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[House Report 111-646]
[From the U.S. Government Publishing Office]

111th Congress                                                   Report
                        HOUSE OF REPRESENTATIVES
 2d Session                                                     111-646
======================================================================
 
                   CURRENCY REFORM FOR FAIR TRADE ACT

                                _______
                                

 September 28, 2010.--Committed to the Committee of the Whole House on 
            the State of the Union and ordered to be printed

                                _______
                                

    Mr. Levin, from the Committee on Ways and Means, submitted the 
                               following

                              R E P O R T

                             together with

                            ADDITIONAL VIEWS

                        [To accompany H.R. 2378]

      [Including cost estimate of the Congressional Budget Office]

  The Committee on Ways and Means, to whom was referred the 
bill (H.R. 2378) to amend title VII of the Tariff Act of 1930 
to clarify that fundamental exchange-rate misalignment by any 
foreign nation is actionable under United States countervailing 
and antidumping duty laws, and for other purposes, having 
considered the same, report favorably thereon with amendments 
and recommend that the bill as amended do pass.
  The amendments are as follows:
  Strike all after the enacting clause and insert the 
following:

SECTION 1. SHORT TITLE.

   This Act may be cited as the ``Currency Reform for Fair Trade Act''.

SEC. 2. CLARIFICATION REGARDING DEFINITION OF COUNTERVAILABLE SUBSIDY.

  (a) Benefit Conferred.--Section 771(5)(E) of the Tariff Act of 1930 
(19 U.S.C. 1677(5)(E)) is amended--
          (1) in clause (iii), by striking ``and'' at the end;
          (2) in clause (iv), by striking the period at the end and 
        inserting ``, and''; and
          (3) by inserting after clause (iv) the following new clause:
                          ``(v) in the case in which the currency of a 
                        country in which the subject merchandise is 
                        produced is exchanged for foreign currency 
                        obtained from export transactions, and the 
                        currency of such country is a fundamentally 
                        undervalued currency, as defined in paragraph 
                        (37), the difference between the amount of the 
                        currency of such country provided and the 
                        amount of the currency of such country that 
                        would have been provided if the real effective 
                        exchange rate of the currency of such country 
                        were not undervalued, as determined pursuant to 
                        paragraph (38).''.
  (b) Export Subsidy.--Section 771(5A)(B) of the Tariff Act of 1930 (19 
U.S.C. 1677(5A)(B)) is amended by adding at the end the following new 
sentence: ``In the case of a subsidy relating to a fundamentally 
undervalued currency, the fact that the subsidy may also be provided in 
circumstances not involving export shall not, for that reason alone, 
mean that the subsidy cannot be considered contingent upon export 
performance.''.
  (c) Definition of Fundamentally Undervalued Currency.--Section 771 of 
the Tariff Act of 1930 (19 U.S.C. 1677) is amended by adding at the end 
the following new paragraph:
          ``(37) Fundamentally undervalued currency.--The administering 
        authority shall determine that the currency of a country in 
        which the subject merchandise is produced is a `fundamentally 
        undervalued currency' if--
                  ``(A) the government of the country (including any 
                public entity within the territory of the country) 
                engages in protracted, large-scale intervention in one 
                or more foreign exchange markets during part or all of 
                the 18-month period that represents the most recent 18 
                months for which the information required under 
                paragraph (38) is reasonably available, but that does 
                not include any period of time later than the final 
                month in the period of investigation or the period of 
                review, as applicable;
                  ``(B) the real effective exchange rate of the 
                currency is undervalued by at least 5 percent, on 
                average and as calculated under paragraph (38), 
                relative to the equilibrium real effective exchange 
                rate for the country's currency during the 18-month 
                period;
                  ``(C) during the 18-month period, the country has 
                experienced significant and persistent global current 
                account surpluses; and
                  ``(D) during the 18-month period, the foreign asset 
                reserves held by the government of the country exceed--
                          ``(i) the amount necessary to repay all debt 
                        obligations of the government falling due 
                        within the coming 12 months;
                          ``(ii) 20 percent of the country's money 
                        supply, using standard measures of M2; and
                          ``(iii) the value of the country's imports 
                        during the previous 4 months.''.
  (d) Definition of Real Effective Exchange Rate Undervaluation.--
Section 771 of the Tariff Act of 1930 (19 U.S.C. 1677), as amended by 
subsection (c) of this section, is further amended by adding at the end 
the following new paragraph:
          ``(38) Real effective exchange rate undervaluation.--The 
        calculation of real effective exchange rate undervaluation, for 
        purposes of paragraph (5)(E)(v) and paragraph (37), shall--
                  ``(A)(i) rely upon, and where appropriate be the 
                simple average of, the results yielded from application 
                of the approaches described in the guidelines of the 
                International Monetary Fund's Consultative Group on 
                Exchange Rate Issues; or
                  ``(ii) if the guidelines of the International 
                Monetary Fund's Consultative Group on Exchange Rate 
                Issues are not available, be based on generally 
                accepted economic and econometric techniques and 
                methodologies to measure the level of undervaluation;
                  ``(B) rely upon data that are publicly available, 
                reliable, and compiled and maintained by the 
                International Monetary Fund or, if the International 
                Monetary Fund cannot provide the data, by other 
                international organizations or by national governments; 
                and
                  ``(C) use inflation-adjusted, trade-weighted exchange 
                rates.''.

SEC. 3. REPORT ON IMPLEMENTATION OF ACT.

  (a) In General.--Not later than 9 months after the date of the 
enactment of this Act, the Comptroller General of the United States 
shall submit to Congress a report on the implementation of the 
amendments made by this Act.
  (b) Matters to Be Included.--The report required by subsection (a) 
shall include a description of the extent to which United States 
industries that have been materially injured by reason of imports of 
subject merchandise produced in foreign countries with fundamentally 
undervalued currencies have received relief under title VII of the 
Tariff Act of 1930 (19 U.S.C. 1671 et seq.), as amended by this Act.

  Amend the title so as to read:

    A bill to amend title VII of the Tariff Act of 1930 to 
clarify that countervailing duties may be imposed to address 
subsidies relating to a fundamentally undervalued currency of 
any foreign country.

                       I. SUMMARY AND BACKGROUND

                          Purpose and Summary

    The bill, H.R. 2378, the ``Currency Reform for Fair Trade 
Act'', as amended, contains sections amending Title VII of the 
Tariff Act of 1930 to clarify that countervailing duties may be 
imposed to address subsidies relating to a fundamentally 
undervalued currency.

