[DOCID: f:sr248.110]
From the Senate Reports Online via GPO Access
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Calendar No. 293
110th Congress Report
SENATE
1st Session 110-248
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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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