D-NY) and Lindsey Graham (R-SC), has little chance of passage into law according to many commentators, because the unilateral tariffs it proposes would violate WTO rules. Nonetheless, in anticipation of the summer vote, various industry groups, such as the U.S.-China Business Council, are actively lobbying against it. Another bill receiving attention is the "Chinese Currency Act of 2005" (H.R. 1498). Introduced in the House by Reps. Tim Ryan (D-OH) and Duncan Hunter (R-CA) just one day after the Schumer-Graham bill was rolled out in the Senate, this bill would make China's currency manipulation grounds for U.S. industries to seek offsetting import duties and other remedies against Chinese imports. The Ryan-Hunter bill is viewed as WTO-consistent because it does not automatically impose retaliatory duties, but requires an investigation under existing U.S. trade laws before remedies could be put in place. The bill now has 63 co-sponsors from both parties, but no vote has been scheduled. The texts of S. 295 and H.R. 1498 are available on the Web at www.thomas.loc.gov. SPI's public policy team is closely monitoring the status of both bills and will provide regular updates in SPI Link.

Industry Groups Fail to Reach Agreement on Comprehensive China Bill . . . The National Association of Manufacturers and the Automotive Trade Policy Council (ATPC) recently began to collaborate on a bill to join ongoing legislative activities. However, this work stalled because the groups disagreed on a number of specific issues, such as the scope of any proposed currency legislation. ATPC believes the best strategy is to cover the practices of other Asian trading partners, such as Japan, rather than focusing exclusively on China. The ATPC is now reportedly working independently on a currency bill that would amend the law to make it easier for Treasury to find currency manipulation and to provide for tougher sanctions, such as a mandatory WTO complaint.

WTO Issues

House Subcommittee Considers U.S. WTO Membership . . . The House Ways and Means Trade Subcommittee held a May 17 hearing to examine overall U.S. membership in the WTO. In his opening remarks, Chairman E. Clay Shaw (R-FL) noted his "strong view that the United States greatly benefits from our continued participation in the WTO." Deputy U.S. Trade Representative Peter Allgeier testified that the 63-percent growth in U.S. exports of goods and services - from $703 billion in 1994 to over $1.1 trillion in 2004 - demonstrates the enormous benefits ensuing from WTO membership. Also addressing the trade subcommittee was Dyke Messinger, President and CEO of Power Curbers, Inc., a small North Carolina-based machinery manufacturer who told the group "smaller firms benefit from the WTO rules-based trading system just like larger firms. In fact, in many ways smaller firms probably need the WTO system even more than large firms. The cost of compliance with discriminatory foreign standards, the difficulties of dealing with counterfeiting and intellectual property piracy, the cost of customs clearance and delays - all these are proportionately large costs for smaller firms, because we have to spread these costs across fewer units of exports than larger firms." The Trade subcommittee's hearing coincides with the period for congressional approval of the United States' continued participation in the WTO. Every five years, Congress is required to review U.S. membership in the multilateral body. This year the review mechanism was invoked on March 2, when Congressmen Ron Paul (R-TX) and Bernie Sanders (I-VT) introduced H.J. Res. 27, a resolution calling for the United States' withdrawal from the WTO. According to House rules, the resolution must be voted on 90 legislative days after its introduction. The last time Congress considered the withdrawal resolution, it was soundly defeated by a vote of 363-56. Analysts predict the resolution will be defeated again by wide margins. H.J. Res. 27 is scheduled for markup on May 24. Watch future issues of SPI Link for updates as they occur.

House Subcommittee Hears Manufacturers' Concerns about EU and Chinese Standards . . . On May 11, a representative from the National Association of Manufacturers (NAM) educated policymakers on recent developments in China and the European Union (EU) with respect to standards and technical barriers that impede access for U.S. goods to those markets. China's attempt to develop its own national standards different from existing international standards, its procedures for obtaining the China Compulsory Certification Mark and overall lack of transparency were identified as recurring problems that made it difficult for U.S. exporters to break into those markets. The NAM representative told the Subcommittee, "China seems to be pursuing a deliberate strategy to establish standards that give competitive advantages to Chinese technology and domestically produced manufactured goods over technology and products from the United States and other industrial countries." With respect to the EU, NAM reported that concerns are growing about difficulties in participating in the standards-development process, greater differences between U.S. and EU product regulatory standards, and the EU's influence in international standards bodies. Members of NAM's Working Group on International Standards and Regulatory Policies discussed the ongoing development of the "United States Standards Strategy" (SSS), a U.S.-based approach to global standards and encouraged lawmakers to actively support efforts to address standards-related trade barriers. SPI participates in this NAM Working Group.