                  Background and Need for Legislation

    In recent years the People's Republic of China (China), 
and, to a lesser extent, other countries, have engaged in 
protracted, large-scale intervention in foreign exchange 
markets. As a result, these countries have accumulated vast 
foreign currency reserves and assets that greatly exceed levels 
to insure against capital account or current account crises, or 
to meet external debt payment obligations. These interventions 
in the foreign exchange markets are not necessary to counter 
disorderly market conditions and serve no other legitimate 
purpose. In the case of China, the Government accumulates 
roughly $1 billion each day in foreign assets as a result of 
these interventions. China now holds more than $2.4 trillion in 
foreign assets--reserves that are far greater than those of any 
other country today and generally believed to be greater than 
those held by any other country in history.\1\
---------------------------------------------------------------------------
    \1\International Monetary Fund, International Financial Statistics, 
1940 to 2009, foreign exchange reserves, data series 1D.SZF and 1D.DZF. 
In fact, China currently has more foreign exchange reserves than the 
entire world did in 2000.
---------------------------------------------------------------------------
    The Committee held three hearings on the issue of China's 
currency policy over the last year: March 24, 2010, September 
15, 2010 and September 16, 2010. In the course of those 
hearings, the Committee learned that China's exchange rate 
policy (1) contributes to large trade deficits in the United 
States\2\ (and other economies), putting a drag on economic 
growth and job creation; (2) has a negative impact on trade 
policies, as some countries are reluctant to open their 
economies further to imports (including in WTO Doha 
negotiations); (3) depresses interest rates, and may have 
contributed to the financial crisis\3\; and (4) distorts 
investment patterns, as China looks to invest overseas the 
dollars it accumulates to keep the RMB undervalued.
---------------------------------------------------------------------------
    \2\President George W. Bush recognized this more than six years 
ago, in 2004, and again in 2007: ``We still have got a huge trade 
deficit with China which then causes us to want to work with them to 
adjust--to let their currency float. We think that would be helpful in 
terms of adjusting trade balances.''
    \3\See, e.g., Sebastian Mallaby, ``What OPEC Teaches China,'' 
Washington Post, January 25, 2009 (``[China's currency] manipulation is 
arguably the most important cause of the financial crisis''.); see also 
White House Press Release, December 21, 2008 (``[T]he most significant 
factor leading to the housing crisis was cheap money flowing into the 
U.S. from the rest of the world so that there was no natural restraint 
on flush lenders to push loans on Americans in risky ways'').
---------------------------------------------------------------------------
    With regard to trade, the undervalued RMB makes China's 
exports cheaper than they would be if China allowed its 
currency to appreciate, leading many economists to describe 
China's policy as effectively operating as an export 
subsidy.\4\ It also makes U.S. and other countries' exports to 
China more expensive. The Committee notes that U.S. trade 
deficit with China is by far the largest contributor to the 
overall U.S. trade deficit, which has been at record levels 
over the past ten years.
---------------------------------------------------------------------------
    \4\See, e.g., Federal Reserve Chairman Ben Bernanke, December 2006 
(and reiterated in July 2010): Describing China's exchange rate policy 
as an ``effective subsidy that an undervalued currency provides for 
Chinese firms that focus on exporting rather than producing for the 
domestic market.'' And Martin Wolf, Chief Economics Commentator for the 
Financial Times, December 2009: ``[T]he policy of keeping the exchange 
rate down is equivalent to an export subsidy . . . in other words, to 
protectionism.''
---------------------------------------------------------------------------
    Several economists have estimated the effect of China's 
policy on the U.S. trade deficit, economy, and employment. 
Peter Morici, the former chief economist of the International 
Trade Commission recently estimated that the U.S. trade deficit 
with China will reduce U.S. GDP in 2010 by more than $400 
billion, or nearly 3 percent.\5\ Paul Krugman, winner of the 
2008 Nobel Prize in Economics, estimates that China's exchange 
rate policy reduces U.S. GDP by 1.4 to 1.5 percentage points 
annually and reduces U.S. employment by 1.4 or 1.5 million 
jobs.\6\ Fred Bergsten, Director of the Peterson Institute for 
International Economics, testified recently before the 
Committee that eliminating the Chinese misalignment would 
create about half a million U.S. jobs, mainly in manufacturing 
and with above-average wages, over the next couple of years. He 
also noted that the budget cost of this effective stimulus 
effort would be zero.
---------------------------------------------------------------------------
    \5\Ariana Eunjung Cha and Sonja Ryst, ``Stocks Plunge as U.S. Trade 
Deficit Is Wider Than Expected,'' Washington Post, August 12, 2010.
    \6\See Paul Krugman, ``Chinese New Year,'' New York Times, January 
1, 2010 (China ``follows a mercantilist policy, keeping its trade 
surplus artificially high. And in today's depressed world, that policy 
is, to put it bluntly, predatory.''); and Comments at Economic Policy 
Institute Forum, March 12, 2010.
---------------------------------------------------------------------------
    The National Association of Manufacturers recently reported 
that ``NAM members, especially smaller manufacturers, have made 
it clear that the number-one factor affecting their exports is 
the value of the dollar.''\7\ Based on a historical analysis 
going back to 1972, NAM concluded that, if the dollar is 
overvalued relative to other currencies, ``there is virtually 
no chance of doubling U.S. exports in five years [an objective 
of President Obama's]--or even seeing any amount of significant 
growth.''\8\ NAM therefore urged the Administration to ``spare 
no effort to see that other currencies are market-determined 
and free of government intervention[.]''\9\
---------------------------------------------------------------------------
    \7\``Blueprint to Double Exports in Five Years,'' National 
Association of Manufacturers, July 26, 2010.
    \8\Id.
    \9\Id.
---------------------------------------------------------------------------
    Efforts to date to address this issue through dialogue have 
failed to resolve the issue. For the past seven years, the 
United States has pressed China to revalue its currency in 
various bilateral and multilateral fora. U.S. officials have 
raised the issue at the highest levels of government, including 
in bilateral meetings of the U.S-China Strategic and Economic 
Dialogue and the U.S.-China Joint Commission on Commerce and 
Trade (JCCT). The issue is also regularly discussed at the IMF, 
as the IMF's Articles of Agreement prohibit members from 
``manipulating exchange rates . . . to gain an unfair 
competitive advantage over other members[.]'' IMF staff review 
the exchange ratepolicies of Members, but the IMF is a 
consensus-based organization, and China has blocked any meaningful 
action on the issue. (Unlike the WTO, the IMF has no real mechanism to 
resolve disputes between its members.)
    The United States also recently initiated multilateral 
discussions of global imbalances in the G-20 summit meetings. 
In particular, at the September 2009 Summit in Pittsburgh, the 
G-20 leaders recognized, apparently for the first time, the 
need to work together to manage the transition ``to a more 
balanced pattern of global growth.'' They launched a 
``Framework for Strong, Sustainable, and Balanced Growth'' and 
pledged to work together, and with the IMF, to ``ensure that 
our fiscal, monetary, trade, and structural policies are 
collectively consistent with more sustainable and balanced 
trajectories for growth.'' This initiative was widely 
understood to include discussions of exchange rate policies.
    On June 16, 2010, in a letter to his G-20 counterparts 
shortly before a G-20 Summit in Toronto, President Obama 
expressed concern with ``continued heavy reliance on exports by 
some countries with already large external surpluses.'' 
According to the President, ``[o]ur ability to achieve a 
durable global recovery depends on our ability to achieve a 
pattern of global demand growth that avoids the imbalances of 
the past.'' The President ``underscore[d] that market-
determined exchange rates are essential to global economic 
vitality.''
    While the Government of China announced that it would begin 
to allow some flexibility in the exchange rate on June 19, 
2010, the Government of China continues to intervene massively 
in the currency markets and has allowed the RMB to appreciate 
less than two percent against the dollar in the past three 
months. Thus, the currency continues to be ``substantially 
undervalued,'' in the assessment of the IMF. According to one 
often cited estimate by the Peterson Institute of International 
Economics, the RMB is undervalued by about 24 percent against 
the dollar.
    The bill, as amended in the Chairman's amendment in the 
nature of a substitute, responds directly to the problem by 
providing relief for American companies and workers materially 
injured by mercantilist exchange rate policies--and it does so 
in a manner that is fully consistent with U.S. obligations 
under the Agreement Establishing the World Trade Organization. 
At the same time, it does not foreclose the need for continued 
multilateral engagement with China and other countries 
employing mercantilist exchange rate policies, which will be 
critical to addressing the whole spectrum of trade issues which 
result from such exchange rate policies. Secretary Geithner 
made this point in testimony before the Committee: ``[Y]ou 
raise the important question of what is the right mix of 
multilateral or U.S. actions. And my own view on these things--
and I am talking more broadly about the trade challenges we 
face in the relationship--is that we have to use all those 
devices. Many of the things we are talking about today that we 
care about in the United States are a huge concern to China's 
other trading partners as well; and the more effective we are 
in making these international issues multilateral issues, in my 
view, the more likely we are going to have an impact on their 
behavior.'' (Testimony of Secretary Geithner, September 16, 
2010.)

