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Heat Off China Legislation, But FTAs in Trouble

On March 26 House Ways & Means Committee chairman Charles Rangel (D-NY) and 14 Democratic members of the committee sent a letter to President Bush concerning China’s currency manipulation. The letter claimed that the Administration’s policy of “quiet diplomacy” has failed, and it called on the Administration to adopt a four-part plan: (1) work to have the IMF fulfill its obligation to exercise “firm surveillance” over members to avoid manipulating exchange rates to gain an unfair trade advantage; (2) address China’s currency manipulation through the WTO; (3) initiate Plaza Accord-type plurilateral consultations with major industrial and emerging market economies to address currency misalignment and global economic imbalances; and (4) have the Treasury Secretary cite countries (namely China) as currency manipulators under existing statutes.

While the actions called for by the letter would adversely affect U.S.-China trade relations if adopted, the letter as a whole can be viewed as a positive development for SGMA members with major sourcing from China. Specifically, the decision by Ways & Means Democrats to send the letter is tantamount to conceding that the committee is unlikely to produce serious China currency legislation this year. By taking this approach, House Democrats hope to transfer the blame from Congress to the Administration for failing to take remedial action on this issue as the November elections approach.

Meanwhile, in a less welcome development for most SGMA members, on April 10 House Speaker Nancy Pelosi (D-CA) engineered House passage, by a near party-line 224-195 margin, of a resolution (H. Res. 1092) to suspend trade promotion authority’s fast-track deadlines for the U.S.-Colombia FTA implementing legislation. As a result, the House leadership is no longer required to bring the legislation to a vote.

In announcing this unprecedented move, Pelosi said she did not rule out the possibility of the FTA coming to a vote this session and said she was prepared to negotiate with the White House to reach a deal allowing the agreement to come up. In subsequent statements, Pelosi has referenced broad economic legislation and possibly even global warming measures as conditions for taking up the U.S.-Colombia FTA.

The White House reacted angrily to the development. Presidential spokeswoman Dana Perino said “It is clear that there are many in the Democratic Party that want to kill this agreement and they want to do it without having to have their fingerprints on it.” White House officials and U.S. Trade Representative Susan Schwab claim the House action establishes a harmful precedent for future trade agreements because countries will be unable to have faith in the commitments made by U.S. negotiators.

These developments leave uncertain whether this Congress will take up the U.S.-Colombia FTA or the two other free trade agreements waiting in the wings. Prospects for the U.S.-Korea FTA improved somewhat in recent weeks when Korea took steps to open its market to U.S. beef, but the U.S. automotive industry remains strongly opposed to the deal. The U.S.-Panama FTA might stand the best chance of being approved by this Congress, but that would not occur until after a controversial Panamanian parliamentary leader steps down from office in August.