There are two articles here talking about the currency issue of China. Please compare two articles first, then try to get further research and think about why they take different stands. Which one is right to your viewpoint?
Article 1:US Economist Bergsten Calls of US Treasury to Call China's FX Bluff
Article 2:Don't Push the WTO Beyond Its Limits
US Economist Bergsten Calls of US Treasury to Call China's FX Bluff
Speaking to a small group of reporters Tuesday, Bergsten, a former U.S. Treasury official, previewed testimony he is due to deliver to the House Ways and Means Committee Wednesday.
He argues that the U.S. should follow Japan's lead and question China's actions, but go a step further by filing a formal complaint before the World Trade Organization -- preferably with the support of other nations -- and use U.S. trade policy to retaliate unilaterally.
He also calls on the U.S. to respond to China's purchases of U.S. dollars with offsetting purchases of RMB, though he acknowledges this will present technical problems.
Bergsten heads the Peterson Institute for International Economics which now estimates the renminbi is undervalued 15% to 25%, "that's if you want to get their current account surplus down to 3% of GDP which we view as sustainable equilibrium."
To eliminate the surplus, the currency is still 25% to 40% undervalued, he said.
Since Beijing's announcement in June -- just before the Toronto Group of 20 summit -- that the currency would be allowed to respond more to market forces, it has gone up less than 1%. "None of us are very impressed."
China allowed its currency go up 20% to 25% from 2005 to mid-2008, until it was repegged, and "I'm suggesting to the committee that should be our goal, for them to let it go up another 20% to 25% over the next couple of years," Bergsten said. "That I think would go most of the way to dealing with the undervaluation that now exists."
According to analysis by Peterson economist Bill Cline, a 20% revaluation would "have a very powerful effect," reducing China's global current account surplus by $350 to $500 billion and the U.S. global current account deficit by $50 to $120 billion and create 500,000 U.S. jobs, mainly high-paying manufacturing jobs.
To achieve that, Bergsten is urging more forceful course of action, starting with filing a formal complaint in the WTO under Article 15 which prohibits members from using foreign exchange policy to undermine the organization's free trade goals.
The U.S. should launch a "major effort to create a multilateral coalition" to take the case to the WTO, which he said should win support since many countries have expressed concern including the European Union, Brazil, Mexico and India.
The coalition should ask the WTO to authorize retaliation.
Bergsten said he also is calling for a move he terms "countervailing currency intervention in which the U.S. would respond in kind to the Chinese purchases of dollars. We would purchase RMB to directly offset the exchange rate effect of their intervention."
He acknowledged that his "raises some technical problems because of the inconvertibility of the RMB" but said authorities could use proxies including non-deliverable forwards, securities and RMB bonds.
Bergsten praised Japan for immediately complaining about Beijing's purchases of government bonds and the impact on the yen.
Japan Finance Minister Yoshihiko Noda told a Diet committee last week that Japan is unable to buy Chinese state debt and that he wanted Beijing policymakers to "clarify their objectives" regarding recent JGB purchases, according to press reports.
And Prime Minister Naoto Kan was quoted in the press last week saying the government would take strong measures to quell volatile foreign exchange markets, which he called an obstacle for the Japanese economy: "Along with Finance Minister Yoshihiko Noda, I have said that we will take decisive measures if (market moves) are too drastic."
"The U.S. has never said anything," Bergsten said.
The economist said he supports the Ryan-Murphy Bill in the House, the Currency Reform for Fair Trade Act, which would consider currency manipulation a subsidy and allow the administration to impose countervailing duties in response.
The goal with these tougher actions, he said, would be to put enough pressure on China to persuade them to change their policies without ever having to resort to retaliation.
"The Chinese have called everyone's bluff so far," Bergsten said, but he stressed when asked about their likely reaction: "Remember that they are the aggressors. If they think we're serious they could change their behavior and prevent it."
The Ryan-Murphy bill would compel Treasury to report to Congress biannually on what nations have "fundamentally misaligned currencies" with the U.S. If those countries do not address this issue within 90 days, the administration would be required to take action at the International Monetary Fund and end federal procurement regarding these nations.
After 360 days, the U.S. Trade Representative would be required to request WTO dispute settlement proceedings.
If the Commerce Department ruled that this currency imbalance amounted to an impermissible subsidy, it could open the door to the imposition of countervailing duties on Chinese imports. It could also lead to anti-dumping remedies being applied to products from China.