                          Legislative History

    H.R. 2378, a bill to amend Title VII of the Tariff Act of 
1930 to clarify that fundamental exchange-rate misalignment by 
any foreign nation is actionable under United States 
countervailing duty and antidumping duty laws, and for other 
purposes, was introduced on May 13, 2009, and referred to the 
House Committee on Ways and Means.
    The House Committee on Ways and Means marked up H.R. 2378 
on September 24, 2010, and ordered the bill, as amended, 
favorably reported by a voice vote, with a quorum present.

                      II. EXPLANATION OF THE BILL

Section 1. Short title

    Section 1 sets forth the short title of the bill as the 
``Currency Reform for Fair Trade Act.''

Section 2. Clarification Regarding Definition of Countervailable 
        Subsidy

                              PRESENT LAW

    Current law generally provides for the imposition of a 
countervailing duty where a government or any public entity of 
a country (an ``authority'') provides a ``countervailable 
subsidy'' with respect to the manufacture, production, or 
export of merchandise imported into the United States, if an 
industry in the United States is materially injured or is 
threatened with material injury, or if the establishment of an 
industry in the United States is materially retarded, by reason 
of that merchandise.
    A ``subsidy'' exists where an authority provides a 
``financial contribution'' (such as a ``direct transfer of 
funds'') to a person and ``a benefit is thereby conferred.'' A 
subsidy is a ``countervailable subsidy'' if it is ``specific'' 
(i.e., if it is ``specific . . . to an enterprise or 
industry'').
    Current law provides that subsidies that are ``contingent 
on export'' (i.e., where receipt of the subsidy is tied to 
export performance, alone or as one of two or more conditions) 
are deemed to be ``specific.'' These subsidies are known as 
``export subsidies.''
    Current law also clarifies how a determination is to be 
made that a ``benefit is thereby conferred'' in four different 
situations (involving government-provided equity infusions, 
loans, loan guarantees, and the provision of goods or 
services).

                      EXPLANATION OF THE PROVISION

    The provision provides certain clarifications that apply in 
assessing claims that a country has provided countervailable 
subsidies in maintaining a ``fundamentally undervalued 
currency.'' These clarifications include guidance: (1) On 
evaluating whether a currency is ``fundamentally undervalued''; 
(2) on how to measure the benefit provided by a subsidy related 
to a ``fundamentally undervalued currency''; and (3) in 
determining whether the subsidy related to a ``fundamentally 
undervalued currency'' is export contingent.
    Fundamentally Undervalued Currency. The provision defines a 
``fundamentally undervalued currency'' as one where: (1) An 
authority of the country engages in protracted, large-scale 
intervention in one or more foreign exchange markets; (2) the 
real effective exchange rate of the country is undervalued by 
at least 5 percent; (3) the country has experienced significant 
and persistent global current account surpluses; and (4) the 
foreign asset reserves of the country are excessive.
    The bill also lays out the methodology to calculate the 
level of undervaluation for purposes of determining whether a 
currency is ``fundamentally undervalued'' and for purposes of 
determining the amount of the benefit (see discussion below). 
Specifically, the bill directs Commerce to use of the 
guidelines of the International Monetary Fund's Consultative 
Group on Exchange Rate Issues (CGER), wherever possible. In 
addition, the bill directs Commerce to rely on IMF results from 
those models, if available.
    Benefit. The provision clarifies that a ``benefit'' is 
conferred in such cases when the currency of an allegedly 
subsidizing country is exchanged for foreign currency (such as 
U.S. dollars) obtained from export transactions. The bill 
directs Commerce to measure the benefit conferred under such 
circumstances as the difference between the amount of currency 
provided and the amount of currency that would have been 
provided if the currency of that country were not fundamentally 
undervalued.
    Specificity/Export Contingency. Finally, the bill provides 
a clarification with respect to export contingency. The bill 
clarifies that Commerce may not refuse to find that there is 
export contingency in a given case based on the single fact 
that a subsidy is available in circumstances in addition to 
export. While this provision relates to the case of subsidy 
claims relating to a fundamentally undervalued currency, the 
Committee expects that Commerce would apply the same, WTO-
consistent principle broadly in other contexts as well.

