WASHINGTON — In control of the legislative agenda for the first time since President Bush took office six years ago, Democrats are working to build a consensus on Capitol Hill for legislation this year aimed at slowing China’s import growth in the U.S. and easing the impact on the American economy.
Retailers and importers that brought in $27.1 billion worth of apparel and textiles from China last year are nervous about the prospects of punitive legislation that could hurt their revenues and force them to shift production, while textile producers are anxious to put a brake on goods coming in from China, which they maintain have contributed to the industry’s decline.
The Congressional focus on China early in the session has shifted from across-the-board punitive tariffs to reforms of trade remedy laws that would ease the way for U.S. manufacturers to file currency or subsidy complaints against China and seek sanctions against its imports.
The Commerce Department has not applied the countervailing duty law to nonmarket countries since 1984. The department’s policy and practice has been to apply countervailing duties only to imports from market economy countries. But the agency recently accepted an industry petition and is investigating a case involving imports of coated paper from China, which is widely seen as a test case for applying countervailing duties against nonmarket economies, such as China and Vietnam.
More than a dozen bills, primarily aimed at China, have been introduced in the House and Senate this year, and trade veterans are weighing which legislation might gain traction and pass both chambers.
China’s currency policies, which have come under fire over the past few years, are at the heart of most of the bills.
The growing number of critics of China’s currency exchange rate, including manufacturers, economists and lawmakers, charge that China’s undervalued yuan lowers the price of goods by 15 to 40 percent on the world market. They claim depressing the value of the yuan acts as an export subsidy, putting U.S. companies at a disadvantage and leading to American job losses and a record trade deficit with China, which hit $232.5 billion last year.
China has raised the value of its currency by about 7 percent since July 2005, when it first began to peg the yuan to a basket of currencies rather than just the dollar. The Bush administration has shied away from declaring China a currency manipulator. Treasury Secretary Henry Paulson Jr. has opted to pursue a “strategic economic dialogue” with Chinese officials to prod them into reforming their policies.
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In the House, Rep. Sander Levin (D., Mich.), chairman of the Ways & Means trade subcommittee, said earlier this month that the committee would move legislation to the full floor for a vote.
“We need to pass something,” Levin said at a recent trade event, noting that the Bush administration has not been aggressive enough in going after currency “imbalances” with countries such as China and Japan.
“As to China, I think we will pass legislation in the House and I would hope the same is true in the Senate of essentially making nonmarket economies open to our countervailing duty laws,” Levin said.
Last Thursday, Levin held the first hearing of the year on China-related legislation introduced by Reps. Phil English (R., Pa.) and Artur Davis (D., Ala.) that would impose countervailing duties on unfairly subsidized imports from nonmarket economies like China. A top Commerce official said at the hearing that the administration welcomes the bill if it meets certain criteria and does not diminish the agency’s authority.
Democrats have a good chance of passing China-related legislation in the House, where they hold a 32-seat majority, but there are more hurdles in the Senate, where they have a two-seat margin.
Some political pundits are skeptical that any of the bills will pass both chambers of Congress and be signed by the President, but apparel industry lobbyists are not discounting the intensifying momentum on Capitol Hill and many expect Congress to pass a China bill.
“Some of it is a sincere effort to find a strategy workable under the World Trade Organization’s rules, something that wouldn’t be too egregious in its effect on the U.S. economy,” said Garrett Murch, deputy director of House relations for the Heritage Foundation, a conservative Washington think tank. “At the same time, there is a little political posturing to their [Democrats’] constituents who feel displaced by China’s low valuation of its currency.”
Murch said the prospects for China legislation hinged on how much success Paulson has in his talks with Chinese officials.
“The fruits of his labor with China could determine how far Congress will go this year,” said Murch.
However, some trade experts think a countervailing duty law reform bill will pass the House and possibly the Senate.
“I think the case is strong and I think Congress is going to act,” said Mickey Kantor, former U.S. Trade Representative under president Bill Clinton. “Now, how the administration reacts to it and how the Senate will follow, I don’t know.”
Kantor said there was no reason to distinguish between market and nonmarket economies when it comes to the countervailing duty laws in the U.S.
“It is an interesting anomaly of history that they were treated differently and now that there are so-called nonmarket economies who are members of the WTO and involved deeply in international trade, they should be treated the same as other countries,” he said. “There is no reason to distinguish between the two of them.”
Gary Hufbauer, senior fellow at Peterson Institute for International Economics, said he expected Congress to use renewal of the President’s expiring trade promotion authority — something the Bush administration is seeking because it does not allow Congress to amend trade deals — as leverage to get something on China.
Importer and textile industry lobbyists have lined up on opposite sides of the issue.
“From our perspective, our clients are very confused because they see 1,000 bills being dropped on China every week and they never really know which ones they have to worry about and which ones seem to be real,” said Jennifer Mulveny, director of trade and legislative affairs at Sandler, Travis & Rosenberg, a law firm representing importers. “I believe there is bipartisan support and even administration support for doing something on China just to lend credibility to the trade agenda overall.”
Mulveny said the administration appeared to be most concerned about a bill introduced by Reps. Phil English (R., Pa.) and Artur Davis (D., Ala.) that would allow U.S. companies to file unfair subsidy cases against China. She said a bill in the Senate that would define currency manipulation as a subsidy, thus giving U.S. companies the right to file cases against China, also appeared to have broad appeal.
Sarah Thorn, director of international trade, federal government relations, at Wal-Mart Stores Inc., speaking in New York at the WWD Sourcing Leadership Forum, said she was “fairly confident this year we will see some legislation on China.”
The bill that has a “very strong chance of passing,” according to Thorn, is one that deals with countervailing duty measures for nonmarket economies.
“We want to make sure it’s transparent and we want to make sure there’s an ability for us to actually have a say and have sort of the consuming industry’s standing” represented, she said.
Thorn said retailers “bought some time” with Paulson’s strategy and dialogue with the Chinese, but it might be short-lived.
“There’s a real sense of imbalance in the U.S. Congress that we have to do something right now, and I don’t know how long people are going to give Secretary Paulson,” Thorn said. “While he’s very well respected, and I think has created a lot of good will with the Congress, I just don’t know how long the Congress is going to wait because these issues again play very well toward the electorate — this sort of prairie populism protectionism. It’s there and it’s real, and it’s something that I think as importers we need to address.”
Cass Johnson, president of the National Council of Textile Organizations, said, “Democrats criticized Republicans for not doing anything on China and now that they are in the majority, their rhetoric will be tested. We’ll see if they live up to their own rhetoric and do something meaningful on China.”
Johnson said NCTO supported a bill introduced by Sens. Jim Bunning (R., Ky.) and Debbie Stabenow (D., Mich.) that would define currency manipulation as an illegal subsidy and pave the way for the domestic industry to file cases against China.
“It has real teeth,” Johnson said.
Andy Warlick, president and chief executive officer of Parkdale Mills, a textile manufacturer employing 4,080 workers in Gastonia, N.C., who testified before the Senate Finance Committee this month, said the undervaluation of the Chinese yuan has a “tremendous impact” on his business.
“That’s a huge subsidy that exists and it drives up all of your other input costs,” Warlick said. “China is not reducing its subsidies, it’s not protecting intellectual property rights and it is continuing to manipulate its currency. The net effect is, U.S. companies and workers lose because…[the Chinese] are not worried about profits, shareholder value or creditworthiness. They simply make the sell to keep their plants operating and to keep their people employed” and they achieve it through a “complex web of subsidies.”