Against the background of April's record high trade deficit of $57 billion, U.S. Rep. Phil English (R-PA) along with Reps. Mark Green (R-WI), Chris Chocola (R-IN) and Robin Hayes (R-NC ) January 9 announced H.R. 3004, the Currency Harmonization Initiative through Neutralizing Action (CHINA) Act of 2005, to impose automatic tariffs if the Treasury Department finds China's exchange rate policy conforms with the WTO definition of currency manipulation.
The CHINA Act would direct the Treasury Secretary to, within 60 days of enactment, analyze and report to Congress whether China's exchange rate policy deviates from the intent of both General Agreement on Tariffs and Trade (GATT) 1994 or relevant International Monetary Fund (IMF) agreements. Article XV of GATT 1994 prohibits WTO members from, by exchange rate action, frustrating the intent of the provisions of that Agreement, or, by trade action, the intent of the provisions of the Articles of Agreement of the IMF. The IMF prohibits the use of currency manipulation as a method of gaining unfair trade advantage; defining such manipulation as large-scale and protracted intervention in one direction to gain an unfair trade advantage. If the Secretary finds in the affirmative, then within 30 days after sending the report to Congress, the Secretary is required to levy tariffs equal to the percentage of manipulation found. This is in addition to any existing tariffs on Chinese imports.
Last month the Treasury Department released its International Economic and Exchange Rate Policies report which for the first time stated that China now has the technical availability and expertise to begin to take steps to float its currency. The biannual report also stated that China would be likely cited for manipulating its currency in the November report if the country failed to take significant action against its currency peg.