Calendar No. 656
109th CONGRESS
2d Session
S. 3992
To amend the Exchange Rates and International Economic Policy Coordination
Act of 1988 to clarify the definition of manipulation with respect to currency,
and for other purposes.
IN THE SENATE OF THE UNITED STATES
September 28, 2006
Mr. BUNNING introduced the following bill; which was read the first time
September 30 (legislative day, September 29), 2006
Read the second time and placed on the calendar
A BILL
To amend the Exchange Rates and International Economic Policy Coordination
Act of 1988 to clarify the definition of manipulation with respect to currency,
and for other purposes.
Be it enacted by the Senate and House of Representatives of the United
States of America in Congress assembled,
SECTION 1. SHORT TITLE.
This Act may be cited as the `United States Fair Currency Practices Act
of 2006'.
SEC. 2. FINDINGS.
(a) Congress makes the following findings:
(1) Since the Exchange Rates and International Economic Policy Coordination
Act of 1988 (22 U.S.C. 5302(3)) was enacted the global economy has changed
dramatically, with increased capital account openness, a sharp increase
in the flow of funds internationally, and an ever growing number of emerging
market economies becoming systemically important to the global flow of
goods, services, and capital. In addition, practices such as the maintenance
of multiple currency regimes have become rare.
(2) Exchange rates among major trading nations are occasionally manipulated
or fundamentally misaligned due to direct or indirect governmental intervention
in the exchange market.
(3) A major focus of national economic policy should be a market-driven
exchange rate for the United States dollar at a level consistent with
a sustainable balance in the United States current account.
(4) While some degree of surpluses and deficits in payments balances may
be expected, particularly in response to increasing economic globalization,
large and growing imbalances raise concerns of possible disruption to
financial markets. In part, such imbalances often reflect exchange rate
policies that foster fundamental misalignment of currencies.
(5) Currencies in fundamental misalignment can seriously impair the ability
of international markets to adjust appropriately to global capital and
trade flows, threatening trade flows and causing economic harm to the
United States.
(6) The effects of a fundamentally misaligned currency may be so harmful
that it is essential to correct the fundamental misalignment without regard
to the purpose of any policy that contributed to the misalignment.
(7) In the interests of facilitating the exchange of goods, services,
and capital among countries, sustaining sound economic growth, and fostering
financial and economic stability, Article IV of the International Monetary
Fund's Articles of Agreement obligates each member of the International
Monetary Fund to avoid manipulating exchange rates in order to prevent
effective balance of payments adjustment or to gain an unfair competitive
advantage over other members.
(8) The failure of a government to acknowledge a fundamental misalignment
of its currency or to take steps to correct such a fundamental misalignment,
either through inaction or mere token action, is a form of exchange rate
manipulation and is inconsistent with that government's obligations under
Article IV of the International Monetary Fund's Articles of Agreement.
TITLE I--INTERNATIONAL MONETARY AND FINANCIAL POLICY
SEC. 101. AMENDMENTS TO DEFINITIONS.
Section 3006 of the Exchange Rates and International Economic Policy Coordination
Act of 1988 (22 U.S.C. 5306) is amended by adding at the end the following:
`(3) FUNDAMENTAL MISALIGNMENT- The term `fundamental misalignment' means
a material sustained disparity between the observed levels of an effective
exchange rate for a currency and the corresponding levels of an effective
exchange rate for that currency that would be consistent with fundamental
macroeconomic conditions based on a generally accepted economic rationale.
`(4) EFFECTIVE EXCHANGE RATE- The term `effective exchange rate' means
a weighted average of bilateral exchange rates, expressed in either nominal
or real terms.
`(5) GENERALLY ACCEPTED ECONOMIC RATIONALE- The term `generally accepted
economic rationale' means an explanation drawn on widely recognized macroeconomic
theory for which there is a significant degree of empirical support.'.
SEC. 102. BILATERAL NEGOTIATIONS.
