The bill would require Treasury to develop a new semi-annual report to determine whether a country's currency is "fundamentally misaligned," regardless of intent.

For nations labeled as a priority country, the legislation would require the U.S. Treasury to immediately seek advice from the International Monetary Fund and key trading partners on how best to address the issue.

It also requires Treasury to oppose any favorable change in IMF governance practices for a targeted country and orders the Commerce Department to take the targeted country's currency practices into consideration when deciding if it qualifies as a "market economy" under U.S. anti-dumping laws.

China has asked to be considered a market economy believing that would lead to lower U.S. anti-dumping duties, which are imposed on foreign goods sold below "fair market" value.

After six months, the bill ratchets up the pressure on countries with misaligned currencies by imposing additional penalties. Those include allowing U.S. companies to seek anti-dumping duties against the country's currency practices, something they can not do now.

If the country has not reformed its currency practices after a year, the U.S. Trade Representative's office would be required to initiate a currency case at the WTO.

The Treasury Department also would be required to consult with the Federal Reserve and other central banks on possible "remedial intervention in currency markets" against the targeted country.

"(The bill) gives a good chance for self-correction before penalties ramp up. It's a velvet glove with a steel fist inside," said Grassley.

"This will be a very broadly supported bill," said Baucus, who told reporters it could be on the Senate floor for a vote by September. "This is the real deal."

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