The House of Representatives Ways and Means Committee will vote on a bill lawmakers say will give the Obama administration a new tool to protect U.S. companies and workers against China’s currency practices.

Here are key provisions of the bill and a description of how it differs from an earlier proposal:

What the Bill Does
The legislation essentially clears the way for the Commerce Department to apply countervailing duties against imports from countries with “fundamentally undervalued” currencies.

The bill’s key element instructs the Commerce Department that it may no longer dismiss a request for countervailing (or anti-subsidy) duties based on the single fact that exporters are not the sole beneficiaries of a particular subsidy.

In other words, just because Chinese domestic manufacturers may also benefit from currency undervaluation, the Commerce Department could still consider it an export subsidy.

This reverses a long-standing Commerce Department practice, most recently seen in two cases involving coated paper and aluminum products. The department declined to investigate whether undervaluation was a subsidy because it said China’s exchange rate practices did not provide a “specific” benefit to Chinese exporters.

Ways and Means Committee aides say that is more restrictive than required under U.S. law and World Trade Organization rules. They note the bill does not guarantee the Commerce Department will apply countervailing duties against undervalued currencies, but removes an important hurdle.

How fundamentally Undervalued Currancies are Defined

A currency is said to be fundamentally undervalued if the following criteria are met:

  1. The country’s government has engaged in protracted, large-scale currency intervention in at least one foreign exchange market during an 18-month period.
  2. The country’s “real effective exchange rate” is undervalued by at least 5 percent over the 18-month period.
  3. The country has had significant and persistent global current account surpluses during the 18 months.
  4. The amount of foreign reserve assets held by the government during the 18 months exceeds the amount necessary to repay its debt obligations within the next 12 months, exceeds 20 percent of the country’s money supply and exceeds the value of the country’s imports during the previous four months.

How the Amount of Undervalued is Calculated
The bill instructs the Commerce Department to rely upon approaches described in guidelines of the International Monetary Fund’s Consultative Group on Exchange Rate Issues to calculate the amount a currency is undervalued.

Where appropriate, the department should use a simple average of those approaches.

If those guidelines are not available, the department should use generally accepted economic and econometric techniques and methodologies.

Commerce should also rely on publicly available data compiled by the IMF or, if not available from the IMF, from other international organizations or national governments.

Commerce should also look at inflation-adjusted, trade-weighted exchange rates when calculating currency undervaluation, the bill said.

Reporting Provision
The bill requires the U.S. Comptroller General to issue a report within nine months on its implementation.

How the Bill is Different from Earlier Verson
An earlier version of the “Currency Reform for Fair Trade Act” ran 17 pages.

The new version runs six pages and no longer authorizes the use of anti-dumping duties against undervalued currencies.

Ways and Means Committee aides say it has been amended to make sure it is consistent with WTO rules.

The amended bill does not “deem” that a finding of fundamental currency undervaluation satisfies the requirement of export contingency, as the original bill did. (Reuters)