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Thursday, September 29, 2011

China’s Currency: An Analysis of the Economic Issues


Wayne M. Morrison
Specialist in Asian Trade and Finance

Marc Labonte
Specialist in Macroeconomic Policy


China’s policy of intervening in currency markets to limit or halt the appreciation of its currency, the renminbi (RMB), against the U.S. dollar and other currencies has become an issue of concern for many in Congress. Critics charge that China’s currency policy is intended to make its exports significantly cheaper, and its imports more expensive, than would if the RMB were a freely traded currency. They contend that the RMB is significantly undervalued against the dollar and that this has been a major contributor to the large annual U.S. trade deficits with China and the loss of U.S. jobs in recent years. Some Members have urged the Obama Administration take a more aggressive stand against China over its currency policy, such as by designating it as a “currency manipulator” under U.S. trade law. Others have introduced legislation that would seek to counter the perceived effects of China’s currency policy on the U.S. economy. For example, in the 112th Congress, H.R. 639, S. 328, and S. 1130 would make certain exchange rate policies an actionable subsidy under U.S. countervailing duty cases.

From July 2005 to July 2008, China’s central bank allowed the RMB to appreciate against the dollar by about 21%. However, once the effects of the global economic crisis became apparent, China halted appreciation of the RMB in an effort to help Chinese industries dependent on trade. From July 2008 to about mid-June 2010, China kept the exchange rate of the RMB relatively constant at 6.83 yuan (the base unit of the RMB) to the dollar. On June 19, 2010, the China’s central bank stated that it would resume appreciation of the RMB exchange. Since then, China has allowed the RMB/dollar exchange rate to rise by 6.0% (through August 4, 2011). Many U.S. officials have criticized this pace as being too slow, especially given China’s strong economic growth over the past few years, including its trade sector, and its rising level of foreign exchange reserves, which hit $3.2 trillion as of June 2011.

Many economists argue the that effects of China’s currency policy on the U.S. economy are mixed. If the RMB is undervalued (as many contend), then it might be viewed as an indirect export subsidy which artificially lowers the prices of Chinese products imported into the United States. This benefits U.S. consumers and U.S. firms that use Chinese-made parts and components, but could negatively affect certain U.S. import-sensitive firms. An undervalued RMB might also have the effect of limiting the level of U.S. exports to China than might occur under a floating exchange rate system. Further complicating the issue is China’s large purchases of U.S. Treasury securities, which totaled $1.2 trillion at the end of 2010. These purchases occur because China’s intervention in currency markets causes it to accumulate large levels of foreign exchange reserves, especially U.S. dollars, which are then used to purchase U.S. debt. Such purchases help the U.S. government fund the budget deficit, which helps to keep U.S. interest rates relatively low. These factors suggest that an appreciation of the RMB to the dollar could benefit some U.S. sectors, but negatively impact others. The effects of the global economic slowdown have refocused attention on the need to reduce global imbalances (e.g., savings, investment, and trade), especially in regards to China and the United States. Many economists contend that China should take steps to lessen its dependence on exports and fixed investment for its economic growth and instead rely more on domestic consumption. A market-based currency policy is seen as an important factor in achieving this goal. Further RMB appreciation could help promote the development of non-export industries in China, while boosting China’s imports, including from the United States. This report provides an economic analysis of China’s currency policy and lists current legislation and options for Congress.



Date of Report: September 21, 2011
Number of Pages: 43
Order Number: RS21625
Price: $29.95

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Monday, September 26, 2011

U.S. Sanctions on Burma

Michael F. Martin
Specialist in Asian Affairs

Existing U.S. sanctions on Burma are based on various U.S. laws and presidential executive orders. This report provides a brief history of U.S. policy towards Burma and the development of U.S. sanctions, a topical summary of those sanctions, and an examination of additional sanctions that have been considered, but not enacted, by Congress, or that could be imposed under existing law or executive orders. The report concludes with a discussion of options for Congress.

The current U.S. sanctions on Burma are, for the most part, due to what the U.S. government sees as a general disregard by Burma’s ruling military junta for the human rights and civil liberties of the people of Burma.

In general, Congress has passed Burma-specific sanctions following instances of serious violation of human rights in Burma. These began following the Tatmadaw’s violent suppression of popular protests in 1988, and have continued through several subsequent periods in which Congress perceived major human rights violations in Burma. The result is a web of overlapping sanctions subject to differing restrictions, waiver provisions, expiration conditions, and reporting requirements.

