Bush Administration Rejects Latest Request For Trade Case on China

Associated Press May 27, 2005 6:48 p.m.

WASHINGTON -- The Bush administration on Friday turned down the latest request for a trade case to be brought against China over its currency system.

U.S. Trade Representative Rob Portman rejected a petition filed in April by House and Senate members asking the administration to use a provision in U.S. trade law, known as Section 301, that allows economic sanctions to be used against unfair trade practices.

"We do not believe that a Section 301 action is appropriate or a productive way" to achieve the goal of a flexible Chinese currency system, Mr. Portman's spokesman Richard Mills said in a statement.

The decision came a little more than a week after the Treasury Department refused in a report to Congress to cite China as a country that manipulates its currency to gain trade advantages.
The petition filed by lawmakers, including Rep. Benjamin Cardin, the top Democrat on the Ways and Means trade subcommittee, had raised the same arguments as U.S. manufacturers: that China is unfairly manipulating its currency to gain trade advantages by retaining for the past decade a system that links the yuan to the U.S. dollar at a fixed value of 8.28 yuan to the dollar.

American manufacturers contend this has undervalued the yuan by as much as 40%, making Chinese products cheaper in the U.S. market and American goods more expensive in China.

Critics blame China's currency system for contributing to the loss of three million U.S. manufacturing jobs over the past five years. They also blame China's system for a soaring trade deficit that hit a record $617 billion last year, including a $162 billion imbalance just with China, the largest ever with a single country.

Friday's announcement marked the third time the administration has turned down a request for the U.S. to bring a trade case against China over the issue before the World Trade Organization. It rejected an earlier petition from lawmakers last November and before that turned down a petition by a group of unions and manufacturing companies that had sought to pressure the administration in the closing weeks of the presidential campaign.

In rejecting the latest petition, Mr. Mills said the administration shared the goals of the petitioners for a "flexible, market-based exchange rate system" in China but continued to feel there were better ways to achieve that goal than by filing a trade case.

Treasury Secretary John Snow, testifying before Congress on the issue Thursday, predicted that China would move to make its currency system more flexible over the next five months, before the administration's next report on the issue to Congress in October.

The administration, which initially argued that China should allow its currency to float freely with its value set by global currency markets, now contends that such a move would be too disruptive in the near term. It argues that an interim step should be taken.

While the administration has not specified what that step would be, currency experts say China could link the yuan's value to a group of currencies from other countries, not just the dollar, or it could create a band within which the currency could trade.