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China trade barriers a serious concern: U.S. aides

By Doug Palmer

WASHINGTON (Reuters) - Top U.S. officials told Congress Wednesday they had serious concerns about Chinese trade policies that keep out American companies and would take strong action if necessary to pry open the market.

In testimony to the Senate Finance Committee, U.S. Trade Representative Ron Kirk and Commerce Secretary Gary Locke also said President Barack Obama's team would keep a close eye on recent steps by China to reform its currency policy.

"My colleague, Treasury Secretary Timothy Geithner, will be closely monitoring how far and how fast the Chinese let their currency appreciate and will continue to raise this issue with Chinese officials," Locke said.

Locke also said the Commerce Department was carefully considering requests to apply "countervailing duties" against China's currency in two cases now before the department involving paper and aluminum products.

"Given the scrutiny that such decisions face in U.S. courts and at the WTO, I want to make sure our decision on whether to investigate is warranted by the facts and the law," Locke said, referring to the World Trade Organization.

Under pressure from the United States and other trading partners, China announced over weekend that it was ditching a two-year peg to the dollar to allow more flexibility in its closely managed exchange rate.

Senate Finance Committee Chairman Max Baucus told the hearing that Beijing's move had opened the door to appreciating its currency, but "Commerce must carefully consider whether China's currency practices constitute an improper subsidy under U.S. law."

The Obama administration welcomed the action, but many members of Congress viewed it with suspicion and complained that China's exchange rate remains undervalued by 25 percent to 40 percent.

Under questioning from Senators about China's new currency policy, Kirk said: "We don't see that as the end of that discussion at all" and added that he expected G20 leaders would discuss the yuan in Toronto later this week.

Reflecting that concern, a group of lawmakers on Wednesday demanded a vote on a bill that would require the Commerce Department to treat undervalued currencies as an unfair export subsidy so companies could seek countervailing duties.

'EMPTY PROMISES'

"America cannot keep relying on more empty promises from China," said Representative Tim Murphy, a Republican, at a rally with labor and manufacturing groups to push for the bill.

Representative Tim Ryan, a Democrat, said he believed "grass roots" pressure would mount until there is a vote on the bill, which already has more than 120 sponsors in the 435-member House of Representatives.

Neither Locke nor Kirk dwelt on the currency issue, since traditionally only the president and Treasury secretary speak about currency matters.

But both cabinet officials felt free to speak about Chinese policies they said unfairly favor Chinese companies at the expense U.S. and other foreign firms.

"Top priority concerns include addressing indigenous innovation and other discriminatory industrial policies," Kirk told the panel, referring to a Chinese policy that favors domestic firms in government procurement.

The United States hopes for progress on those concerns by a meeting of the U.S.-China Joint Commission on Commerce and Trade near the end of this year.

But Washington is prepared to go to the World Trade Organization or take other enforcement actions "when dialogue fails," Kirk said.

Locke, who led a group of U.S. clean energy companies on a trade mission to China last month, said he shared the concern of many American companies that China was backsliding on its commitment to market openness.

"Far more needs to be done before we can be sure that commercial trends affecting U.S. business in China are once again headed in the right direction," Locke said.

(Additional reporting by Paul Eckert; Editing by Cynthia Osterman)

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