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U.S. Alliance Assails China’s Undervalued Currency

(Washington, D.C.)(September 9, 2004) – An unprecedented trade action filed today by a coalition of U.S. industrial, agricultural, and labor organizations accuses China of violating its global trading obligations through policies that artificially undervalue its currency, the yuan. The coalition contends that the yuan is undervalued by about 40%, placing unjustifiable burdens and restrictions on U.S. companies and commerce.

The China Currency Coalition filed the unfair trade action under Section 301 of the Trade Act of 1974. Section 301 is the principal statutory authority under which the United States may impose trade sanctions against countries that violate or deny U.S. rights under trade agreements, or that place an unreasonable burden on U.S. commerce. The section grants the United States Trade Representative broad authority to take a variety of countermeasures against foreign practices that unduly burden U.S. trade.

“China’s cheap currency subsidizes its exports and taxes U.S. exports,” said coalition member Bill Hickey, President of Lapham-Hickey Steel Corporation in Chicago. “We can wait no longer for China to act on its own. We vigorously reject the administration’s characterization of supporters of this petition as ‘economic isolationists’. We respectfully urge the administration to stand up for American companies and workers, and aggressively pursue this case. We are not alone in this quest, as the IMF, other governments, and experts around the world have repeatedly called on China to reform its currency practices.”

The petition asserts that China’s continued maintenance of an undervalued exchange rate that does not reflect market conditions unlawfully bolsters the Chinese economy at the expense of U.S. industry and production. Exports from the U.S. to China and third countries have been stifled, even as “Made in China” goods have inundated the American and other markets. The coalition’s position is that China’s exchange rate regime violates obligations under the World Trade Organization (WTO) Agreement on Subsidies and Countervailing Measures, constituting a prohibited export subsidy. Further, the undervalued currency violates WTO Article XV, which prohibits WTO members, by exchange action, to frustrate the intent of the provisions of the WTO.

The International Monetary Fund (IMF) also requires its members, which include China, to “avoid manipulating exchange rates or the international monetary system in order to gain an unfair competitive advantage over other members.” The coalition believes that China violates its IMF obligations.

“We urge the administration and China to take these concerns seriously,” said Richard L. Trumka, Secretary-Treasurer of the AFL-CIO. “China must remedy these discriminatory practices immediately. In the absence of progress, we have petitioned the administration to take China’s discriminatory and illegal practices to the WTO.”

China’s undervalued exchange rate has continued to accelerate the U.S. trade deficit with China, reaching $125 billion in 2003—the largest with any country. The deficit for 2004 is likely to rise to $160 billion by year end.

Additionally, China’s foreign exchange reserves have continued to accumulate, reaching $483 billion by July 2004, the second largest reserves of any country and equivalent to about a third of China’s gross domestic product. The undervalued exchange rate system also results in accelerated money supply growth that has averaged between 17% to 20% annually. If not resolved, and because of the size and global reach of China’s economy, these imbalances could result in a global financial crisis. (See attached Fact Sheet for further details.)

The China Currency Coalition is an alliance of industry, agriculture, and worker organizations whose mission is to support U.S. manufacturing by seeking an end to Chinese currency manipulations. David A. Hartquist of the Washington, D.C. law firm Collier Shannon Scott, PLLC, is counsel to the coalition.

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