(a) In General- Section 3004(b) of the Exchange Rates and International
Economic Policy Coordination Act of 1988 (22 U.S.C. 5304(b)) is amended
to read as follows:
`(b) Bilateral Negotiations-
`(1) IN GENERAL- The Secretary of the Treasury shall analyze on an annual
basis the exchange rate policies of foreign countries, in consultation
with the International Monetary Fund, and consider whether countries--
`(A) manipulate the rate of exchange between their currency and the
United States dollar for purposes of preventing effective balance of
payments adjustments or gaining unfair competitive advantage in international
trade; or
`(B) have a currency that is in fundamental misalignment.
`(2) AFFIRMATIVE DETERMINATION- If the Secretary considers that such manipulation
or fundamental misalignment is occurring with respect to countries that--
`(A) have material global current account surpluses; or
`(B) have significant bilateral trade surpluses with the United States,
the Secretary of the Treasury shall take action to initiate negotiations
with such foreign countries on an expedited basis, in the International
Monetary Fund or bilaterally, for the purpose of ensuring that such countries
regularly and promptly adjust the rate of exchange between their currencies
and the United States dollar to permit effective balance of payments adjustments
and to eliminate the unfair advantage.
`(3) EXCEPTION- The Secretary shall not be required to initiate negotiations
if the Secretary determines that such negotiations would have a serious
detrimental impact on vital national economic and security interests.
The Secretary shall inform the chairman and the ranking minority member
of the Committee on Banking, Housing, and Urban Affairs of the Senate
and of the Committee on Financial Services of the House of Representatives
of the Secretary's determination.'.
SEC. 103. REPORTING REQUIREMENTS.
Section 3005 of the Exchange Rates and International Economic Policy Coordination
Act of 1988 (22 U.S.C. 5305) is amended to read as follows:
`SEC. 3005. REPORTING REQUIREMENTS.
`(1) IN GENERAL- The Secretary, after consulting with the Chairman of
the Board, shall submit to Congress, on or before October 15 of each year,
a written report on international economic policy and currency exchange
rates.
`(2) INTERIM REPORT- The Secretary, after consulting with the Chairman
of the Board, shall submit to Congress, on or before April 15 of each
year, a written report on interim developments with respect to international
economic policy and currency exchange rates.
`(b) Contents of Reports- Each report submitted under subsection (a) shall
contain--
`(1) an analysis of currency market developments and the relationship
between the United States dollar and the currencies of major economies
and United States trading partners;
`(2) a review of the economic and financial policies of major economies
and United States trading partners and an evaluation of the impact that
such policies have on currency exchange rates;
`(3) a description of any currency intervention by the United States or
other major economies or United States trading partners, or other actions
undertaken to adjust the actual exchange rate of the dollar;
`(4) an evaluation of the factors that underlie conditions in the currency
markets, including--
`(A) monetary and financial conditions;
`(B) foreign exchange reserve accumulation;
`(C) macroeconomic trends;
`(D) trends in current and financial account balances;
`(E) the size and composition of, and changes in, international capital
flows;
`(F) the impact of the external sector on economic changes;
`(G) the size and growth of external indebtedness;
`(H) trends in the net level of international investment; and
`(I) capital controls, trade, and exchange restrictions;
`(5) a list of currencies of the major economies or economic areas that
are manipulated or in fundamental misalignment and a description of any
economic models or methodologies used to establish the list;
`(6) a description of any reason or circumstance that accounts for why
each currency identified under paragraph (5) is manipulated or in fundamental
misalignment based on a generally accepted economic rationale;
`(7) a list of each currency identified under paragraph (5) for which
the manipulation or fundamental misalignment causes, or contributes to,
a material adverse impact on the economy of the United States, including
a description of any reason or circumstance that explains why the manipulation
or fundamental misalignment is not accounted for under paragraph (6);
`(8) the results of any prior consultations conducted or other steps taken;
and
`(9)(A) a list of each occasion during the reporting period when the issue
of exchange-rate misalignment was raised in a countervailing duty proceeding
under subtitle A of title VII of the Tariff Act of 1930 or in an investigation
under section 421 of the Trade Act of 1974;
`(B) a summary in each such instance of whether or not exchange-rate misalignment
was found and the reasoning and data underlying that finding; and
`(C) a discussion regarding each affirmative finding of exchange-rate
misalignment to consider the circumstances underlying that exchange-rate
misalignment and what action appropriately has been or might be taken
by the Secretary apart from and in addition to import relief to correct
the exchange-rate misalignment.
