No country manipulates its currency, Bush tells Congress

China Isn't Currency Manipulator, Report Says

By Martin Crutsinger
Associated Press
Tuesday, December 19, 2006

http://news.yahoo.com/s/ap/20061219/ap_on_bi_ge/china_currency

The Bush administration said Tuesday that China does not meet the technical requirements of a country that is manipulating its currency to gain unfair trade advantages.

The administration did say Tuesday that "more flexibility in China's exchange rate will help it achieve more balanced growth" and promote a number of other outcomes that would be economically beneficial.

But in the report it is required to deliver to Congress every six months, the administration said that no country met the "technical requirements for designation" as a currency manipulator.

Such a designation could trigger negotiations that could ultimately lead to trade sanctions.

The new report was released four days after a Cabinet delegation led by Treasury Secretary Henry Paulson concluded high-level talks in Beijing aimed at resolving the root causes of America's huge and growing trade deficit with China.

The report did not please China's harshest critics in Congress.

"The administration continues to use technical and legalistic dodges to avoid saying what everyone knows to be true -- the Chinese manipulate their currency. It's as plain as the nose on your face," Sens. Chuck Schumer, D-N.Y., and Lindsey Graham, R-S.C., said in a joint statement.

"If the administration still won't call China a manipulator, how can we ever expect them to get China to play fair?" they asked.

Schumer and Graham were the lead sponsors of legislation last year that would have imposed 27.5 percent penalty tariffs on all Chinese imports if China did not move more quickly to allow its currency to rise in value against the dollar.

The administration opposed the legislation on the grounds that it would raise the price of Chinese imports to American consumers.

Sen. Max Baucus, D-Mont., said he believed the requirement for a report every six months had outlived its usefulness and he planned to pursue legislation that would mandate a different approach in the new Congress.

Baucus, who next year will head the Senate Finance Committee, which has jurisdiction over trade, has proposed legislation that would offer milder sanctions against countries with "misaligned" currencies.

America's trade deficit with China is expected to easily surpass last year's $202 billion record, the highest trade gap the United States ever recorded with a single country.

The administration is under heavy political pressure to do something about America's record trade deficits, which critics charge have been a major factor in the loss of nearly 3 million manufacturing jobs since Bush took office in 2001.

No country has been cited as a currency manipulator in the Treasury Department report since China was cited in 1994 by the Clinton administration.

While the Bush administration in the past has hinted that it was getting close to naming China, the new report seemed to take a more muted tone in its criticism in keeping with Paulson's efforts to lessen outward pressure on Chinese officials in hopes of producing better results.

The latest report, which was delivered to Congress two months late, was released without a public briefing in contrast to the spring report in which then-Treasury Secretary John Snow told reporters that the administration was "extremely dissatisfied with the slow and disappointing pace of reform of the Chinese currency system."

Paulson did not comment on the new report, which contained milder criticism of China than Snow's remarks last May.

"China's economy needs a more balanced pattern of growth that is more consumption-based with a flexible exchange rate regime and a modernized financial sector," the new report stated.

The report also cited the goals of the newly launched "Strategic Economic Dialogue," which is designed to be a two-year effort to resolve some of the most contentious economic issues between the two countries through twice-a-year high-level meetings.

The report said the goals of the dialogue were to help China achieve balanced growth without large trade imbalances by pursuing exchange rate flexibility, protection of intellectual property rights, boosting domestic consumption and opening up China's service sector to participation by U.S. and other foreign firms.

"China's currency policy is a core issue in the China-United States economic relationship," the currency report stated.

If the administration had deemed China a currency manipulator, that would have triggered talks between the two countries.

China also might have faced trade sanctions — but first the United States would have had to win a case on the issue before the World Trade Organization.

American manufacturers contend China undervalues its currency by as much as 40 percent against the dollar, which makes Chinese goods cheaper for American consumers and American goods more expensive in China.

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