Bergsten also noted that though China's current account surplus had come down somewhat in the wake of the crisis, it is rising sharply again, and the IMF projects it will go back to 8% of GDP by 2015, close to $800 billion, bigger than U.S. global deficit
The dollar was trading Tuesday from Y82.92 -- a 15-year low -- to Y83.75, while the yuan finished at 6.7463 against the dollar, up from Monday's close of 6.7618, with a range of 6.7550 to 6.7435.
** Market News International Washington Bureau: 202-371-2121 **
Members of Congress have introduced legislation aimed at pressing President Barack Obama to designate China as a "currency manipulator" under United States law. They need to take a deep breath and think about the potential consequences. Doing so would -- if further negotiations failed -- likely result in litigation at the World Trade Organization. Whether the U.S. or China prevailed, a WTO case would be self-defeating for both countries and disastrous for the global trading system.
The premise behind this push is that the undervaluation of the Chinese currency gives mainland companies an unfair advantage in world trade. Many Americans think the yuan has driven up the U.S. trade deficit and depressed U.S. job-creation during the current economic crisis. Whatever the merits of this argument, proposals to coerce China into revaluation are increasingly appealing politically in the U.S.
However, what is appealing politically would be difficult to accomplish legally. Most likely, WTO litigation would unfold in one of two possible ways under WTO rules on which both China and the U.S. have agreed.
The first possibility is that the U.S. would -- as the new Congressional proposals envisage -- impose "countervailing" duties on Chinese exports to the U.S. to counter the alleged "subsidy" granted to those exports by an undervalued currency. This would invite a suit by China against the U.S. in the WTO, where China would likely contend that its currency practices are not "subsidies" under WTO rules, and so cannot be subjected to countervailing duties.
Congressional calls for action have pointedly asserted that Chinese currency practices are "financial contributions" that provide a "benefit" that is "specific" to certain Chinese industries. These are all essential legal elements in the internationally agreed definition of a "subsidy" in the WTO treaty. But it is one thing to make an assertion as part of the political debate in Washington; it is quite another to prove it in an international legal proceeding before WTO judges in Geneva.
The second possibility is that the U.S. would -- as the new Congressional proposals also contemplate -- sue China in the WTO alleging that China's exchange actions are inconsistent with China's international obligations under the WTO treaty. A provision in part of that treaty, the General Agreement on Tariffs and Trade, states that WTO Members "shall not, by exchange action, frustrate the intent of the provisions of" the treaty. This provision has been part of the GATT for more than 60 years, but it has never been the subject of dispute settlement. There is no clear understanding among WTO Members of what it means.
The legal challenge for the U.S. in bringing such a suit would be two-fold. The Obama administration would have to convince the WTO judges that the word "frustrate" in this provision means what the U.S. thinks it means. Furthermore, the U.S. would have the burden of proving that China has, by its exchange actions, caused such frustration.
Such a U.S. case against China in the WTO would be helped if the International Monetary Fund first concluded that China has engaged in currency manipulation to achieve an unfair trade advantage. But getting the IMF to do so would likewise present a challenge for the U.S.
The strain of dealing with either of these two possible cases would stretch the political limits of the WTO. Both China and the U.S. depend daily on the existence and the reliability of a rule-based global trading system. Do they really want to risk it over this issue?
Moreover, the example of such cases could inspire still more WTO cases -- against China and the U.S. Does China want other member states to file similar complaints? Does the U.S. want other members to claim that the new U.S. push for exports, coupled with low U.S. interest rates, is another form of currency manipulation?
China and the U.S. need each other, economically and otherwise. The two countries must come to some understanding on trade that will ensure compliance with their mutual WTO obligations. They must both understand as well that, whatever the risks may be domestically for each of them in continuing to play by the established international rules on trade, the risks that would result from departing from those rules in the face of the mounting domestic political pressures in both countries would be far greater.
It is in the best interest of both countries to continue negotiating on the currency issue rather than resorting to litigation at the WTO. On this issue especially, litigation should be the last resort.
Mr. Bacchus is a former chairman of the World Trade Organization's Appellate Body, congressman and U.S. trade negotiator. He is currently a partner at Greenberg Traurig in Washington.
Credit: By James Bacchus
Questions to be discussed:
1. Two different stands mentioned in these articles.
2. What's the role of WTO in this issue?
3. How is the international community influenced by this issue?
4. If you're delegates from developing countries, what will be your positions? On the contrast, if you are delegates from developed countries, what will be your positions?