                           REASONS FOR CHANGE

    On August 30, 2010, in two pending countervailing duty 
investigations (Aluminum Extrusions from the People's Republic 
of China and Certain Coated Paper suitable for High-Quality 
Print Graphics Using Sheet-Fed Presses from the People's 
Republic of China), the Department of Commerce decided not to 
investigate allegations that the undervaluation of the currency 
of the People's Republic of China (the renminbi, or ``RMB'') 
confers a countervailable subsidy. The petitioners in those 
investigations noted that the subsidy would be provided if the 
merchandise subject to the investigation (i.e., aluminum 
extrusions, paper) were exported, but would not be provided if 
that merchandise were sold in the Chinese market. The 
petitioners also cited data showing that exporters account for 
70 percent of China's foreign currency earnings.
    This legislation clarifies that maintenance by a foreign 
government of a fundamentally undervalued currency can be 
considered to be contingent upon exportation, and so to 
constitute a countervailable export subsidy, notwithstanding 
that the subsidy is also available in circumstances other than 
export. The change responds to the determinations described 
above, in which Commerce found that the receipt of potential 
subsidies through China's currency regime was not contingent 
upon exportation, because such subsidies were provided not only 
to exporters, but also to parties not engaged in exportation.
    In the view of the Committee, the principle applied by the 
Department (i.e., that a subsidy cannot be contingent upon 
export if the subsidy can be provided in circumstances not 
involving export) is more restrictive than required under WTO 
disciplines. Moreover, it is at odds with World Trade 
Organization (WTO) precedent recognizing that a subsidy may 
still be export contingent, even if it is available in some 
circumstances that do not involve export.
    The WTO Agreement on Subsidies on Countervailing Measures 
(SCM Agreement) specifically provides that the requirement of 
``export contingency'' can be met either by showing there is a 
link to export contingency in law (either express or implicit) 
or ``when the facts demonstrate that the granting of a subsidy, 
without having been made legally contingent upon export 
performance, is in fact tied to actual or anticipated 
exportation or export earnings.'' (Footnote 4 to the SCM 
Agreement) The SCM Agreement does not support an approach that 
would have a single fact--the existence of a subsidy recipient 
other than an exporter--being determinative in all cases.
    The WTO Appellate Body has affirmed this principle in the 
context of de facto export subsidy claims (that is, where the 
facts demonstrate export contingency).
          [The SCM Agreement] makes it clear that de facto 
        export contingency must be demonstrated by the facts. 
        We agree with the Panel that what facts should be taken 
        into account in a particular case will depend on the 
        circumstances of that case. We also agree with the 
        Panel that there can be no general rule as to whatfacts 
or what kinds of facts must be taken into account. (need citation to 
Canada Aircraft)
    WTO precedent also deals directly with the assessment of 
``export contingency'' in situations where subsidies are 
provided both for export and in circumstances not involving 
export. Those cases deal primarily with de jure export subsidy 
claims. However, as the Appellate Body has stated:
          In our view, the legal standard expressed by the word 
        ``contingent'' is the same for both de jure or de facto 
        contingency. There is a difference, however, in what 
        evidence may be employed to prove that a subsidy is 
        export contingent. De jure export contingency is 
        demonstrated on the basis of the words of the relevant 
        legislation, regulation or other legal instrument. 
        Proving de facto export contingency is a much more 
        difficult task. There is no single legal document which 
        will demonstrate, on its face, that a subsidy is 
        ``contingent . . . in fact . . . upon export 
        performance''. Instead, the existence of this 
        relationship of contingency, between the subsidy and 
        export performance, must be inferred from the total 
        configuration of the facts constituting and surrounding 
        the granting of the subsidy, none of which on its own 
        is likely to be decisive in any given case. (Appellate 
        Body Report, Canada--Aircraft, WT/DS70/AB/R, 2 August 
        1999, p. 43, para. 167.)
    One such relevant WTO precedent arises out of the United 
States--Tax Treatment for ``Foreign Sales Corporations'' 
Recourse to Article 21.5 of the DSU by the European 
Communities, WT/DS108/AB/RW, adopted January 29, 2002. In that 
case, Congress enacted the Extraterritorial Income Exclusion 
Act of 2000 after the WTO ruled the Foreign Sales Corporation 
(FSC) Act to be WTO inconsistent. Under the ETI Act, a tax 
break would be available in two different situations: (1) when 
goods were produced domestically and sold for use abroad (i.e., 
exported); and (2) when goods were produced abroad and sold for 
use abroad. The WTO dispute settlement panel ruled that, in the 
first situation, export is a ``necessary precondition'' for 
receiving the subsidy, and therefore ``export contingency'' 
under WTO rules exists. The panel then stated that any 
possibility for receiving the subsidy without exporting (i.e., 
the second situation) does not ``vitiate'' the export 
contingency that exists with respect to goods produced in the 
United States.
    The Appellate Body reached the same conclusion:
          We recall that the ETI measure grants a tax exemption 
        in two different sets of circumstances: (a) where 
        property is produced within the United States and held 
        for use outside the United States; and (b) where 
        property is produced outside the United States and held 
        for use outside the United States. Our conclusion that 
        the ETI measure grants subsidies that are export 
        contingent in the first set of circumstances is not 
        affected by the fact that the subsidy can also be 
        obtained in the second set of circumstances. The fact 
        that the subsidies granted in the second set of 
        circumstances might not be export contingent does not 
        dissolve the export contingency arising in the first 
        set of circumstances. (Appellate Body Report, p. 37, 
        para. 119; see also United States--Subsidies on Upland 
        Cotton, WT/DS267).
    The Committee also notes with interest the line of 
reasoning of the Panel and the Appellate Body that led to the 
conclusion that the subsidy was contingent upon export 
performance in the first set of circumstances. The panel noted 
that, in the first set of circumstances, the subsidy was 
available with respect to goods produced within the United 
States that are exported, but ``the subsidy is not available in 
relation to goods produced within the United States sold for 
use within the United States[.] . . . Thus, in relation to 
U.S.-produced goods, the words of the statute itself make it 
clear that exporting is a necessary precondition to qualify for 
the subsidy. . . . [T]he existence and amount of the subsidy 
depends upon the existence of income arising from the 
exportation of such goods.'' (Panel Report, United States--Tax 
Treatment for ``Foreign Sales Corporations''--Recourse to 
Article 21.5 of the DSU by the European Communities, WT/DS108/
RW,  pp. 31-32, para. 8.60.) The Appellate Body took the same 
approach to this issue. (Appellate Body Report, United States--
Tax Treatment for ``Foreign Sale Corporations''--Recourse to 
Article 21.5 of the DSU by the European Communities, WT/DS108/
AB/RW, p. 36, para. 117).
    In the view of the Committee, it is important and 
appropriate to bring Commerce practice into line with the 
above-cited SCM Agreement provisions and WTO precedent on the 
issue of export contingency.
    The provision also provides direction in how to determine 
the amount of the benefit that results from a fundamentally 
undervalued currency. While estimates of currency 
undervaluation can vary, the Committee understands that the 
International Monetary Fund's Consultative Group on Exchange 
Rate Issues has developed approaches, and may continue to 
refine approaches, to estimate as closely as possible the 
degree of undervaluation of a currency. The bill also directs 
Commerce to use IMF data which is ``publically available [and] 
reliable.'' If such data is not available, the Committee 
expects Commerce to use other public, reliable data, from an 
institution such the World Bank. In addition, the Committee 
understands that undervaluation is best estimated on a ``real'' 
(i.e., inflation-adjusted) and ``effective'' (i.e., trade-
weighted) basis, but that it will be necessary to convert the 
estimate into a bilateral exchange rate (i.e., the difference 
between the amount of domestic currency the recipient received 
when the recipient exchanges its foreign currency and the 
amount the recipient would have received if the domestic 
currency were not fundamentally undervalued).
    Finally, in the view of the Committee, it would be 
inappropriate to impose countervailing duties in cases in which 
a currency is not ``fundamentally'' undervalued. For example, 
in some cases a government or other public entity may intervene 
in the foreign exchange markets to accumulate foreign exchange 
reserves for reasons such as to provide a defense against 
substantial and rapid capital outflows. (See Annex to Report to 
Congress on International Economic and Exchange Rate Policies, 
U.S. Department of the Treasury, July 8, 2010.)

                             EFFECTIVE DATE

    The provision goes into effect on the date of enactment.
    Section 3. Report on Implementation of Act.

                              PRESENT LAW

    No provision.

                        EXPLANATION OF PROVISION

    The provision requires the Comptroller General of the 
United States to report to Congress on the implementation of 
the amendments made by this Act. The report is to include a 
description of the extent to which U.S. industries that have 
been materially injured by reason of imports of subject 
merchandise produced in countries with fundamentally 
undervalued currencies received relief.

                           REASON FOR CHANGE

    The implementation of this Act will help to ensure that 
U.S. companies and workers who are materially injured by 
unfairly traded imports obtain relief, and this report will 
facilitate the Committee's oversight functions in connection 
with the trade remedy laws.

                             Effective Date

    The provision goes into effect on the date of enactment.

                      III. VOTES OF THE COMMITTEE

    In compliance with clause 3(b) of rule XIII of the Rules of 
the House of Representatives, the following statements are made 
concerning the votes of the Committee on Ways and Means in its 
consideration of H.R. 2378, the ``Currency Reform for Fair 
Trade Act,'' was ordered favorably reported by a voice vote.

                    MOTION TO REPORT RECOMMENDATIONS

    The bill, H.R. 2378, the ``Currency Reform for Fair Trade 
Act,'' as amended, was ordered favorably reported by a voice 
vote.
    Mr. Camp offered an amendment which would require the 
Comptroller General of the United States to consider the effect 
of the Act on United States manufacturers that are industrial 
users of imported products subject to countervailing duties 
under this Act. The amendment was defeated by a voice vote.

                     IV. BUDGET EFFECTS OF THE BILL

                Committee Estimate of Budgetary Effects

    In compliance with clause 3(d)(2) of rule XIII of the Rules 
of the House of Representatives, the following Statement is 
made concerning the effects on the budget of this bill, H.R. 
2378, as reported:
    The bill is estimated to have the following effects of 
Federal budget receipts for fiscal years 2008-2017:
    The estimated budgetary impact of H.R. 2378 is shown in the 
following table. This legislation's effects on federal spending 
fall within budget function 150 (international affairs) and 370 
(commerce and housing credit).