`(c) Development of Reports- The Secretary shall consult with the Chairman
of the Board with respect to the preparation of each report required under
subsection (a). Any comments provided by the Chairman of the Board shall
be submitted to the Secretary not later than the date that is 15 days before
the date each report is due under subsection (a). The Secretary shall submit
the report after taking into account all comments received.'.
SEC. 104. INTERNATIONAL FINANCIAL INSTITUTION GOVERNANCE ARRANGEMENTS.
(a) Initial Review- Notwithstanding any other provision of law, before the
United States approves a proposed change in the governance arrangement of
any international financial institution, as defined in section 1701(c)(2)
of the International Financial Institutions Act (22 U.S.C. 262r(c)(2)),
the Secretary of the Treasury shall determine whether any member of the
international financial institution that would benefit from the proposed
change, in the form of increased voting shares or representation, has a
currency that is manipulated or in fundamental misalignment, and if so,
whether the manipulation or fundamental misalignment causes or contributes
to a material adverse impact on the economy of the United States. The determination
shall be reported to Congress.
(b) Subsequent Action- The United States shall oppose any proposed change
in the governance arrangement of any international financial institution
(as defined in subsection (a)), if the Secretary renders an affirmative
determination pursuant to subsection (a).
(c) Further Action- The United States shall continue to oppose any proposed
change in the governance arrangement of an international financial institution,
pursuant to subsection (b), until the Secretary determines and reports to
Congress that the currency of each member of the international financial
institution that would benefit from the proposed change, in the form of
increased voting shares or representation, is neither manipulated nor in
fundamental misalignment.
SEC. 105. NONMARKET ECONOMY STATUS.
(a) In General- Paragraph (18)(B)(vi) of section 771 of the Tariff Act of
1930 (19 U.S.C. 1677(18)(B)(vi)) is amended by inserting before the end
period the following: `, including whether the currency of the foreign country
has been identified pursuant to section 3005(b)(7) of the Exchange Rates
and International Economic Policy Coordination Act of 1988 (22 U.S.C. 5305(b)(7))
in any written report required by such section 3005(b)(7) during the 24-month
period immediately preceding the month during which the administering authority
seeks to revoke a determination that such foreign country is a nonmarket
economy country'.
(b) Termination- The amendment made by this section shall apply during the
10-year period beginning on the date of the enactment of this Act.
TITLE II--SUBSIDIES AND PRODUCT-SPECIFIC SAFEGUARD MECHANISM
SEC. 201. FINDINGS.
Congress makes the following findings:
(1) The economy and national security of the United States are critically
dependent upon a vibrant manufacturing and agricultural base.
(2) The good health of United States manufacturing and agriculture requires,
among other things, unfettered access to open markets abroad and fairly
traded raw materials and products in accord with the international legal
principles and agreements of the World Trade Organization and the International
Monetary Fund.
(3) The International Monetary Fund, the G-8, and other international
organizations have repeatedly noted that exchange-rate misalignment can
cause imbalances in the international trading system that could ultimately
undercut the stability of the system, but have taken no action to address
such misalignments and imbalances.
(4) Since 1994, the People's Republic of China and other countries have
aggressively intervened in currency markets and taken measures that have
significantly misaligned the values of their currencies against the United
States dollar and other currencies.
(5) This policy by the People's Republic of China, for example, has resulted
in substantial undervaluation of the renminbi, by up to 40 percent or
more.
(6) Evidence of this undervaluation can be found in the large and growing
annual trade surpluses of the People's Republic of China; substantially
expanding foreign direct investment in China; and the rapidly increasing
aggregate amount of foreign currency reserves that are held by the People's
Republic of China.
(7) Undervaluation by the People's Republic of China and by other countries
acts as both a subsidy for their exports and as a nontariff barrier against
imports into their territories, to the serious detriment of United States
manufacturing and agriculture.
