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Panel urges renewed U.S. pressure on China on currency

Posted by Author on November 17, 2010

(Reuters) – The United States should name China a “currency manipulator” and take on trade-distorting Chinese policies in the World Trade Organization, a congressional advisory body said on Wednesday.

U.S.-China Economic and Security Review Commission Chairman Dan Slane said the report “reflects the commission’s conclusions that China has failed in some notable areas to fulfill the promises it made nine years ago when it joined the World Trade Organization.”

China’s “indigenous innovation” policies that require foreign investors to transfer technology to Chinese partners, and favoritism toward domestic firms, suggest “the Chinese government quite simply intends to wall off a majority of its economy from international competition,” he told reporters.
The recommendation that the Treasury Department label China a currency manipulator follows the agency’s decision last month to delay a semi-annual report on whether China, or any country, is manipulating its currency for an unfair trade advantage.

The currency report was due October 15, but was postponed until after Group of 20 and Asia Pacific Economic Cooperation meetings. President Barack Obama attended those summit talks and tried, unsuccessfully, to get China to revalue its yuan currency and cut its huge trade surplus.

The Treasury Department has not set a new date for the report’s release. It delayed the previous report for ten weeks.

The U.S. Congress should press Treasury on the currency report and encourage trade authorities to consult the WTO on Chinese export controls, procurement policies and subsidies, the 12-member commission said.

“China promotes industrial policies that manipulate trade rules to benefit domestic firms to the detriment of American and other foreign competitors,” the bipartisan commission said in its annual report to Congress.

“The U.S. trade deficit with China is a major drag on the U.S. economy,” said the report, noting the United States ran a $264 billion trade deficit with China in 2009.

The report offered a bleak assessment of benefits to the United States from China’s joining the WTO a decade ago.

“Predictions of a more balanced trade relationship between the two countries as a result of China’s entry into the WTO have proven false,” the commission said.

U.S. COMPANIES VS BEIJING

In a separate report that echoed some commission concerns, the U.S.-China Business Council said its members — roughly 220 U.S. businesses with links to China — continue to do well in China, but are concerned about how market access barriers could affect their future operations.

The U.S.-China Economic and Security Review report said fears that China might dump its holdings of more than $1 trillion in U.S. debt were overblown, because Beijing had few alternatives to the dollar and would hurt the value of its holdings if it sold off Treasury bills.

“China’s purchases of dollar-denominated debt are part of its system of capital controls, designed to keep the renminbi undervalued as an aid to China’s exports,” it said. “For these reasons, China’s threats to dump the dollar are not credible.”

The panel also expressed concern that many U.S. solar, wind and other green energy companies have been put “at a strategic disadvantage” by Chinese subsidies and market barriers.

It urged Congress to consider boosting support for U.S. producers and said the Obama administration should press China to ensure its market is open “to imported green technology products, including solar, wind and battery products.”

MILITARY IMPLICATIONS

In the security portion of the 328-page report, the commission said China’s air and missile modernization advances meant that “Beijing’s ability to threaten U.S. forward-deployed forces and bases in the (Pacific) region is improving.”

China’s military modernization also has been accompanied by “renewed forcefulness” in its vast territorial claims in the South China Sea that are disputed by Vietnam and other Southeast Asian states, the report said.

“If you take what we put in this report and then put it in the context of the daily news, there are a lot of reasons to be concerned about China’s growing assertiveness in the region,” Commission Vice Chair Carolyn Bartholomew said.

Development of the Dong Fang-21 missile with a range of 1,000 miles, gives China the ability to reach five of the six major U.S. military bases in the Asia-Pacific region, she said.

Among 45 recommendations on trade and security, the commission urged Congress to require the Pentagon to provide reports on the U.S. military’s capacity to withstand a Chinese air and missile assault on regional bases and to outline steps to improve defenses of forward-deployed bases.

– Reuters

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