--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                                                       By fiscal year, in millions of dolllars--
                                                             -------------------------------------------------------------------------------------------
                                                               2011   2012   2013   2014   2015   2016   2017   2018   2019   2020  2011-2015  2011-2020
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                                   CHANGES IN REVENUES

Estimated Revenues..........................................      0      5     15     15     20     20     15     15     10     10       55        125

                                                      CHANGES IN SPENDING SUBJECT TO APPROPRIATION

Estimated Authorization Level...............................      8      8      8      9      9      9      9     10     11     11       42         93
Estimated Outlays...........................................      7      8      8      9      9      9      9     10     11     11       41         92
--------------------------------------------------------------------------------------------------------------------------------------------------------

      Statement Regarding New Budget Authority or Tax Expenditures

    In compliance with clause 3(c)(2) of rule XIII of the Rules 
of the House of Representatives, the Committee states that the 
bill involves new or increased budget authority. The Committee 
further states that the revenue-reducing tax provisions involve 
increased tax expenditures. (See amounts in the Congressional 
Budget Office estimate provided below and in the table in Part 
IV.A., above.)

       Cost Estimate Prepared by the Congressional Budget Office

    In compliance with clause 3(c)(3) of rule XIII of the Rules 
of the House of Representatives, requiring a cost estimate 
prepared by the CBO, the following report prepared by the CBO 
is provided.

                                     U.S. Congress,
                               Congressional Budget Office,
                                Washington, DC, September 28, 2010.
Hon. Sander M. Levin,
Chairman, Committee on Ways and Means,
House of Representatives, Washington, DC.
    Dear Mr. Chairman: The Congressional Budget Office has 
prepared the enclosed cost estimate for H.R. 2378, the Currency 
Reform for Fair Trade Act.
    If you wish further details on this estimate, we will be 
pleased to provide them. The CBO staff contact is Kalyani 
Parthasarathy.
            Sincerely,
                                        Robert A. Sunshine,
                              (For Douglas W. Elmendorf, Director.)
    Enclosure.

H.R. 2378--Currency Reform for Fair Trade Act

    Summary: H.R. 2378 would expand the definition of 
countervailing subsidies--financial benefits granted by 
governments to certain domestic exporting firms--that could 
trigger the imposition of additional import tariffs under 
current U.S. countervailing duty law. This bill would add to 
the list of such subsidies the benefit enjoyed by a firm 
exporting from a country with a ``fundamentally undervalued'' 
currency. The bill specifies the mechanisms for determining the 
size of this subsidy and for identifying a fundamentally 
undervalued currency. The bill would also provide that export 
subsidies by such countries could not be disregarded for 
purposes of assessing countervailing duties solely because the 
subsidy is also provided to non-exporters.
    Because enacting H.R. 2378 would increase customs duties 
and thus federal revenues, pay-as-you-go procedures apply. CBO 
estimates those additional revenues would total $125 million 
over the 2011-2020 period. Enacting H.R. 2378 would not affect 
direct spending.
    Based on information from the International Trade 
Administration (ITA) and the International Trade Commission 
(ITC), the two agencies that determine whether countervailing 
duties should be levied, CBO estimates that implementing H.R. 
2378 would cost $41 million over the 2011-2015 period, assuming 
appropriation of the necessary amounts.
    H.R. 2378 contains no intergovernmental mandates as defined 
in the Unfunded Mandates Reform Act (UMRA) and would impose no 
costs on state, local, or tribal governments.
    The bill would impose a private-sector mandate, as defined 
in UMRA, on importer goods that would be subject to higher 
tariffs imposed under the bill. The cost of the mandate would 
depend on the number and value of imports affected and the 
increase in the tariff rate. Based on information from ITC, 
ITA, and industry sources, CBO estimates that the cost of the 
mandate would fall below the annual threshold established in 
the Unfunded Mandates Reform Act for private-sector mandates 
($141 million in 2010, adjusted annually for inflation) during 
each of the first five years that the mandate would be in 
effect.
    Estimated cost to the Federal Government: The estimated 
budgetary impact of H.R. 2378 is shown in the following table. 
This legislation's effects on federal spending fall within 
budget function 150 (international affairs) and 370 (commerce 
and housing credit).

--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                                                       By fiscal year, in millions of dollars--
                                                             -------------------------------------------------------------------------------------------
                                                               2011   2012   2013   2014   2015   2016   2017   2018   2019   2020  2010-2015  2010-2020
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                                   CHANGES IN REVENUES

Estimated Revenues..........................................      0      5     15     15     20     20     15     15     10     10       55        125

                                                      CHANGES IN SPENDING SUBJECT TO APPROPRIATION

Estimated Authorization Level...............................      8      8      8      9      9      9      9     10     11     11       42         93
Estimated Outlays...........................................      7      8      8      9      9      9      9     10     11     11       41         92
--------------------------------------------------------------------------------------------------------------------------------------------------------

    Basis of estimate: For this estimate, CBO assumes that the 
bill will be enacted late in calendar year 2010.

Revenues

    Under current law, if ITA identifies that a countervailing 
subsidy has been conferred on certain goods, and if ITC 
determines that a U.S. industry has been materially injured by 
that subsidy, countervailing duties--additional import 
tariffs--are imposed on those goods. In the past few years, no 
such duties have been collected as a result of successful 
petitions alleging that countervailing subsidies were conferred 
on products that were exported from countries likely to meet 
the definition of having a ``fundamentally undervalued 
currency'' as defined in the bill. However, H.R. 2378 would 
expand the set of actionable subsidies under current law and 
would stipulate that export subsidies from countries with 
fundamentally undervalued currencies would be actionable even 
if also provided to non-exporters; thus, the bill would likely 
increase the amount of countervailing duties applied.
    Based on information provided by ITC, ITA, and industry 
experts, CBO estimates that a small share of imports from 
countries with undervalued currencies would be found to cause 
such material injury to domestic firms; therefore, enacting 
H.R. 2378 would lead to an increase of $125 million in federal 
revenues (net of income and payroll tax offsets) over the 2011-
2020 period. CBO expects that countervailing duties would 
increase to an amount that would make them smaller than 
existing antidumping duties applied to countries potentially 
having undervalued currencies as defined by the bill.
    The estimated revenue effect is lower than it would 
otherwise be in part because the bill does not affect the 
determination of material injury to a U.S. industry. In 
addition, many imports do not injure domestic firms because 
there are no competitors currently operating in the United 
States. Finally, a projected decline in the value of the U.S. 
dollar would also reduce any potential revenues. The estimate 
is subject to considerable uncertainty with respect to how the 
provisions would be implemented and the relative values of 
various currencies.

Spending subject to appropriation

    Based on information from both ITA and ITC, CBO estimates 
that implementing H.R. 2378 would cost $41 million over the 
2011-2015 period, assuming appropriation of the necessary 
amounts, for salaries, benefits, and administrative expenses to 
hire 36 additional staff at ITA and for additional 
administrative activities at ITC to conduct investigations 
under the new requirements. The number of countervailing duty 
petitions that could arise under the bill is very uncertain, 
and the agencies' administrative costs could be higher if the 
volume of cases increased significantly.
    Pay-as-you-go considerations: The Statutory Pay-As-You-Go 
Act of 2010 establishes budget reporting and enforcement 
procedures for legislation affecting direct spending or 
revenues. CBO estimates that enacting H.R. 2378 would increase 
revenues and would not affect direct spending.
    The changes in revenues that are subject to pay-as-you go 
procedures are shown in the following table.