(8)(A) As members of both the World Trade Organization and the International
Monetary Fund, the People's Republic of China and other countries have
assumed a series of international legal obligations to eliminate all subsidies
for exports and to facilitate international trade by fostering a monetary
system that does not tend to produce erratic disruptions, that does not
prevent effective balance-of-payments adjustment, and that does not gain
unfair competitive advantage.
(B) These obligations are most prominently set forth in Articles VI, XV,
and XVI of the GATT 1994 (as defined in section 2(1)(B) of the Uruguay
Round Agreements Act (19 U.S.C. 3501(1)(B)), in the Agreement on Subsidies
and Countervailing Measures (as defined in section 101(d)(12) of the Uruguay
Round Agreements Act (19 U.S.C. 3511(d)(12)), and in Articles IV and VIII
of the International Monetary Fund's Articles of Agreement.
(9) Under the foregoing circumstances, it is consistent with the international
legal obligations of the People's Republic of China and similarly situated
countries and with the corresponding international legal rights of the
United States to amend relevant United States trade laws to make explicit
that exchange-rate misalignment is actionable as a countervailable export
subsidy.
SEC. 202. CLARIFICATION TO INCLUDE EXCHANGE-RATE MISALIGNMENT AS A COUNTERVAILABLE
SUBSIDY UNDER TITLE VII OF THE TARIFF ACT OF 1930.
(a) Amendments to Definition of Countervailable Subsidy-
(1) FINANCIAL CONTRIBUTION- Section 771(5)(D) of the Tariff Act of 1930
(19 U.S.C. 1677(5)(D)) is amended--
(A) by redesignating clauses (i) through (iv) as subclauses (I) through
(IV), respectively;
(B) by striking `The term' and inserting `(i) The term'; and
(C) by adding at the end the following:
`(ii) Exchange-rate misalignment (as defined in paragraph (5C)) constitutes
a financial contribution within the meaning of subclauses I and III
of clause (i).'.
(2) BENEFIT CONFERRED- Section 771(5)(E) of the Tariff Act of 1930 (19
U.S.C. 1677(5)(E)) is amended--
(A) in clause (iii), by striking `, and' and inserting a comma;
(B) in clause (iv), by striking the period at the end and inserting
`, and'; and
(C) by adding at the end the following new clause:
`(v) in the case of exchange-rate misalignment (as defined in paragraph
(5C)), if the price of exported goods in United States dollars is
less than what the price of such goods would be without the exchange-rate
misalignment.'.
(3) SPECIFICITY- Section 771(5A)(B) of the Tariff Act of 1930 (19 U.S.C.
1677(5A)(B)) is amended by adding at the end before the period the following:
`, such as exchange-rate misalignment (as defined in paragraph (5C))'.
(b) Definition of Exchange-Rate Misalignment- Section 771 of the Tariff
Act of 1930 (19 U.S.C. 1677) is amended by inserting after paragraph (5B)
the following new paragraph:
`(5C) EXCHANGE-RATE MISALIGNMENT-
`(A) IN GENERAL- For purposes of paragraphs (5) and (5A), the term `exchange-rate
misalignment' means a significant undervaluation of a foreign currency
as a result of protracted large-scale intervention by or at the direction
of a governmental authority in exchange markets. Such undervaluation
shall be found when the observed exchange rate for a foreign currency
is significantly below the exchange rate that could reasonably be expected
for that foreign currency absent the intervention.
`(B) FACTORS- In determining whether exchange-rate misalignment is occurring
and a benefit thereby is conferred, the administering authority in each
case--
`(i) shall consider the exporting country's--
`(I) bilateral balance-of-trade surplus or deficit with the United
States;
`(II) balance-of-trade surplus or deficit with its other trading
partners individually and in the aggregate;
`(III) foreign direct investment in its territory;
`(IV) currency-specific and aggregate amounts of foreign currency
reserves; and
`(V) mechanisms employed to maintain its currency at an undervalued
exchange rate relative to another currency and, particularly, the
nature, duration, and monetary expenditures of those mechanisms;
`(ii) may consider such other economic factors as are relevant; and
`(iii) shall measure the trade surpluses or deficits described in
subclauses (I) and (II) of clause (i) with reference to the trade
data reported by the United States and the other trading partners
of the exporting country, unless such trade data are not available
or are demonstrably inaccurate, in which case the exporting country's
trade data may be relied upon if shown to be sufficiently accurate
and trustworthy.
