FACTBOX-What US law on banking strategy says

Fri Mar 12, 2010 4:32pm EST

March 12 (Reuters)- U.S. President Barack Obama"s vow toget tougher on countries such as China that undervalue theircurrencies has heightened attention on whether the U.S.Treasury Department will formally label China as a currencymanipulator in a semiannual report due in April.

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That move would require the department to begin "expedited"negotiations with China on the currency, although U.S. lawprovides an escape clause to avoid that. For details, see[ID:nN12170250].

Obama criticized his predecessor, former President GeorgeW. Bush, for repeatedly refusing to label China as amanipulator. But Obama has followed the same course in the twoTreasury reports released since he took office.

Following are details on the 1988 law that governs thereport and efforts to revamp it:

CURRENT LAW

-- The U.S. Treasury Department, in consultation with theInternational Monetary Fund, shall analyze the exchange ratepolicies of foreign countries on an annual basis.

-- Semiannual reports are due April 15 and Oct. 15.

-- The reports examine whether countries are manipulatingtheir currency"s exchange rate with the U.S. dollar "forpurposes of preventing effective balance of paymentsadjustments or gaining unfair competitive advantage ininternational trade."

-- If manipulation is found, the Treasury secretary shall"initiate negotiations with such foreign countries on anexpedited basis, in the International Monetary Fund orbilaterally, for the purpose of ensuring that such countriesregularly and promptly adjust the rate of exchange betweentheir currencies and the United States dollar."

-- The secretary "shall not be required to initiatenegotiations in cases where such negotiations would have aserious detrimental impact on vital national economic andsecurity interests."

-- In such cases, the secretary must notify leaders of theSenate Banking Committee and the House of Representatives"Financial Services Committee of his decision.

The authorizing statute:here

CONGRESSIONAL EFFORTS AT REVAMP

-- Many U.S. lawmakers say the law needs to be changedbecause Treasury has historically been reluctant to labelcountries as currency manipulators. However, there has not beena serious push to revamp the law since 2007.

-- Some lawmakers want to give Treasury less discretion toavoid citing a country when certain conditions are met; otherswant the U.S. government to adopt what they consider moreneutral language in its semi-annual reports.

-- The Senate Finance Committee passed legislation in 2007that would have required Treasury to identify countries with"fundamentally misaligned currencies," but action on the billstalled, partly because of a jurisdictional battle with theSenate Banking Committee.

-- Top Democrats and Republicans on both committees issueda joint statement in July 2008 in which they said the Bushadministration"s implementation of the law was "inadequate" andpledged to work together to revamp the law. No further actionby the two committees was taken.

RECENT STATEMENTS AND ACTIVITY

-- A bipartisan bill with 78 sponsors in the House andseven in the Senate aimed mainly at China would allow theCommerce Department to slap duties on goods from countries thathave persistently undervalued currencies.

-- In November, Senators Charles Schumer and Lindsey Grahamurged Commerce Secretary Gary Locke to use existing authorityto treat currency manipulation as an unfair foreign subsidy inorder to impose countervailing duties on Chinese goods. Lockedeclined, citing legal obstacles to taking that step.

-- Senate Majority Leader Harry Reid wrote China"sPresident Hu Jintao on Dec. 9 to urge Beijing to significantlyrevalue the national currency. Two months later, Hu had stillnot responded to Reid.

-- Senator Charles Grassley, a Republican, urgedObama last week to get Beijing"s attention by formally labelingChina as a manipulator. He made the statement just after Obamatold senators that unfair currency practices put the UnitedStates at a "huge competitive disadvantage."

-- U.S. Treasury Secretary Timothy Geithner told a Senatecommittee a day after Obama and Grassley"s comments that hebelieved China was going to move on its currency because itrecognized that was in the country"s best interest.

-- Schumer said on Friday he would being revamping hisChina currency legislation in coming days. [ID:nN12181696] (Compiled by Doug Palmer; Editing by Kenneth Barry)

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