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Apparel | Newsletter |
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As Hard-Line Trade Legislation Moves Through U.S. Congress, China Revalues Yuan |
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July 22, 2005 Background Various bills have been moving through both the House and Senate addressing significant issues with respect to the U.S.-Asia trade relationship. The measures are aimed, in part, to counter-balance trade advantages held by non-market economies like China, which for years has kept the value of its base currency, the Yuan, artificially low while competing advantageously in the global marketplace. On July 21, House leaders stated their intention to bring one of the bills, the so-called English-Thomas China bill, up for a vote on July 26. The House bill would include provisions authorizing countervailing duty actions against non-market economies (such as China's), requiring cash deposits for potential antidumping duties for imports from new shippers, and funding for increased staffing at the Office of the U.S. Trade Representative to handle enforcement measures against China. A similar China-related trade bill is working its way through the Senate and other House versions were also moving forward. As many of you know, these measures were deemed necessary in part because China has followed a policy of managing the value of its currency to give its exports a competitive edge in global markets. Specifically, for over a decade, China has kept the value of the Yuan artificially low (8.28 Yuan to the U.S. dollar), making U.S. goods more expensive and difficult to sell abroad, while making China's exports cheaper to build and sell to foreign markets. China Revalues the Yuan On July 21, however, China announced a long-awaited change in its currency policy, stating that it will now allow the Yuan to "float" or change value relative to the U.S. dollar for the first time since it entered the World Trade Organization. Specifically, China moved to strengthen the Yuan, effective immediately (July 22), to a rate of 8.11 Yuan to the U.S. dollar, and the Yuan will now be allowed to trade in a tight 0.3% band against certain other foreign currencies. As stated by China's Central Bank on July 21, "China will reform the exchange rate regime by moving into a managed floating exchange rate regime based on market supply and demand with reference to a basket of currencies." Various lawmakers have noted that the threat of trade sanctions and the proposed harder line set forth in the pending legislation helped move the process forward and, while optimistic, the Bush administration cautioned that it planned to monitor China's implementation of the new arrangement. While China's change of currency policy will raise the price of many goods made in China and sold in the U.S., it could also pay dividends for U.S. manufacturers. Also, since China's currency revaluation addresses only one of the issues concerning its trade relationship with the U.S., it remains to be seen how the currency adjustment will affect the pending U.S. legislation described above. Our office will track these developments and keep you informed in future newsletters. If you wish further information regarding the issues and topics summarized above, contact George Tuttle at (415) 288-0425 or grt@tuttlelaw.com. George R. Tuttle is an attorney with the Law Offices of George R. Tuttle in San Francisco. The information in this article is general in nature, and is not intended to constitute legal advice or to create an attorney-client relationship with respect to any event or occurrence, and may not be considered as such. Copyright © 2006 by Tuttle Law Offices. All rights reserved. Information has been obtained from sources believed to be reliable. However, because of the possibility of human or mechanical error by our offices or by others, we do not guarantee the accuracy, adequacy, or completeness of any information and are not responsible for any errors, omissions, or for the results obtained from the use of such information. |
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