`(C) COMPUTATION- In calculating the extent of exchange-rate misalignment,
the administering authority shall, in consultation with the Treasury
Department and the Federal Reserve, develop and apply an objective methodology
that is consistent with widely recognized macroeconomic theory and shall
rely upon governmentally published and other publicly available data.
`(D) TYPE OF ECONOMY- An authority found to be engaged in exchange-rate
misalignment may have either a market economy or a nonmarket economy
or a combination thereof.'.
(c) Effective Date- The amendments made by this section apply with respect
to a countervailing duty proceeding initiated under subtitle A of title
VII of the Tariff Act of 1930 before, on, or after the date of enactment
of this Act.
SEC. 203. CLARIFICATION TO INCLUDE EXCHANGE-RATE MISALIGNMENT BY THE PEOPLE'S
REPUBLIC OF CHINA AS A CONDITION TO BE CONSIDERED WITH RESPECT TO MARKET
DISRUPTION UNDER CHAPTER 2 OF TITLE IV OF THE TRADE ACT OF 1974.
(1) IN GENERAL- Section 421(c) of the Trade Act of 1974 (19 U.S.C. 2451(c))
is amended by adding at the end the following new paragraphs:
`(3) For purposes of this section, the term `under such conditions' includes
exchange-rate misalignment (as defined in paragraph (4)).'.
`(4)(A) For purposes of this section, the term `exchange-rate misalignment'
means a significant undervaluation of the renminbi as a result of protracted
large-scale intervention by or at the direction of the Government of the
People's Republic of China in exchange markets. Such undervaluation shall
be found when the observed exchange rate for the renminbi is significantly
below the exchange rate that could reasonably be expected for the renminbi
absent the intervention.
`(B) In determining whether exchange-rate misalignment is occurring, the
Commission in each case--
`(i) shall consider the People's Republic of China's--
`(I) bilateral balance-of-trade surplus or deficit with the United States;
`(II) balance-of-trade surplus or deficit with its other trading partners
individually and in the aggregate;
`(III) foreign-direct investment in its territory;
`(IV) currency-specific and aggregate amounts of foreign currency reserves;
and
`(V) mechanisms employed to maintain its currency at an undervalued
exchange rate relative to another currency and, particularly, the nature,
duration, and monetary expenditures of those mechanisms;
`(ii) may consider such other economic factors as are relevant; and
`(iii) shall measure the trade surpluses or deficits described in subclauses
(I) and (II) of clause (i) with reference to the trade data reported by
the United States and the other trading partners of the People's Republic
of China, unless such trade data are not available or are demonstrably
inaccurate, in which case the trade data of the People's Republic of China
may be relied upon if shown to be sufficiently accurate and trustworthy.
`(C) In calculating the extent of exchange-rate misalignment, the Commission
shall, in consultation with the Treasury Department and the Federal Reserve,
develop and apply an objective methodology that is consistent with widely
recognized macroeconomic theory and shall rely upon governmentally published
and other publicly available data.'.
(b) Critical Circumstances- Section 421(i)(1) of the Trade Act of 1974 (19
U.S.C. 2451(i)(1)) is amended--
(1) in subparagraph (A), by striking `and' at the end;
(2) in subparagraph (B), by striking the period at the end and inserting
`; and'; and
(3) by inserting after subparagraph (B) the following new subparagraph:
`(C) if the petition alleges and reasonably documents that exchange-rate
misalignment is occurring, such exchange-rate misalignment shall be
considered as a factor weighing in favor of affirmative findings in
subparagraphs (A) and (B).'.
(c) Standard for Presidential Action- Section 421(k)(2) of the Trade Act
of 1974 (19 U.S.C. 2451(k)(2)) is amended by adding at the end the following
new sentence: `If the Commission makes an affirmative determination that
exchange-rate misalignment is occurring, the President shall consider such
exchange-rate misalignment as a factor weighing in favor of providing import
relief in accordance with subsection (a).'.
