US Senate bill introduced to punish China on yuan (AFP)

WASHINGTON (AFP) –

Facing election-year pressure over unemployment, US senators have introduced legislation that would impose tough new penalties on China if it failed to revalue its currency.

The legislation, which enjoys support from both sides of the political aisle, would punish currency manipulation as an unfair subsidy and could trigger a set of retaliatory US action.

The move came as lawmakers in Washington stepped up criticism of China ahead of November mid-term US elections, accusing Beijing of securing an unfair edge in trade by keeping the yuan artificially low.

It also follows Chinese Premier Wen Jiabao strong statement at the weekend that Beijing would resist any foreign pressure for a stronger yuan.

"When Premier Wen said that China's currency is not overvalued two days ago, that was the last straw and here we are to tell them we are going to force you to do it -- plain and simple," said Democratic Senator Chuck Schumer Tuesday as he unveiled the legislation at a news conference.

"There is no bigger step that we can take to promote job creation here in the US than to confront Chinese currency manipulation," said the senator as he referred to the double digit unemployment crisis dogging the United States.

Republican Senator Sam Brownback said he expected a "huge vote," both in the House of Representatives and the Senate, on such legislation.

This will enable President Barack Obama's administration "to do what it needs to do," he said.

On Monday, a group of 130 Democratic and Republican lawmakers called on US Treasury Secretary Timothy Geithner to brand China a currency manipulator in a report due next month, saying Beijing was in effect subsidising exports.

"The impact of China's currency manipulation on the US economy cannot be overstated," the lawmakers said in the letter submitted to Geithner and US Commerce Secretary Gary Locke.

Geithner said Tuesday the Chinese currency was "a very important issue" not only for the United States and China but for all trading partners of the Asian giant, adding that the ball was in Beijing's court.

"I think they'll decide, ultimately, it's in their interests to move," he said in an interview with Fox Business Television.

President Obama last week renewed his call to China to embrace a "market oriented" exchange rate, upping US pressure on the yuan currency at a time of turmoil in Washington's delicate relations with Beijing.

In a separate move, the US House of Representatives on Tuesday urged China to end its "persecution" of the Falungong and rejected Beijing's charges that the banned spiritual movement is an "evil cult."

In a nearly unanimous vote, the House called on China to free thousands of practitioners who are said to be imprisoned and to abolish an office tasked with fighting the Falungong.

Wen blamed the United States on Sunday for recent tensions in Sino-US ties, indicating no let-up in their diplomatic row.

Wen accused Washington of violating China's sovereignty when it approved the sale of billions of dollars in weapons to Taiwan in January, and again when US President Barack Obama met the Dalai Lama at the White House last month.

Relations between the two countries have deteriorated over a series of other issues -- Google's threat to leave China over cyberattacks and web censorship, a string of trade disputes, and the value of the Chinese yuan.

The currency legislation introduced Tuesday would, among other things, require the US Treasury Department to identify countries with "fundamentally misaligned currencies" and a second "priority action" list of such countries that pursue such imbalances as policy.

Countries on the "priority" list would face a range of US responses, including a possible change in whether such nations get "market economy" designation for the purposes of US anti-dumping laws.

US policy would be required to reflect currency undervaluation in dumping calculations for products made in the designated country, and forbid the US government from buying goods or services from such a country unless it is a member of the WTO Government Procurement Agreement.

The measure would target projects in a designated country, including forbidding overseas private financing or insurance and opposing new multilateral bank financing, if the country fails to adopt "appropriate policies," according to a summary of the legislation.

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