The United States currently imposes sanctions specifically on Burma via five laws and four presidential executive orders (E.O.s). These sanctions can be generally divided into several broad categories, such as visa bans, restrictions on financial services, prohibitions of Burmese imported goods, a ban on new investments in Burma, and constraints on U.S. assistance to Burma.

In addition to the targeted sanctions, Burma is currently subject to certain sanctions specified in U.S. laws based on various functional issues. In many cases, the type of assistance or relations restricted or prohibited by these provisions are also addressed under Burma-specific sanction laws. The functional issues include the use of child soldiers, drug trafficking, human trafficking, money laundering, failure to protect religious freedoms, violations of workers’ rights, and threats to world peace and the security of the United States. Past Congresses have considered a variety of additional, stricter sanctions on Burma.

In November 2010, Burma’s ruling military junta held parliamentary elections and released prominent opposition leader Aung San Suu Kyi from house arrest. In January 2011, Burma’s new Union Parliament met for the first time, and on March 30, 2011, the ruling military junta formally dissolved itself and transferred power to the new Union Government. However, various aspects of these changes in Burma—including the selection of senior junta members for many of the more powerful positions in the new Union Government—have raised questions about the extent to which there has been significant political change in Burma.

The 112th Congress may consider either the imposition of additional sanctions or the removal of some of the existing sanctions, depending on the conduct of Burma’s new Union Government and other developments in Burma.



Date of Report: August 8, 2011
Number of Pages: 28
Order Number: R41336
Price: $29.95

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Thursday, September 22, 2011

Thailand: Background and U.S. Relations


Emma Chanlett-Avery
Specialist in Asian Affairs

U.S.-Thailand relations are of interest to Congress because of Thailand’s status as a long-time military ally and a significant trade and economic partner. Ties have been complicated by deep political and economic instability in the wake of a September 2006 coup that displaced Prime Minister Thaksin Shinawatra, a popular but divisive figure who remains a flashpoint for many divisions within Thailand. The U.S. has removed the restrictions on aid imposed after the 2006 coup, but questions remain about how relations will fare as Bangkok seeks political stability.

Thailand has long been seen as a stable model of democracy and economic development, but its politics have more recently been dominated by battles between populist forces led by Thaksin (now in exile) and his opponents, a mix of conservative royalists and military figures, and other Bangkok elites. Despite his exile, pro-Thaksin political parties have won both nationwide elections since his ouster, and the current government is led by his younger sister, Yingluck Shinawatra. Mass movements both supporting and opposing Thaksin have staged vigorous demonstrations, and one such set of protests spilled over to riots in Bangkok and other cities in May 2010, causing the worst street violence in Thailand in decades.

Many analysts believe that traditional Thai elites—particularly the military’s top brass and many prominent royalist figures—remain deeply opposed to Thaksin and any indication that he might seek to return to a political role in Thailand. But Thaksin (and Yingluck) have considerable support in the country’s poorer regions, stemming from programs Thaksin pursued during his rule from 2001-2006 to provide rural healthcare and other benefits. His ouster has brought out divisions that had been emerging for years between the growing middle-class of Bangkok and the poorer rural population. Risks are heightened by uncertainty about the health of Thailand’s widely revered King Bhumiphol Adulyadej, who is 83.

Despite differences on Burma policy and human rights issues, shared economic and security interests have long provided the basis for U.S.-Thai cooperation. Thailand contributed troops and support for U.S. military operations in both Afghanistan and Iraq and was designated as a major non-NATO ally in December 2003. Thailand’s airfields and ports play a particularly important role in U.S. global military strategy, including having served as the primary hub of the relief effort following the 2004 Indian Ocean tsunami and the 2008 Cyclone Nargis in Burma. Although the alliance itself does not appear to be fundamentally shaken by events of the past few years, Thailand’s reliability as a partner, and its ability to be a regional leader, are uncertain. Successive Thai governments have also been unable to stem violence by insurgents in the southern majority- Muslim provinces.

Under the Obama Administration, the United States has prioritized engagement with Southeast Asia. With its favorable geographic location and broad-based economy, Thailand has traditionally been considered among the most likely countries to play a major leadership role in the region and has been an aggressive advocate of increased economic integration. But growing U.S. engagement with Indonesia and Thailand’s domestic problems appear to have dimmed the prominence of the U.S.-Thai relationship in Southeast Asia. Thailand maintains close relations with China and is considered by some to be a key arena of competition between Beijing and Washington for influence.