--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                                               By fiscal year, in millions of dollars--
                                             -----------------------------------------------------------------------------------------------------------
                                                                                                                                                  2010-
                                               2010    2011    2012    2013    2014    2015    2016    2017    2018    2019    2020   2010-2015    2020
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                       NET INCREASE OR DECREASE (-) IN THE DEFICIT

Statutory Pay-As-You Go Impact..............       0       0      -5     -15     -15     -20     -20     -15     -15     -10     -10       -55      -125
--------------------------------------------------------------------------------------------------------------------------------------------------------

    Intergovernmental and private-sector impact: H.R. 2378 
contains no intergovernmental mandates as defined in UMRA and 
would impose no costs on state, local, or tribal governments.
    The bill would impose a private-sector mandate, as defined 
in UMRA, on importers of goods that would be subject to higher 
tariffs imposed under the bill. The cost of the mandate would 
depend on the number and value of imports affected and the 
increase in the tariff rate. Based on information from ITC, 
ITA, and industry sources, CBO estimates that the cost of the 
mandate would fall below the annual threshold established in 
the Unfunded Mandates Reform Act for private-sector mandates 
($141 million in 2010, adjusted annually for inflation) during 
each of the first five years that the mandate would be in 
effect.
    Estimate prepared by: Federal Revenues: Kalyani 
Parthasarathy; Federal Spending: Susan Willie and Sunita 
D'Monte; Impact on State, Local, and Tribal Governments: Ryan 
Miller; Impact on the Private Sector: Samuel Wice.
    Estimate approved by: Theresa Gullo, Deputy Assistant 
Director for Budget Analysis; Frank Sammartino, Assistant 
Director for Tax Analysis.

                     Macroeconomic Impact Analysis

    In compliance with clause 3(h)(2) of rule XIII of the Rules 
of the House of Representatives, the following statement is 
made by the Joint Committee on Taxation with respect to the 
provisions of the bill amending the Internal Revenue Code of 
1986: the effects of the bill on economic activity are so small 
as to be incalculable within the context of a model of the 
aggregate economy.

     V. OTHER MATTERS TO BE DISCUSSED UNDER THE RULES OF THE HOUSE

          A. Committee Oversight Findings and Recommendations

    With respect to clause 3(c)(1) of rule XIII of the House of 
Representatives (relating to oversight findings), the Committee 
advises that it is appropriate and timely to consider H.R. 2378 
as reported.

        B. Statement of General Performance Goals and Objectives

    With respect clause 3(c)(4) of rule XIII of the Rules of 
the House of Representatives, the Committee advises that the 
bill contains no measure that authorizes funding, so no 
statement of general performance goals and objectives for which 
any measure authorizes funding is required.

                 C. Constitutional Authority Statement

    With respect to clause 3(d)(1) of rule XIII of the Rules of 
the House of Representatives (relating to Constitutional 
Authority), the Committee states that the Committee's action in 
reporting this bill is derived from Article I of the 
Constitution, Section 8 (``The Congress shall have Power To lay 
and collect Taxes, Duties, Imposes and Excises . . .'').

              D. Information Relating to Unfunded Mandates

    This information is provided in accordance with section 423 
of the Unfunded Mandates Act of 1995 (Pub. L. No. 104-4).
    H.R. 2378 contains no intergovernmental mandates as defined 
in UMRA and would impose no costs on state, local, or tribal 
governments. The bill would impose a private-sector mandate, as 
defined in UMRA, on importers of goods that would be subject to 
higher tariffs imposed under the bill.
    The Committee has determined that the revenue provisions of 
the bill do not impose a Federal intergovernmental mandate on 
State, local, or tribal governments.

                E. Applicability of House Rule XXI 5(b)

    Clause 5(b) of rule XXI of the Rules of the House of 
Representatives provides, in part, that ``A bill or join 
resolution, amendment, or conference report carrying a Federal 
income tax rate increase may not be considered as passed or 
agreed to unless so determined by a vote of not less than 
three-fifths of the Members voting, a quorum being present.'' 
The Committee has carefully reviewed the provisions of the 
bill, and states that the provisions of the bill do not involve 
any Federal income tax rate increases within the meaning of the 
rule.

                        F. Limited Tax Benefits

    Pursuant to clause 9 of rule XXI of the Rules of the House 
of Representatives, the Ways and Means Committee has determined 
that the bill as reported contains no congressional earmarks, 
limited tax benefits, or limited tariff benefits within the 
meaning of that rule.

         Changes in Existing Law Made by the Bill, as Reported

  In compliance with clause 3(e) of rule XIII of the Rules of 
the House of Representatives, changes in existing law made by 
the bill, as reported, are shown as follows (existing law 
proposed to be omitted is enclosed in black brackets, new 
matter is printed in italic, existing law in which no change is 
proposed is shown in roman):

TARIFF ACT OF 1930

           *       *       *       *       *       *       *

TITLE VII--COUNTERVAILING AND ANTIDUMPING DUTIES

           *       *       *       *       *       *       *

                     Subtitle D--General Provisions

SEC. 771. DEFINITIONS; SPECIAL RULES.

  For purposes of this title--
          (1) * * *

           *       *       *       *       *       *       *

          (5) Countervailable subsidy.--
                  (A) * * *

           *       *       *       *       *       *       *

                  (E) Benefit conferred.--A benefit shall 
                normally be treated as conferred where there is 
                a benefit to the recipient, including--
                          (i) * * *

           *       *       *       *       *       *       *

                          (iii) in the case of a loan 
                        guarantee, if there is a difference, 
                        after adjusting for any difference in 
                        guarantee fees, between the amount the 
                        recipient of the guarantee pays on the 
                        guaranteed loan and the amount the 
                        recipient would pay for a comparable 
                        commercial loan if there were no 
                        guarantee by the authority, [and]
                          (iv) in the case where goods or 
                        services are provided, if such goods or 
                        services are provided for less than 
                        adequate remuneration, and in the case 
                        where goods are purchased, if such 
                        goods are purchased for more than 
                        adequate remuneration[.], and
                          (v) in the case in which the currency 
                        of a country in which the subject 
                        merchandise is produced is exchanged 
                        for foreign currency obtained from 
                        export transactions, and the currency 
                        of such country is a fundamentally 
                        undervalued currency, as defined in 
                        paragraph (37), the difference between 
                        the amount of the currency of such 
                        country provided and the amount of the 
                        currency of such country that would 
                        have been provided if the real 
                        effective exchange rate of the currency 
                        of such country were not undervalued, 
                        as determined pursuant to paragraph 
                        (38).

           *       *       *       *       *       *       *

          (5A) Specificity.--
                  (A) * * *
                  (B) Export subsidy.--An export subsidy is a 
                subsidy that is, in law or in fact, contingent 
                upon export performance, alone or as 1 of 2 or 
                more conditions. In the case of a subsidy 
                relating to a fundamentally undervalued 
                currency, the fact that the subsidy may also be 
                provided in circumstances not involving export 
                shall not, for that reason alone, mean that the 
                subsidy cannot be considered contingent upon 
                export performance.