(d) Modifications of Relief- Section 421(n)(2) of the Trade Act of 1974
(19 U.S.C. 2451(n)(2)) is amended by adding at the end the following new
sentence: `If the Commission affirmatively determines that exchange-rate
misalignment is occurring, the Commission and the President shall consider
such exchange-rate misalignment as a factor weighing in favor of finding
that continuation of relief is necessary to prevent or remedy the market
disruption at issue.'.
(e) Extension of Action- Section 421(o) of the Trade Act of 1974 (19 U.S.C.
2451(o)) is amended--
(1) in paragraph (1), by adding at the end the following new sentence:
`If the Commission makes an affirmative determination that exchange-rate
misalignment is occurring, the Commission shall consider such exchange-rate
misalignment as a factor weighing in favor of finding that an extension
of the period of relief is necessary to prevent or remedy the market disruption
at issue.'; and
(2) in paragraph (4), by adding at the end the following new sentence:
`If the Commission makes an affirmative determination that exchange-rate
misalignment is occurring, the President shall consider such exchange-rate
misalignment as a factor weighing in favor of finding that an extension
of the period of relief is necessary to prevent or remedy the market disruption
at issue.'.
(f) Effective Date- The amendments made by this section apply with respect
to an investigation initiated under chapter 2 of title IV of the Trade Act
of 1974 before, on, or after the date of the enactment of this Act.
SEC. 204. PROHIBITION ON PROCUREMENT BY THE DEPARTMENT OF DEFENSE OF CERTAIN
DEFENSE ARTICLES IMPORTED FROM THE PEOPLE'S REPUBLIC OF CHINA.
(a) Copy of Petition, Request, or Resolution To Be Transmitted to the Secretary
of Defense- Section 421(b)(4) of the Trade Act of 1974 (19 U.S.C. 2451(b)(4))
is amended by inserting `, the Secretary of Defense' after `, the Trade
Representative'.
(b) Determination of Secretary of Defense- Section 421(b) of the Trade Act
of 1974 (19 U.S.C. 2451(b)) is amended by adding at the end the following
new paragraph:
`(6) Not later than 15 days after the date on which an investigation is
initiated under this subsection, the Secretary of Defense shall submit to
the Commission a report in writing which contains the determination of the
Secretary as to whether or not the articles of the People's Republic of
China that are the subject of the investigation are like or directly competitive
with articles produced by a domestic industry that are critical to the defense
industrial base of the United States.'.
(c) Prohibition on Procurement by the Department of Defense of Certain Defense
Articles-
(1) PROHIBITION- If the United States International Trade Commission makes
an affirmative determination under section 421(b) of the Trade Act of
1974 (19 U.S.C. 2451(b)), or a determination which the President or the
United States Trade Representative may consider as affirmative under section
421(e) of such Act (19 U.S.C. 2451(e)), with respect to articles of the
People's Republic of China that the Secretary of Defense has determined
are like or directly competitive with articles produced by a domestic
industry that are critical to the defense industrial base of the United
States, the Secretary of Defense may not procure, directly or indirectly,
such articles of the People's Republic of China.
(2) WAIVER- The President may waive the application of the prohibition
contained in paragraph (1) on a case-by-case basis if the President determines
and certifies to Congress that it is in the national security interests
of the United States to do so.
SEC. 205. APPLICATION TO GOODS FROM CANADA AND MEXICO.
Pursuant to article 1902 of the North American Free Trade Agreement and
section 408 of the North American Free Trade Agreement Implementation Act
of 1993 (19 U.S.C. 3438), the amendments made by sections 105 and 202 of
this Act shall apply to goods from Canada and Mexico.
Calendar No. 656
109th CONGRESS
2d Session
S. 3992
A BILL
To amend the Exchange Rates and International Economic Policy Coordination
Act of 1988 to clarify the definition of manipulation with respect to currency,
and for other purposes.
September 30 (legislative day, September 29), 2006
Read the second time and placed on the calendar
END
