WASHINGTON, D.C. - A bipartisan group of U.S. Senators urged the U.S. Department of Commerce to move forward with an investigation of China's currency manipulation and its effect on the U.S. paper industry. U.S. Sen. Sherrod Brown (D-OH) and 14 of his colleagues sent a letter to Commerce Secretary Gary Locke urging him to investigate whether China's currency policy provides an unfair subsidy for Chinese paper products that should be remedied through trade measures.

"We cannot allow Chinese currency manipulation to undermine our economic growth and shutter our factories," said Sen. Brown. "China's currency manipulation enables Chinese paper producers to undersell U.S. companies, including Appleton in West Carrolton, Ohio. As a result, paper workers have lost jobs and communities have been forced to deal with plant closures. I urge the Commerce Department to initiate an investigation into China's currency practices."

The Commerce Department investigates unfair trade practices, including subsidization of products exported to the U.S. If the Commerce Department determines that imported products are unduly subsidized - and the International Trade Commission (ITC) finds that the U.S. industry has suffered from the subsidized imports - Commerce will assign additional import taxes to those products.

In October 2008, Brown testified before the ITC on the effect of subsidized imports on Appleton Papers of West Carrolton, Ohio. Later that month, following Brown's testimony, the ITC ruled that imports of lightweight thermal paper (LWTP) from China and Germany have injured the U.S. industry. The ruling opened the door for duties to be imposed on imports for three years, which would help domestic paper producers like Appleton Papers.

Brown is the Chair of the Senate Banking Subcommittee on Economic Policy and one of Congress' leading voices on trade. In Nov. 2009, he introduced the Trade Reform, Accountability, Development, and Employment (TRADE) Act with Senator Byron Dorgan (D-ND). The TRADE Act would require a review of our trade agreements and set forth principles on labor, the environment, and food and product safety. He also introduced the Trade Enforcement Priorities Act of 2009 and the Reciprocal Market Access Act of 2009 to empower the United States Trade Representative- the president's primary trade negotiator - to confront unfair trade practices of our trading partners.

A full copy of the letter can be found below.

The Honorable Gary Locke
Secretary of Commerce
1401 Constitution Avenue, NW
Washington, DC 20230

Dear Secretary Locke,

We write to express our serious concern that the Commerce Department has failed to properly consider allegations that China's manipulation of its currency is a countervailable subsidy. U.S. manufacturers have filed at least 12 allegations - most recently on January 13 in the Coated Paper investigation - that the Chinese government is actively engaged in keeping the value of its currency artificially low to promote the growth of export-oriented industries. We urge the Department to properly consider the allegation and the information provided by petitioners in determining whether to investigate China's actions.

Around mid-July 2008, China abandoned any pretense of letting its currency appreciate. After a few years of modest progress, China's government, once again, has fixed the value of yuan against the dollar and walked away from its commitments to reform its currency policies. The result is continued undervaluation of China's currency - by some estimates as much as 40 percent - and serious economic harm to U.S. manufacturers forced to compete against subsidized Chinese imports.

For example, the value of China's paper and paperboard exports to the United States increased by 21 percent between 2006 and 2008, jumping from $1.9 billion to $2.3 billion. The dramatic increase in exports is due in large part to substantial Chinese government subsidies. Those government subsidies include China's continued devaluation of its currency vis-à-vis the U.S. dollar, a government policy designed to promote and fuel continued growth in export-oriented industries. As senators from key paper product-producing states, we are very concerned that domestic paper manufacturers and paper industry workers are substantially harmed by subsidized Chinese imports.

China's mercantilist policies are undermining the health of many U.S. industries - industries that inject billions of dollars into the U.S. economy and employ hundreds of thousands of American workers. In the face of China's actions to subsidize its exports at the expense of U.S. manufacturers and workers, the Department needs to act.

In a November 19 letter to the Commerce Department, Senators Schumer and Graham urged the Department to give due consideration to allegations that China's currency manipulation is a countervailable subsidy. In your December 22 response, you assured the Senators that subsidy allegations involving China's currency practices would be assessed "no differently than any other subsidy allegation." The lack of agency action on this issue to date suggests otherwise.

Moreover, we are concerned that the agency's failure to investigate China's actions regarding its currency derives from a flawed interpretation of the legal standard for the Department's assessment of a subsidy allegation. According to your December 22 letter, in determining whether to investigate an alleged subsidy, the Department will consider if the allegation demonstrates "whether there is a financial contribution that is specific to an industry or group of industries which confers a benefit" (emphasis added). This is not the statutory standard for assessment of a subsidy allegation.

A subsidy allegation need not prove the elements of the financial contribution, benefit and specificity. Rather, the law requires that the Department initiate an investigation to determine whether a countervailable subsidy is being provided if the domestic industry "alleges" the elements necessary for the imposition of a countervailing duty and provides "information reasonably available" to the domestic industry supporting the allegations (emphasis added). 19 USC 1671a(c)(1)(A)(i) and (2). In other words, an allegation must contain information reasonably available to petitioners with respect to each of the elements of a countervailable subsidy - not definitive proof. The legislative history of the Trade Agreements Act of 1979 confirms this standard and reflects Congress' unequivocal intent that the Department "act upon all petitions which, based upon facts reasonably available to the petitioner, make reasonable allegations of the presence of the elements necessary for the imposition of a countervailing duty." H.R. Rep. No. 317, 96th Cong., 1st Sess. 51 (1979) (emphasis added).

Our review of the 11 Commerce Department determinations not to investigate petitioners' allegations concerning China's currency manipulation suggests that the Department has prejudged the outcome of a subsidy investigation it has yet to do, rather than assessed the sufficiency of the allegation on the basis of "information reasonably available" to petitioners to determine whether to launch an investigation. This is troubling and suggests that the Department is treating allegations involving China's actions on currency differently than it has treated other allegations, including other currency-related allegations involving other countries.

For example, we are aware that the administering authority previously investigated currency-related subsidy allegations in at least three other countervailing duty proceedings involving Mexico, Germany and Uruguay, and contemplated how currency restrictions could constitute a subsidy in the proceeding involving Canada. The fact that the Department and its predecessor agency have previously investigated currency-related subsidies reinforces our belief that the Department knows how to apply the correct legal standard for assessment of a subsidy allegation and has the authority under current law to investigate the most recent series of subsidy allegations involving China's currency manipulation.

There can be no doubt that China's policy of large-scale intervention in the exchange markets and the significant undervaluation of its currency acts as a subsidy to Chinese exports to the United States. We respectfully urge the Department to properly assess the most recent allegation that China's manipulation of its currency is a countervailable subsidy. In its assessment, the Department should give due consideration to whether petitioners have alleged the elements necessary for imposition of a countervailable subsidy and provided information reasonably available in support of their allegation.

During these difficult economic times, it is more critical than ever that the Department take every step possible to address these unfair practices. Assuming petitioners have properly alleged the elements necessary for the imposition of a countervailing duty and provided information reasonably available to petitioners, the Department has an obligation to investigate.

Thank you for your prompt attention to this matter.

Senators Charles E. Schumer (D-NY), Lindsey Graham (R-SC), Robert Byrd (D-WV), Carl Levin (D-MI), Barbara Mikulski (D-MD), Russ Feingold (D-WI), Susan Collins (R-ME), Olympia Snowe (R-ME), Sam Brownback (R-KS), Jim Bunning (R-KY), Debbie Stabenow (D-MI), Ben Cardin (D-MD), Sherrod Brown (D-OH), Bob Casey (D-PA) and Arlen Specter (D-PA).