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CHINA CURRENCY COALITION
Washington Harbour, Suite 400
3050 K Street, NW
Washington, D.C. 20007-5108

September 24, 2004

The Honorable Robert Zoellick
Ambassador
Office of the U.S. Trade Representative
600 17th Street, NW
Washington, DC 20508

Dear Ambassador Zoellick:

It was with extreme regret that we learned, four hours after filing our petition, that the Office of the U.S. Trade Representative would not accept the section 301 petition filed on behalf of the industry, service, agriculture and worker organizations that are members of the China Currency Coalition. It is difficult to believe that careful and thoughtful consideration was given to our petition. The swiftness of the decision was only exceeded by the decision in April to deny our petition even before it was filed.

We take exception to the characterization of our petition and recommendation as “reckless.” We have sought nothing that is inconsistent with the WTO. Our petition seeks as the first, and preferred outcome, the elimination of the undervaluation of the yuan. This remedy is exactly the remedy that would be forthcoming under WTO dispute settlement over any violation of WTO rules. In the event that China refuses to eliminate the undervaluation, our petition then requests that the WTO approve the application of countervailing tariffs against imports, similar to remedies applied in subsidy cases, and approve offsetting measures for our exports. Recommending remedies that are fully consistent with the WTO does not strike us as “reckless,” but as responsible and pragmatic.

We also take exception to the reference to “economic isolationism.” Holding China to its WTO commitments and insisting that China not use its undervalued exchange rate as a prohibited export subsidy do not constitute economic isolationism, in our judgment. The United States and the WTO have long held that export subsidies are the most pernicious unfair trade practices. Since China is using its undervalued exchange rate to subsidize its exports to the United States and to tax and curtail U.S. exports to China, a more appropriate term for China’s practices is economic mercantilism in its most egregious form.

We note that the decision to reject this petition came one day before the monthly release of trade data showing that the U.S. bilateral trade deficit with China has once again increased, but this time by an astounding 28 percent. We note that, contrary to the implications in the “Trade Facts,” which was distributed by USTR along with the letter of rejection, U.S. exports to China have been decreasing since March of this year, following an increase in U.S. exports resulting from China’s earlier “buying” mission and increased purchases by China of metal scrap and other raw materials from the United States. Imports, on the other hand, have shown no restraint, increasing by 29 percent. Since imports from China have grown from a much larger base, the absolute increase in U.S. imports from China in the first seven months actually exceeds total U.S. exports to China during the same period.

These trends in bilateral trade demonstrate that, even though the Administration has made progress on a number of smaller bilateral issues, the fundamentally unbalanced trade relationship, resulting from the undervalued yuan, has not been addressed. Even China’s reduction in the VAT rebate has not resulted in any apparent deceleration in Chinese exports to the United States. Indeed, at the current rate, our bilateral trade deficit will be three times the current level in less than five years – about $500 billion!

The adverse effects of China’s undervalued currency on U.S. manufacturing, agriculture, services and employment are profound, pervasive, and protracted. We are concerned that the Administration’s rejection of the petition will cause China to continue to conclude that the Administration does not view this issue as one of urgency and that there is no pressing need for China to take the remedial actions required to bring China’s exchange rate into alignment with economic fundamentals. Thus, China will likely continue to delay action by relying on time-consuming bilateral dialog on related financial mechanisms. This approach by China undercuts the rules-based international trading and monetary system and is contributing to dangerous and growing economic imbalances for the United States, for the global community, and for China itself.

A broad consensus exists that the yuan is substantially undervalued and should be revalued realistically as soon as possible. What disagreement there is instead appears to center on the best means to correct this problem. Consultations with the Chinese government and seeking to hold China to account in dispute settlement at the WTO are not mutually exclusive steps. Indeed, as with the value-added-tax issue, the latter can serve in a legitimate, respectful way to impress upon China the imperative that it honor its international legal obligations by eliminating in short order the 40-percent undervaluation of the yuan.

The China Currency Coalition would welcome the opportunity to meet with you to discuss this issue further.

Sincerely,

Members of the China
Currency Coalition

• The AFL-CIO
• American Iron and Steel Institute
• American Textile Machinery Association - ATMA
• Associated Industries of Massachusetts
• The Committee on Pipe and Tube Imports
• The Copper & Brass Fabricators Council, Inc.
• EXEL Industrial
• MADe in USA Coalition
• Metal Treating Institute
• Metals Service Center Institute
• National Council of Textile Organizations
• National Tooling and Machining Association
• Non-Ferrous Founders' Society
• Penn United Technology, Inc.
• Precision Metalforming Association
• Precision Machined Products Association
• Rescue American Jobs
• Specialty Steel Industry of North America
• Spring Manufacturers Institute
• Steel Manufacturers Association
• U.S. Business and Industry Council
• Vanadium Producers & Reclaimers Association
• Wood Machinery Manufacturers of America