Date of Report: September 1, 2011
Number of Pages:
26
Order Number: RL3
2593
Price: $29.95

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Taiwan: Major U.S. Arms Sales Since 1990


Shirley A. Kan
Specialist in Asian Security Affairs

This report, updated as warranted, discusses U.S. security assistance to Taiwan, or Republic of China (ROC), including policy issues for Congress and legislation. Congress has oversight of the Taiwan Relations Act (TRA), P.L. 96-8, which has governed arms sales to Taiwan since 1979, when the United States recognized the People’s Republic of China (PRC) instead of the ROC. Two other relevant parts of the “one China” policy are the August 17, 1982, U.S.-PRC Joint Communique and the “Six Assurances” to Taiwan. U.S. arms sales to Taiwan have been significant. The United States also expanded military ties with Taiwan after the PRC’s missile firings in 1995-1996. However, the U.S.-ROC Mutual Defense Treaty terminated in 1979.

At the last U.S.-Taiwan annual arms sales talks on April 24, 2001, President George W. Bush approved for possible sale diesel-electric submarines, P-3 anti-submarine warfare (ASW) aircraft (linked to the submarine sale), four decommissioned U.S. Kidd-class destroyers, and other items. Bush also deferred decisions on Aegis-equipped destroyers and other items, while denying other requests. Afterward, attention turned to Taiwan, where the military, civilian officials, and legislators from competing political parties debated contentious issues about how much to spend on defense and which U.S. weapons to acquire, despite the increasing threat (including a missile buildup) from the People’s Liberation Army (PLA). In 2003, the Bush Administration pointed Taiwan to three priorities for defense: command and control, missile defense, and ASW. The Pentagon also has broadened its concern from Taiwan’s arms purchases to its defense spending, seriousness in self-defense and protection of secrets, joint capabilities, operational readiness, critical infrastructure protection, and asymmetrical advantages. Blocked by the Kuomintang (KMT) party in the Legislative Yuan (LY) that opposed the Democratic Progressive Party (DPP)’s president (2000-2008), the Special Budget (not passed) for submarines, P-3C ASW aircraft, and PAC-3 missile defense systems was cut from $18 billion in 2004 to $9 billion (for submarines only) in 2005. In March 2006, Taiwan’s defense minister requested a 2006 Supplemental Defense Budget (not passed) in part for submarine procurement, P-3Cs, and PAC-2 upgrades (not new PAC-3 missiles). In June 2007, the LY passed Taiwan’s 2007 defense budget with funds for P-3C planes, PAC-2 upgrades, and F-16C/D fighters. In December 2007, the LY approved $62 million to start the sub design phase. After the KMT’s Ma Ying-jeou became President in May 2008, he resumed cross-strait talks while retaining the arms requests. But Ma has cut the defense budget.

Attention also turned to U.S. decisions on pending arms sales. In 2008, congressional concerns mounted about a suspected “freeze” in President Bush’s notifications to Congress on arms sales. On October 3, 2008, Bush finally notified Congress. However, he submitted six of the eight pending programs (not a “package”) for a combined value of $6.5 billion. Despite the concerns in 2008, President Obama repeated that cycle to wait to decide on submissions for congressional review all at one time (on January 29, 2010) five programs with a total value of $6.4 billion. Like Bush, President Obama did not notify the submarine design program (the only one pending from decisions in 2001) and has not accepted Taiwan’s formal request for F-16C/D fighters (pending since 2006). Defense Secretary Robert Gates submitted to Congress in February 2010 an unclassified assessment of Taiwan’s air defense forces, including its F-16 fighters, finding that Taiwan faced diminished ability to deny the PRC air superiority. Legislation in the 112th Congress includes H.Con.Res. 39 (Andrews), H.R. 2583 (Ros-Lehtinen), S. 1539 (Cornyn), and H.R. 2918 (Ros-Lehtinen). Among other congressional actions, on July 21, Senator Cornyn lifted his hold on a nomination to urge for the pending report on Taiwan’s air defense and decisions on the F-16s, promised by October 1. On August 1, 181 Members of the House sent a letter to President Obama to urge him to sell F-16C/D fighters.