5. In you opinion, should the currency devaluation be taken as a way of subsidies to developing country? Also, what do you think PR China is a developing country or a developed country? Please try to elaborate on your reasons specifically.
Article 1:
Tuesday, September 14, 2010 - 17:37US Economist Bergsten Calls of US Treasury to Call China's FX Bluff
WASHINGTON (MNI) - Noted international economist C. Fred Bergsten said Tuesday it is time for the U.S. government to call China's bluff over its manipulation of the currency and adopt measures aimed at convincing China to finally change its policy.
Speaking to a small group of reporters Tuesday, Bergsten, a former U.S. Treasury official, previewed testimony he is due to deliver to the House Ways and Means Committee Wednesday.
He argues that the U.S. should follow Japan's lead and question China's actions, but go a step further by filing a formal complaint before the World Trade Organization -- preferably with the support of other nations -- and use U.S. trade policy to retaliate unilaterally.
He also calls on the U.S. to respond to China's purchases of U.S. dollars with offsetting purchases of RMB, though he acknowledges this will present technical problems.
Bergsten heads the Peterson Institute for International Economics which now estimates the renminbi is undervalued 15% to 25%, "that's if you want to get their current account surplus down to 3% of GDP which we view as sustainable equilibrium."
To eliminate the surplus, the currency is still 25% to 40% undervalued, he said.
Since Beijing's announcement in June -- just before the Toronto Group of 20 summit -- that the currency would be allowed to respond more to market forces, it has gone up less than 1%. "None of us are very impressed."
China allowed its currency go up 20% to 25% from 2005 to mid-2008, until it was repegged, and "I'm suggesting to the committee that should be our goal, for them to let it go up another 20% to 25% over the next couple of years," Bergsten said. "That I think would go most of the way to dealing with the undervaluation that now exists."
According to analysis by Peterson economist Bill Cline, a 20% revaluation would "have a very powerful effect," reducing China's global current account surplus by $350 to $500 billion and the U.S. global current account deficit by $50 to $120 billion and create 500,000 U.S. jobs, mainly high-paying manufacturing jobs.
To achieve that, Bergsten is urging more forceful course of action, starting with filing a formal complaint in the WTO under Article 15 which prohibits members from using foreign exchange policy to undermine the organization's free trade goals.
The U.S. should launch a "major effort to create a multilateral coalition" to take the case to the WTO, which he said should win support since many countries have expressed concern including the European Union, Brazil, Mexico and India.
The coalition should ask the WTO to authorize retaliation.
Bergsten said he also is calling for a move he terms "countervailing currency intervention in which the U.S. would respond in kind to the Chinese purchases of dollars. We would purchase RMB to directly offset the exchange rate effect of their intervention."
He acknowledged that his "raises some technical problems because of the inconvertibility of the RMB" but said authorities could use proxies including non-deliverable forwards, securities and RMB bonds.
Bergsten praised Japan for immediately complaining about Beijing's purchases of government bonds and the impact on the yen.
Japan Finance Minister Yoshihiko Noda told a Diet committee last week that Japan is unable to buy Chinese state debt and that he wanted Beijing policymakers to "clarify their objectives" regarding recent JGB purchases, according to press reports.
And Prime Minister Naoto Kan was quoted in the press last week saying the government would take strong measures to quell volatile foreign exchange markets, which he called an obstacle for the Japanese economy: "Along with Finance Minister Yoshihiko Noda, I have said that we will take decisive measures if (market moves) are too drastic."
"The U.S. has never said anything," Bergsten said.
The economist said he supports the Ryan-Murphy Bill in the House, the Currency Reform for Fair Trade Act, which would consider currency manipulation a subsidy and allow the administration to impose countervailing duties in response.
The goal with these tougher actions, he said, would be to put enough pressure on China to persuade them to change their policies without ever having to resort to retaliation.
"The Chinese have called everyone's bluff so far," Bergsten said, but he stressed when asked about their likely reaction: "Remember that they are the aggressors. If they think we're serious they could change their behavior and prevent it."
The Ryan-Murphy bill would compel Treasury to report to Congress biannually on what nations have "fundamentally misaligned currencies" with the U.S. If those countries do not address this issue within 90 days, the administration would be required to take action at the International Monetary Fund and end federal procurement regarding these nations.
After 360 days, the U.S. Trade Representative would be required to request WTO dispute settlement proceedings.
If the Commerce Department ruled that this currency imbalance amounted to an impermissible subsidy, it could open the door to the imposition of countervailing duties on Chinese imports. It could also lead to anti-dumping remedies being applied to products from China.
