China currency ‘not a WTO problem’

By Peter Chapman

Date: 22/04/04

CHINA has no case to answer at the World Trade Organization (WTO) - despite a deliberate policy of pegging the exchange rate of its yuan renminbi currency below its true value that is feeding the surge in Chinese exports to the EU - a European Commission trade official said.

Commission President Romano Prodi and Trade Commissioner Pascal Lamy have both warned that the currency imbalance has helped to feed a €50 billion bilateral "current account" deficit between the eurozone and China.

But Arancha Gonzalez, spokeswoman for Lamy, said the Commission has no plans to step-up the rhetoric about the currency in recent speeches of her boss and Prodi - in Beijing last week to meet Chinese leaders.

"All we have done is mention it a number of times to Chinese authorities. I don't think there would be any kind of complaint. WTO rules on this are extremely restrictive, I don't think that they have been tested before.

"We don't conduct trade policy on the basis of currency exchange rates. Trade policy is a medium- to long-term policy," she added.

Instead, Gonzalez said the EU supports Chinese promises to usher-in a gradual readjustment of the currency.

A group of US manufacturers, labour groups and farmers is complaining to the Bush administration that Beijing's practice of pegging the yuan renminbi at 8.28 to the dollar gives Chinese exporters an unfair advantage by artificially making their goods cheaper in world markets.

In Europe, the euro's recent 25% appreciation against the US dollar has led to a dramatic decrease in the cost of imports from China.

This is a boon for EU consumers of everything from fireworks to flat-pack furniture. But the flip side is that it is far harder for European firms to sell goods in China as long as Beijing refuses to let its currency appreciate.

The governor of the People's Bank of China, Zhou Xiaochuan, appeared to encourage Beijing's trade partners last weekend.

Speaking after US Vice-President Dick Cheney's trip to China, he said that moving towards a market-driven trading system for his currency was a "top priority". But, in the meantime, the centralized regime in the world's fastest-growing economic powerhouse is still able to control the market to keep the official exchange rate in check.

The American grouping believes calling for an investigation under a provision of US trade law known as "section 301" would give the Bush administration additional leverage in persuading Beijing to move to a more flexible exchange rate.

Frank Vargo, vice-president for international trade at the National Association of Manufacturers, told Reuters that the Fair Currency Alliance would file its petition with Robert Zoellick's US trade representative office "almost certainly this month".

The US has a trade deficit with China of around €120 billion.

But Gonzalez said she doubted if Bush's team would take the issue to the Geneva-based WTO.