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U.S. near China currency decision in aluminum case

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U.S. near China currency decision in aluminum case

Mon Aug 30, 2010 6:04pm EDT

* US aluminum producers asked in April for currency probe

* Issue expected to turn on legal definition of subsidy

By Doug Palmer

WASHINGTON, Aug 30 (Reuters) - The U.S. Commerce Department is expected to announce on Tuesday whether it will investigate if China's currency practices subsidize its exports and warrant U.S. duties in response.

The decision looms in a case brought by U.S. manufacturers against Chinese-made aluminum products used in the U.S. construction and automobile sectors. The United States imported more than $500 million of the aluminum goods last year.

The department, which last week announced plans to tighten its procedures against unfairly traded goods, risks an ugly spat with Beijing if it decides to launch an investigation.

But with U.S. lawmakers eager to show they are tackling high unemployment in a congressional election year, the department could provoke Congress into passing legislation aimed at reducing imports from China if it decides it does not have strong legal grounds to investigate the currency matter.

In a petition filed almost five months ago, the United Steeelworkers union and aluminum extrusion producers in nine states asked the Commerce Department to impose countervailing duties over China's yuan CNY=SAECCNY=CFXS, which some economists estimate is undervalued by as much as 40 percent.

Reversing a trend that had allowed the yuan to appreciate slightly, the Chinese central bank has guided the currency lower since Aug. 9 when it hit a high of 6.7644 to the dollar -- its strongest since a landmark revaluation in July 2005.

The Commerce Department is due to make a preliminary decision on Tuesday on the petition, which also alleges other government subsidies that the U.S. manufacturers and workers want offset by countervailing duties.

"I think it would be both necessary and appropriate for them to say something about currency," said Gilbert Kaplan, an attorney at King & Spalding, which has been working with the Aluminum Extrusions Fair Trade Committee on its case.

Although Commerce Department officials have noted the complexity of the issue, "there are statutory decisions and they are required to make decisions," he said.

Kaplan said he hoped for an announcement that would allow currency investigation to begin in the aluminum case and a second case involving coated paper from China.

The issue is expected to turn on whether the Commerce Department thinks it could persuade U.S. courts, as well as the World Trade Organization, that China's currency actions meet the legal definition of providing a subsidy.

Under both U.S. and WTO law, a subsidy is defined as a financial contribution from the government that provides a benefit to a specific industry.

In the aluminum and coated paper cases, U.S. petitioners argue the benefits that come from the Chinese government controlling its currency are specific to Chinese exporters since they account for about 70 percent of the country's foreign exchange transactions.

Regardless of whether the department decides to investigate China's currency practices, it could announce "significant" preliminary countervailing duties to offset other alleged government subsidies, said Stephen Jones, another attorney at King & Spalding.

The case makes 45 different subsidy charges -- ranging from tax breaks and favorable loans from state-owned banks to below-market prices for land and raw materials -- and the Commerce Department has already begun investigations on about 30 of them, he said. (Editing by John O'Callaghan)


whether it will investigate if China's currency practices

COME ON!!!!!!!! HOW much Tax dollars are going to be wasted on this crap!! THE WHOLE dang world know china is running the show with their currency....UNREAL!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!

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