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A U.S. congressional panel, in a move likely to increase trade tensions with China, approved on Friday a bill that allows the United States to slap duties on goods from countries with fundamentally undervalued currencies.
The House of Representatives Ways and Means Committee backed the legislation on a voice vote, clearing the way for the full House to take up the measure next week. It may never become law, however, as it faces an uncertain future in the Senate.
House Ways and Means Committee Chairman Sander Levin said the bill would give the United States new tools to address China's "currency manipulation" because diplomatic pressure has not yielded satisfactory results.
"China's persistent manipulation is a major distortion in the international marketplace," Levin, a Democrat, said. China's undervalued currency "has a major impact on American workers and therefore American jobs. That's what this is really all about."
Lawmakers have long threatened legislation if China did not take action to increase the value of the yuan, which critics inside and outside Congress say gives Chinese companies an unfair trade advantage.
But Congress, in a fierce election season focused on sluggish U.S. economic growth, is moving closer than ever to passing legislation that would penalize China. President Barack Obama, who has said that China has not done enough to raise the value of the yuan, has not taken a position on the bill.
The panel's top Republican, Dave Camp, said he backed the bill because changes made to the legislation would bring it more into line with World Trade Organization rules.
There have been expectations that if currency legislation were passed that China would likely challenge the measure at the World Trade Organization, exposing U.S. exports to trade retaliation if Beijing won the case. Chinese Premier Wen Jiabao, earlier this week, said the exchange rate of the yuan against the dollar is not the main reason for the U.S. trade deficit with China.
The bill amends U.S. trade law to essentially allow the U.S. Commerce Department to treat an undervalued currency as an export subsidy if certain criteria are met. The change adds a new subsidy - persistent and fundamental currency undervaluation - to the list of subsidies the U.S. Commerce Department can already offset with "countervailing duties."
Ways and Means Committee aides note that the bill does not guarantee the Commerce Department will apply countervailing duties against undervalued currencies, but removes an important hurdle.
Commerce Department officials estimate that currently less than 3 percent of U.S. imports from China are hit with either countervailing or anti-dumping duties.