Date of Report: September 15, 2011
Number of Pages: 73
Order Number: RL30957
Price: $29.95

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Friday, September 16, 2011

Taiwan: Major U.S. Arms Sales Since 1990


Shirley A. Kan
Specialist in Asian Security Affairs

This report, updated as warranted, discusses U.S. security assistance to Taiwan, or Republic of China (ROC), including policy issues for Congress and legislation. Congress has oversight of the Taiwan Relations Act (TRA), P.L. 96-8, which has governed arms sales to Taiwan since 1979, when the United States recognized the People’s Republic of China (PRC) instead of the ROC. Two other relevant parts of the “one China” policy are the August 17, 1982, U.S.-PRC Joint Communique and the “Six Assurances” to Taiwan. U.S. arms sales to Taiwan have been significant. The United States also expanded military ties with Taiwan after the PRC’s missile firings in 1995-1996. However, the U.S.-ROC Mutual Defense Treaty terminated in 1979.

At the last U.S.-Taiwan annual arms sales talks on April 24, 2001, President George W. Bush approved for possible sale diesel-electric submarines, P-3 anti-submarine warfare (ASW) aircraft (linked to the submarine sale), four decommissioned U.S. Kidd-class destroyers, and other items. Bush also deferred decisions on Aegis-equipped destroyers and other items, while denying other requests. Afterward, attention turned to Taiwan, where the military, civilian officials, and legislators from competing political parties debated contentious issues about how much to spend on defense and which U.S. weapons to acquire, despite the increasing threat (including a missile buildup) from the People’s Liberation Army (PLA). In 2003, the Bush Administration pointed Taiwan to three priorities for defense: command and control, missile defense, and ASW. The Pentagon also has broadened its concern from Taiwan’s arms purchases to its defense spending, seriousness in self-defense and protection of secrets, joint capabilities, operational readiness, critical infrastructure protection, and asymmetrical advantages. Blocked by the Kuomintang (KMT) party in the Legislative Yuan (LY) that opposed the Democratic Progressive Party (DPP)’s president (2000-2008), the Special Budget (not passed) for submarines, P-3C ASW aircraft, and PAC-3 missile defense systems was cut from $18 billion in 2004 to $9 billion (for submarines only) in 2005. In March 2006, Taiwan’s defense minister requested a 2006 Supplemental Defense Budget (not passed) in part for submarine procurement, P-3Cs, and PAC-2 upgrades (not new PAC-3 missiles). In June 2007, the LY passed Taiwan’s 2007 defense budget with funds for P-3C planes, PAC-2 upgrades, and F-16C/D fighters. In December 2007, the LY approved $62 million to start the sub design phase. After the KMT’s Ma Ying-jeou became President in May 2008, he resumed cross-strait talks while retaining the arms requests. But Ma has cut the defense budget.

Attention also turned to U.S. decisions on pending arms sales. In 2008, congressional concerns mounted about a suspected “freeze” in President Bush’s notifications to Congress on arms sales. On October 3, 2008, Bush finally notified Congress. However, he submitted six of the eight pending programs (not a “package”) for a combined value of $6.5 billion. Despite the concerns in 2008, President Obama repeated that cycle to wait to decide on submissions for congressional review all at one time (on January 29, 2010) five programs with a total value of $6.4 billion. Like Bush, President Obama did not notify the submarine design program (the only one pending from decisions in 2001) and has not accepted Taiwan’s formal request for F-16C/D fighters (pending since 2006). Defense Secretary Robert Gates submitted to Congress in February 2010 an unclassified assessment of Taiwan’s air defense forces, including its F-16 fighters, finding that Taiwan faced diminished ability to deny the PRC air superiority. Legislation in the 112th Congress includes H.Con.Res. 39 (Andrews) and H.R. 2583 (Ros-Lehtinen). Among other congressional actions, on May 26, 45 Senators wrote to President Obama to support a sale of F-16C/Ds. On July 21, Senator Cornyn lifted his hold on a nomination to urge for the pending report on Taiwan’s air defense and decisions on the F-16s, promised by October 1. On August 1, 181 Members of the House sent a letter to President Obama to urge him to sell F-16C/D fighters.



Date of Report: September 9, 2011
Number of Pages: 73
Order Number: RL30957
Price: $29.95

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Document available via e-mail as a pdf file or in paper form.
To order, e-mail Penny Hill Press or call us at 301-253-0881. Provide a Visa, MasterCard, American Express, or Discover card number, expiration date, and name on the card. Indicate whether you want e-mail or postal delivery. Phone orders are preferred and receive priority processing.