Bergsten also noted that though China's current account surplus had come down somewhat in the wake of the crisis, it is rising sharply again, and the IMF projects it will go back to 8% of GDP by 2015, close to $800 billion, bigger than U.S. global deficit
The dollar was trading Tuesday from Y82.92 -- a 15-year low -- to Y83.75, while the yuan finished at 6.7463 against the dollar, up from Monday's close of 6.7618, with a range of 6.7550 to 6.7435.
** Market News International Washington Bureau: 202-371-2121 **
(source link:http://imarketnews.com/?q=node/19229)
Article 2:
Don't Push the WTO Beyond Its Limits
(c) 2010 Dow Jones & Company, Inc. Reproduced with permission of copyright owner. Further reproduction or distribution is prohibited without permission.Members of Congress have introduced legislation aimed at pressing President Barack Obama to designate China as a "currency manipulator" under United States law. They need to take a deep breath and think about the potential consequences. Doing so would -- if further negotiations failed -- likely result in litigation at the World Trade Organization. Whether the U.S. or China prevailed, a WTO case would be self-defeating for both countries and disastrous for the global trading system.
The premise behind this push is that the undervaluation of the Chinese currency gives mainland companies an unfair advantage in world trade. Many Americans think the yuan has driven up the U.S. trade deficit and depressed U.S. job-creation during the current economic crisis. Whatever the merits of this argument, proposals to coerce China into revaluation are increasingly appealing politically in the U.S.
However, what is appealing politically would be difficult to accomplish legally. Most likely, WTO litigation would unfold in one of two possible ways under WTO rules on which both China and the U.S. have agreed.
The first possibility is that the U.S. would -- as the new Congressional proposals envisage -- impose "countervailing" duties on Chinese exports to the U.S. to counter the alleged "subsidy" granted to those exports by an undervalued currency. This would invite a suit by China against the U.S. in the WTO, where China would likely contend that its currency practices are not "subsidies" under WTO rules, and so cannot be subjected to countervailing duties.
Congressional calls for action have pointedly asserted that Chinese currency practices are "financial contributions" that provide a "benefit" that is "specific" to certain Chinese industries. These are all essential legal elements in the internationally agreed definition of a "subsidy" in the WTO treaty. But it is one thing to make an assertion as part of the political debate in Washington; it is quite another to prove it in an international legal proceeding before WTO judges in Geneva.
The second possibility is that the U.S. would -- as the new Congressional proposals also contemplate -- sue China in the WTO alleging that China's exchange actions are inconsistent with China's international obligations under the WTO treaty. A provision in part of that treaty, the General Agreement on Tariffs and Trade, states that WTO Members "shall not, by exchange action, frustrate the intent of the provisions of" the treaty. This provision has been part of the GATT for more than 60 years, but it has never been the subject of dispute settlement. There is no clear understanding among WTO Members of what it means.
The legal challenge for the U.S. in bringing such a suit would be two-fold. The Obama administration would have to convince the WTO judges that the word "frustrate" in this provision means what the U.S. thinks it means. Furthermore, the U.S. would have the burden of proving that China has, by its exchange actions, caused such frustration.
Such a U.S. case against China in the WTO would be helped if the International Monetary Fund first concluded that China has engaged in currency manipulation to achieve an unfair trade advantage. But getting the IMF to do so would likewise present a challenge for the U.S.
The strain of dealing with either of these two possible cases would stretch the political limits of the WTO. Both China and the U.S. depend daily on the existence and the reliability of a rule-based global trading system. Do they really want to risk it over this issue?
Moreover, the example of such cases could inspire still more WTO cases -- against China and the U.S. Does China want other member states to file similar complaints? Does the U.S. want other members to claim that the new U.S. push for exports, coupled with low U.S. interest rates, is another form of currency manipulation?
China and the U.S. need each other, economically and otherwise. The two countries must come to some understanding on trade that will ensure compliance with their mutual WTO obligations. They must both understand as well that, whatever the risks may be domestically for each of them in continuing to play by the established international rules on trade, the risks that would result from departing from those rules in the face of the mounting domestic political pressures in both countries would be far greater.
It is in the best interest of both countries to continue negotiating on the currency issue rather than resorting to litigation at the WTO. On this issue especially, litigation should be the last resort.
Mr. Bacchus is a former chairman of the World Trade Organization's Appellate Body, congressman and U.S. trade negotiator. He is currently a partner at Greenberg Traurig in Washington.
Credit: By James Bacchus
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