U.S. Seeks Substantial Cuts in Industrial Tariffs in Doha Round Negotiations . . . SPI representatives last week participated in a briefing with U.S. trade officials on the status of the industrial tariff negotiations. Although work continues to move slowly, the United States has pressed for an approach that would substantially reduce tariffs on manufactured goods. Known as the "Swiss Formula," the U.S. methodology cuts higher tariffs more than lower tariffs, meaning that countries that still maintain relatively higher tariffs would have to make steeper cuts than countries that already have zero or low tariffs. Developing countries, citing the need for "special and differential treatment" given their less developed economies, have proposed methodologies far less aggressive than the U.S. approach. While U.S. trade officials are willing to recognize that less developed countries, such as those in sub-Saharan Africa, do warrant some flexibility in their tariff cuts, the U.S. remains adamant that countries such as China, India and Brazil should not be given the same level of concessions. Likewise, the U.S. would prefer to reach agreement on a sector-by-sector approach to the negotiations, in which particular industries would agree to across-the-board tariff cuts and/or harmonization. The trade officials urged U.S. manufacturing groups to reach out to their counterparts in overseas markets to explore possible areas for a sectoral approach to WTO-wide tariff cuts. Under the current Doha schedule, trade officials from the various delegations will continue to consider the various proposals with the goal of reaching a consensus on initial tariff formulas and sectoral issues by July, when the WTO will hold a ministerial meeting.

Free Trade Agreements and Negotiations

President Bush Identifies His Top Short-Term Trade Priorities . . . During the recent swearing-in ceremony for Rob Portman as the new U.S. Trade Representative, President Bush identified his most pressing trade priorities over the next several months. Among them are: passage of the Central American-Dominican Republic Free Trade Agreement (CAFTA-DR); successful conclusion of the WTO Doha Round negotiations; and effective enforcement of U.S. trade agreements. He noted that CAFTA-DR, in particular, will open markets for U.S. manufactured goods and lower barriers in segments such as textiles, while the WTO Doha Round of negotiations will reduce or eliminate industrial tariffs, discipline agricultural subsidies, and open global markets for services. With respect to enforcement of existing trade agreements, President Bush spoke of his intent to continue to pressure China to live up to its WTO obligations.

Senate Finance Committee to Consider CAFTA-DR . . . Consistent with the high priority the Bush Administration has placed on passage of CAFTA-DR, USTR officials have reported that they intend to submit draft implementing language for the trade agreement "very soon." This momentum on CAFTA-DR comes as the National Council of Textile Organizations and the National Cotton Council announced their support of the agreement. In addition, during the week of May 9, Presidents from several Central American nations and the Dominican Republic embarked on a U.S.-wide lobbying effort to explain the importance of the free trade agreement to their countries. Lobbying efforts on both sides of the issue will intensify as the Finance Committee considers beginning a mock markup as soon as June 14. SPI's preliminary analysis of CAFTA-DR tariff schedules reveals that the majority of plastic resins, machinery and molds will have immediate duty-free entry into the CAFTA-DR markets. However, for a number of plastic products, CAFTA-DR tariffs will be eliminated in stages over a 5-10 year period. SPI intends to release its final analysis of CAFTA-DR in the next few weeks.

U.S., Malaysia Discuss Potential Free Trade Agreement . . . Officials from the U.S. and Malaysian governments May 9 met to discuss a possible free trade agreement under the hospices of the U.S.-Malaysia Trade and Investment Framework Agreement (TIFA). The TIFA talks focus on bilateral trade issues and are typically the pre-cursor to launching formal negotiations for a free trade agreement (FTA). Malaysian officials also visited with staff of the congressional trade committees to discuss the Hill's role in such trade negotiations. According to Inside U.S. Trade, Rep. Pete Sessions (R-TX), co-chair of the House Malaysia Caucus, strongly favors a free trade agreement with Malaysia, noting that in 2004, the U.S. had $39 billion worth of goods and services trade with that country. Industry groups such as NAM also support a U.S.-Malaysia FTA crediting, among other reasons the fact that some 85-percent of Malaysian imports currently enter the U.S. duty-free, while U.S. manufactured goods exports to the country are subject to higher tariffs.

Help Us Help You

SPI Calls for Member Input
SPI continues to seek member input and information on the following issues:

1. Intellectual property violations in China . . . If your products have been counterfeited or pirated in China, let us know. SPI is preparing a compilation of anecdotal information to present to USTR to demonstrate the extent to which our industry is plagued with counterfeiting and pirating of U.S. goods. Companies will not be identified by name in SPI's summary.



2. Non-tariff trade barriers . . . Have you experienced customs delays or other obstacles when exporting your products to a particular country? If so, let us know. SPI is preparing a list of such barriers that our industry faces to help USTR in negotiations with U.S. trading partners on the elimination of such barriers for U.S. exports. Companies will not be identified by name in SPI's summary.



3. CAFTA-DR . . . Do you currently export your products to Central America or the Dominican Republic? Do you see a benefit to your business from this free trade agreement? Member input will help SPI develop its position on this agreement.

For more information about SPI Link, mailing list additions/deletions, or to receive the publication by e-mail, contact Paula Weis, (202) 974-5282; e-mail pweis@socplas.org.

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