           *       *       *       *       *       *       *

          (37) Fundamentally undervalued currency.--The 
        administering authority shall determine that the 
        currency of a country in which the subject merchandise 
        is produced is a ``fundamentally undervalued currency'' 
        if--
                  (A) the government of the country (including 
                any public entity within the territory of the 
                country) engages in protracted, large-scale 
                intervention in one or more foreign exchange 
                markets during part or all of the 18-month 
                period that represents the most recent 18 
                months for which the information required under 
                paragraph (38) is reasonably available, but 
                that does not include any period of time later 
                than the final month in the period of 
                investigation or the period of review, as 
                applicable;
                  (B) the real effective exchange rate of the 
                currency is undervalued by at least 5 percent, 
                on average and as calculated under paragraph 
                (38), relative to the equilibrium real 
                effective exchange rate for the country's 
                currency during the 18-month period;
                  (C) during the 18-month period, the country 
                has experienced significant and persistent 
                global current account surpluses; and
                  (D) during the 18-month period, the foreign 
                asset reserves held by the government of the 
                country exceed--
                          (i) the amount necessary to repay all 
                        debt obligations of the government 
                        falling due within the coming 12 
                        months;
                          (ii) 20 percent of the country's 
                        money supply, using standard measures 
                        of M2; and
                          (iii) the value of the country's 
                        imports during the previous 4 months.
          (38) Real effective exchange rate undervaluation.--
        The calculation of real effective exchange rate 
        undervaluation, for purposes of paragraph (5)(E)(v) and 
        paragraph (37), shall--
                  (A)(i) rely upon, and where appropriate be 
                the simple average of, the results yielded from 
                application of the approaches described in the 
                guidelines of the International Monetary Fund's 
                Consultative Group on Exchange Rate Issues; or
                  (ii) if the guidelines of the International 
                Monetary Fund's Consultative Group on Exchange 
                Rate Issues are not available, be based on 
                generally accepted economic and econometric 
                techniques and methodologies to measure the 
                level of undervaluation;
                  (B) rely upon data that are publicly 
                available, reliable, and compiled and 
                maintained by the International Monetary Fund 
                or, if the International Monetary Fund cannot 
                provide the data, by other international 
                organizations or by national governments; and
                  (C) use inflation-adjusted, trade-weighted 
                exchange rates.

           *       *       *       *       *       *       *

                            ADDITIONAL VIEWS

    Although some of us support and some of us oppose H.R. 
2378, as modified by the Chairman's amendment in the nature of 
a substitute, we all share the following views. First, China's 
currency is fundamentally misaligned. We all agree that China 
must take prompt action to allow market forces to determine the 
value of its currency. Since the Obama Administration took 
office, the RMB has appreciated by less than 1.5%. In contrast, 
from 2005-2008, under the Bush Administration, the RMB 
appreciated by approximately 20%. The lack of progress over the 
last 20 months is unacceptable.

                      WTO-Consistency is Essential

    We all agree that any legislative action meant to address 
currency undervaluation must be consistent with international 
commitments and the overarching values of the multilateral 
trading system.\1\ Legislation that is WTO-inconsistent exposes 
the United States to WTO-sanctioned retaliation and undoubtedly 
does more harm than good. Such legislation would set American 
exporters and American workers up for significant legal 
retaliation and would inevitably undermine multilateral efforts 
to address China's undervalued currency. We cannot credibly 
pursue remedies to China's WTO violations if we are acting 
inconsistently with our own obligations.
---------------------------------------------------------------------------
    \1\We note that while the original version of H.R. 2378 and the 
Chairman's amendment in the nature of a substitute apply to any country 
that undervalues its currency, the Committee's hearings and legislative 
history make clear that China is the primary country of concern.
---------------------------------------------------------------------------
    At our hearing on September 16, 2010, Secretary Geithner 
emphasized the importance of our compliance with WTO rules, 
explaining that legislation must ``be consistent with our 
international obligations. We have to be confident that if we 
take action under it, it will withstand challenge in the WTO.'' 
He added, ``If we took action that was inconsistent, that could 
be challenged, then China or any other country involved could 
then, under the WTO, take additional action that would 
disadvantage other U.S. parties, including people completely 
unrelated to the underlying case.''
    The next day, Ranking Member Camp and Subcommittee on Trade 
Ranking Member Brady sent a letter to Ambassador Kirk asking 
him whether H.R. 2378, as originally drafted, is WTO 
consistent. We are concerned that we still have not received an 
answer and that an Administration official was not present 
during Committee consideration of the bill to opine on its 
consequences and how it would be applied.
    Testimony at our hearing on September 15, 2010, clearly 
identified pitfalls in the original version of H.R. 2378. At 
that hearing, former USTR General Counsel Ira Shapiro expressed 
serious doubt about the WTO-consistency of the original bill. 
Similarly, in a memorandum that was discussed at length at the 
hearing and included in the hearing record, former WTO 
Appellate Body Chairman Jim Bacchus warned that legislation 
amending the countervailing duty law to require Commerce to 
apply antidumping and countervailing duties would likely run 
afoul of our WTO obligations. We all believe that H.R. 2378, in 
its original form, would have invited WTO-authorized 
retaliation against U.S. exports.

     Chairman's Substitute Addresses ``On Its Face'' WTO Violations

    H.R. 2378, as modified by the Chairman's amendment in the 
nature of a substitute, is substantially different than the 
bill as introduced and addresses many of the concerns we 
expressed over the course of the four hearings this Committee 
held this year on China. Those of us who support the bill do so 
only because the Chairman took into account the critical issues 
that many witnesses and Republican Members raised at our 
hearings, especially the importance of ensuring that the 
legislation, on its face, is compliant with our WTO 
obligations.
    At the outset, the Chairman's amendment removes entirely 
the antidumping portion of the original bill, which would have 
required an adjustment to take account of currency 
undervaluation even though the price in the United States 
already reflects that undervaluation.
    With respect to countervailing duties, the substitute does 
not require the Administration to take action that would 
violate our obligations, unlike the original version of H.R. 
2378, which would have mandated that the Department of Commerce 
automatically adjust countervailing duty calculations to 
account for a country's currency policy. Instead, the 
substitute leaves the decision to impose countervailing duties 
entirely in the discretion of the Department of Commerce, as 
under current law, allowing Commerce to consider many factors 
in determining whether or not a country's currency policy 
satisfies the technical definition of an export subsidy. It 
does not presuppose an outcome.
    In fact, contrary to majority staff testimony at the markup 
and other statements by the majority, we are not convinced that 
this legislation invalidates Commerce's reasoning to date, in 
which Commerce has found that a country's currency policy does 
not constitute a countervailable substitute.\2\ Specifically, 
we do not believe the fact that the alleged subsidy is 
available to non-exporters is the only reason for Commerce to 
find that a country's currency policy does not constitute an 
export subsidy.
---------------------------------------------------------------------------
    \2\See, e.g., Memorandum to Ronald K. Lorentzen Deputy Assistant 
Secretary for Import Administration regarding Countervailing Duty 
Investigation: Aluminum Extrusions from the People's Republic of China, 
August 30, 2010.
---------------------------------------------------------------------------
    We also question whether reference to the FSC/ETI decision 
made by majority staff during the Committee consideration of 
this legislation to justify a finding that currency 
undervaluation constitutes a countervailable subsidy is 
appropriate here\3\ That case involved a de jure export 
contingent subsidy--a subsidy that was written directly into 
the law--that is not evident here. Under the ETI regime, the 
law specified that a good was required to be sent overseas to 
obtain the tax benefit. The same is not true of an exchange 
rate regime such as China's. Rather, we would expect that the 
WTO would use a de facto analysis, which, as USTR has 
previously argued, requires the WTO to evaluate the totality of 
the circumstances.\4\ Using such an analysis, it is hard to 
imagine that China's currency policy would be considered export 
contingent given that anyone who seeks to exchange currency, 
whether an exporter, a tourist, an investor, or a Chinese 
purchaser of imports, benefits.
---------------------------------------------------------------------------
    \3\See Appellate Body Report, United States--Tax Treatment for 
``Foreign Sales Corporations''--Recourse to Article 21.5 of the DSU by 
the European Communities, WT/DS108/AB/RW, adopted 29 January 2002, DSR 
2002:I, 55.
    \4\See Panel Report, Australia--Subsidies Provided to Producers and 
Exporters of Automotive Leather, WT/DS 126/R, adopted 16 June 1999, DSR 
1999:III 951 at paras. 9.50-9.51 (``The United States argues that a 
contingent-in-fact export subsidy will exist when actual or anticipated 
exportation is merely one of several potential criteria influencing the 
bestowal of benefits. Thus, if the totality of the circumstances reveal 
that these benefits are signed to promote exports, then such benefits 
fall within the broad definition of Article 3.1(a).'').
---------------------------------------------------------------------------
    Furthermore, we note that the substitute does not amend the 
definition of ``financial contribution,'' another element of 
the three-part test applied to determine whether a subsidy is 
countervailable. Accordingly, Commerce will continue to analyze 
this issue based on current law. At our hearings, we heard from 
witnesses who questioned whether China's currency policy 
satisfies the definition of ``financial contribution'' because 
the exchange rate policy does not effect the government in one 
of the ways contemplated under current law, which reflects the 
obligations of the WTO Agreement on Subsidies and 
Countervailing Measure.\5\ We are not convinced that it does.
---------------------------------------------------------------------------
    \5\See Written Testimony of Ira Shapiro Before the Committee on 
Ways and Means Hearing on China's Exchange Rate Policy, September 15, 
2010. See also Memorandum from James L. Bacchus and Ira Shapiro to Jim 
Jarrett, Chairman, International Economic Affairs Policy Group, 
National Association of Manufacturers, regarding The Consistency with 
the WTO Obligations of the United States of H.R. 1498, the Hunter-Ryan 
bill, September 12, 2006.
---------------------------------------------------------------------------
    Finally, with respect to the definition of ``benefit,'' the 
final element in determining countervailability, we believe 
that the Chairman's substitute merely restates the analysis 
that Commerce already applies.
    We all remain deeply concerned about using the 
countervailing duty law to address China's currency policy. 
However, while we continue to believe it is potentially 
problematic to link the application of countervailing duty laws 
to currency undervaluation, the bill does not appear to violate 
our WTO obligations on its face. There is reason to believe 
that Commerce, in carrying out these provisions should the 
Chairman's substitute become law, would exercise its discretion 
with respect to countervailing currency policy as it has been 
doing, so the risk of an ``as applied'' violation is 
substantially reduced.
    We also have some concerns with ambiguities in the 
legislation. For example, terms like ``significant and 
persistent global account surpluses'' in section 2(c) (lines 
21-2 of page 3) should be more precisely defined. Similarly, 
the legislation would benefit if there were greater clarity 
about what data the Department of Commerce should use if IMF 
data is not available in section 2(d) (line 9 of page 5). 
Commerce should limit its data collection to reputable 
multilateral organizations that have well-developed expertise, 
like the World Bank, rather than unspecified other 
``international organizations.'' In addition, we question 
whether the Department of Commerce is the appropriate 
Administration agency to determine undervaluation given the 
expertise at the Department of the Treasury. We hope that our 
concerns will be taken into account should this bill move 
forward in the legislative process.
    Nevertheless, for those of us that are supportive of the 
legislation, we believe that passage of the legislation sends a 
clear signal to China that Congress's patience is running out.

