Senator Michael B. Enzi
S. 1619, Currency Exchange Rate Oversight Act
October 6, 2011
Mr. President, I rise today to speak on the China currency bill. China’s undervaluation of its currency is a serious problem. It is an issue I have studied when I was a member of the Senate Banking Committee and now as a member of the Finance Committee. Earlier this year, I also had an opportunity to visit China with a number of my colleagues and learn more about this issue as we met with their government officials.
It is clear that the efforts of the Chinese government to peg its currency against the dollar give unfair benefits to Chinese exporters at the expense of U.S. manufacturers and exporters. The United States should take additional action to pressure their government to reevaluate the Chinese currency.
However, this is not a new problem. China currency has been a priority for both President George W. Bush and President Obama. Through a number of venues, including the Joint Commission on Commerce and Trade (JCCT) talks, our officials at all levels have raised this issue with little response. This experience shows that action by the United States alone is not enough. We know that other major global trading powers have the same concern, but we continue to act individually. Just this summer the German government made a renewed attempt to gain more flexibility in China’s currency. The full European Union has followed suit but they too have had little gain. But the United States and European Union are not just the only ones concerned about China currency. A number of emerging economies, including both India and Brazil, have also made the same plea. So the question I ask now is why are we considering a bill that puts the United States in the position of going it alone?
That is one reason why I am a cosponsor of Hatch Amendment number 680. This substitute amendment retains the designations included in the underlying bill that define a “fundamentally misaligned currency” while giving direction to the Administration to pursue action through multilateral channels. The amendment also thinks forward by making the issue of currency misalignment a priority issue in both our current trade negotiations and in future trade agreements. It is important that the United States not act by itself when it comes to pressuring China on this issue. I have found in my experience that when it comes to economic policy in our globalized world – the multilateral approach is the most successful. That is one reason why I do not support imposing unilateral economic sanctions on other nations. I am hopeful that the Senate will have an opportunity to vote on and include the Hatch amendment in this bill.
I also want to speak about an amendment I am working on with my colleague from Oregon, Senator Merkley. Given that this bill is about enforcement of trade obligations, we filed an amendment that would encourage our officials to counter notify those nations that have failed to report on the government subsidies that are provided to industries engaged in international trade. The WTO Agreement on Subsides and Countervailing Measures establishes base rules for when members can provide subsidies. An important element of that agreement for compliance is a measure that requires each country to disclose information about their subsidies annually. China agreed to these obligations in 2001. However, since joining the WTO ten years ago, China has only made its required notification once, in 2006, which was largely incomplete. The amendment we have offered requires the U.S. Trade Representative to use its authority under the WTO subsidies agreement to counter notify a nation that has failed to meet this obligation two years in a row.
This problem with reporting subsidies points to the larger issues we have with China aside from currency misalignment. There are other significant Chinese policies that put the United States at an economic disadvantage and deserve our attention. One such policy I want to highlight is China’s policy of giving value-added tax (VAT) rebates to artificially promote exports.
On April 1, 2009, China reinstated a 9 percent rebate of its 17 percent VAT on soda ash exports, another instance of China manipulating commercial outcomes through a government industrial policy. In 2009 – during the depths of the global economic crisis – China’s soda ash exports increased 9 percent, while global demand for soda ash was in free fall. That same year, U.S. exports of soda ash fell 19 percent. This is just one of countless examples where China’s producers pay little attention to market conditions and instead are being driven by artificial incentives to export.
Continuation of such a policy puts U.S. jobs in the soda ash industry at risk, which is why I have led an effort to have our government press China for the elimination of the VAT rebate on soda ash.
The U.S. natural soda ash industry employs over 3,000 workers in Wyoming and California, another 100 dockworkers in Portland, Oregon, as well as railroad workers who help transport soda ash. Half of all workers employed in the U.S. soda ash industry are dependent on exports for their jobs.
The U.S. soda ash industry is an export success story. For the first time in 2010, the U.S. soda ash industry shipped more product to overseas markets than to domestic customers, and exports continue to grow in 2011. Domestic demand for soda ash is flat, so growth in the U.S. soda ash industry is entirely dependent on maintaining and expanding its exports.
The United States is the most competitive soda ash producer in the world but it will continue to be confronted by China’s trade-distorting practices that put it at a competitive disadvantage. Specifically, China’s VAT rebate on exports reduces China’s production costs, undermining U.S. soda ash exports in other markets. Moreover, Chinese soda ash is produced through synthetic processes that are both extremely harmful to the environment and energy-intensive.
China’s manipulation of its VAT rebate has been raised multiple times by Members of this Chamber, as well as our House colleagues. On May 31, 2011, we asked Commerce Secretary Gary Locke and U.S. Trade Representative Ron Kirk to keep this issue on its agenda with the Chinese and fight for its elimination.
[I seek unanimous consent to insert the text of the following letter to Secretary Locke and Ambassador Kirk into the record]
For over two years, China has provided its domestic manufacturers with an artificial incentive to export through the 9 percent VAT rebate on soda ash. When this incentive is removed, a truly competitive market can be restored for global exports of soda ash. I look forward to a lively discussion of this issue when the U.S. and China meet for the Joint Commission on Commerce and Trade ministerial this fall.
Mr. President, I don’t want to underestimate the importance of the China currency issue. However, this debate cannot overlook the significant trade imbalances caused by other Chinese government policies that disadvantage U.S. industries. If you ask our officials, they won’t hesitate to say that the currency issue is just the tip of the iceberg. There are countless tariffs, subsidies and non-tariff barriers that keep the United States out of China at the cost of U.S. jobs. That is why I am disappointed that my colleague, the Majority Leader, has not yet allowed members to offer the amendments on trade and jobs they wish to offer. Our economic policies with China extend far beyond the currency issue and this bill should be the forum to raise and debate those concerns. This bill has been sold as a jobs bill and a trade bill and therefore should be open to amendments about jobs and trade. Allowing amendments now is especially important since this is yet another bill the leader brought directly to the floor without the benefit of
no committee consideration.
Our companies and exporters are amongst the best in the world but it’s tough for them to succeed when other nations allow their competitors to ignore the rules that they have agreed to follow. Without a doubt, something needs to be done about currency misalignment in China. However, to be successful we must look at the whole picture. I am hopeful that the Senate will consider these ideas including the Hatch amendment. If the U.S. continues to go it alone we’ll continue to have the same problems. We must consider legislation that not only authorizes U.S. action but encourages the Administration to pursue the currency issue with other nations that have the same concern.
Mr. President, I note the absence of a quorum.