 Administration Should Improve Multilateral Efforts, A More Effective 
                                Approach

    Regardless of whether we support or oppose the legislation, 
we all strongly agree that it is time for this Administration 
to produce results. Congress has waited patiently for too long. 
We firmly believe that the reason that we are considering 
currency legislation at all is because this Administration has 
not moved aggressively enough to combat China's currency 
intervention. The Administration should promptly develop a more 
robust plan to aggressively address China's currency policy in 
high-level bilateral summits, including the Strategic and 
Economic Dialogue, and in multilateral summits, including the 
G-20.
    In particular, the Administration must find ways to 
strengthen and improve its efforts to work with our trading 
partners to address global imbalances. We must work with our 
partners in Europe, Japan, Brazil, India, and other Asian 
countries to set a clear timeline for action. We believe that 
the first step is to elevate the issue of global imbalances--
which naturally includes China's currency policy-- and include 
it as a key deliverable at the November G-20 meetings in Seoul. 
The Administration should also work to establish a robust, 
multilateral process--perhaps through the G-20, a G-20 sub-
group, the IMF, or elsewhere--so that other countries, 
particularly China's neighbors in Asia, can bring new points of 
pressure to bear.
    While rebalancing the global economy will take time, the 
Administration must begin by developing a timetable for action 
and a clear path for achieving its goals. In addition, we call 
on the Administration to issue by the statutory deadline its 
October report identifying currency manipulators.

 Currency Legislation Fails To Resolve More Important Priorities With 
                                 China

    Opinions vary as to whether this legislation will be 
effective in getting China to revalue its currency to reflect 
market norms, reduce the trade deficit, and create American 
jobs. An undervalued RMB is only one issue that we face in our 
complicated trading relationship with China. We all believe 
that there are more important priorities in our trading 
relationship, and bigger barriers to U.S. exports than China's 
undervalued currency. We must assure that efforts to address 
China's currency misalignment not undermine our ability to 
address with China more pressing issues like intellectual 
property rights, indigenous innovation and a host of other non-
tariff barriers that are wreaking havoc on American employers, 
their workers, and our economy. Those issues impact a far 
broader base of America's job creators, who are trying to sell 
American goods and services to a growing Chinese market.
    We are frustrated by China's continued bad faith and 
aggressive pursuit of protectionist policies that jeopardize 
our economic relationship. China must end its policy of 
economic nationalism and open its market to American-made goods 
and services and American investors. We cannot lose sight of 
the more fundamental problems with China's economy that have a 
greater impact on our trade balance, including the disturbing 
increase in the economic dominance of state-owned enterprises, 
the proliferation of non-tariff barriers preventing U.S. 
companies from exporting to China, and a growth strategy 
dominated by aggressive export expansion without developing a 
strong domestic consumption base within China.
    We must persuade China, through every tool at our disposal 
including our trade laws and our rights under WTO agreements, 
to address its woefully inadequate protection of intellectual 
property, eliminate subsidies to Chinese companies, remove 
harmful ``indigenous innovation'' policies, end its restraints 
on exports of raw materials and rare earth minerals, and 
eliminate the myriad other barriers to U.S. exports. China must 
introduce global best practices into its banking sector, mature 
its financial markets, move towards liberalizing its capital 
account, and open more comprehensively to foreign direct 
investment. It also must do more to ensure that Americans are 
not injured by goods with dangerous features or harmful 
ingredients.
    While some of us support and some of us oppose this 
legislation, we all agree that it is time to signal to China 
and the Obama Administration that enough is enough. We must 
work together to develop an action plan that will promptly 
address China's undervalued currency, remove other barriers 
that limit U.S. exports, and create American jobs by 
establishing new markets for U.S. goods and services.

         Majority's Lack of Trade Agenda Is a Lost Opportunity

    Finally, we are disappointed that this bill amounts to the 
sum total of the majority's trade agenda this Congress: this is 
the only trade bill that we have moved to the floor this 
Congress under regular order.
    This legislation is no substitute for creating new U.S. 
jobs by opening markets for U.S. goods and services. While this 
legislation addresses an important issue, it will not advance 
the goal of doubling exports in five years. We must move 
expeditiously on the pending free trade agreements, work harder 
to open new markets to our exports, and address our broader 
economic issues all over the world and with China, including by 
restarting the languishing bilateral investment treaty 
negotiations.
            Signed:
                                   Dave Camp.
                                   Sam Johnson.
                                   Kevin Brady.
                                   Eric Cantor.
                                   John Linder.
                                   Devin Nunes.
                                   Pat Tiberi.
                                   Ginny Brown-Waite.
                                   Geoff Davis.
                                   Dave Reichert.
                                   Charles Boustany.
                                   Dean Heller.
                                   Peter Roskam.

                                  
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