Currency manipulation/undervaluation/misalignment has not yet attained centrality in WTO disputes or discussions except for a proposal made by Brazil at the WTO to take it seriously. There is abundance of legal literature, however, on the WTO compatibility of currency misalignment and the possible course of action under WTO law.The IELP blog had a blogpost on it recently here. Does currency manipulation violate Article XV(4) GATT (frustrating the intent of GATT provisions) or is it a prohibited subsidy under the ASCM? I have written a paper on this which I will share soon.
The Peterson Institute for International Economics recently had a Policy Brief that highlighted the seriousness of the problem and recommended that a WTO case be brought against the major manipulators. the Policy brief titled "Currency Manipulation, the US Economy, and the Global Economic Order" gives an exhaustive account of what could constitute currency manipulation and contrary to popular belief that a few countries practice it there seems to be evidence that a large number of countries, both developing and developed, practice it.
Recommending a WTO case, the brief highlights:
"We nevertheless believe that the status quo produces a gaping hole at the heart of the global economic order, that the bifurcation between the monetary and trading systems must be overcome, that the economic costs of inaction on this issue are extremely high during a prolonged period of slow growth and high unemployment such as the present and possibly the foreseeable future, and that multilateral remedies are highly preferable to unilateral actions. Hence we recommend that the United States and its allies bring WTO cases against the most egregious manipulators as part of a broader action program, all of whose other components would be at least arguably compatible with the existing international rules. If they won the case, it would strengthen their hands enormously in prosecuting all their other remedies and would, in a second WTO step to determine permissible remedial action, add to the arsenal of policy instruments available to them. If they lost, it would dramatize the need for reform of the WTO rules themselves and thus almost instantaneously place the issue on the agenda for either a future round or a stand-alone negotiation. Whatever the outcome, the coalition would have made every effort to use the existing rules and institutions and thus demonstrated its fealty to the international system."
While the legal arguments in favor of a WTO action in case of currency misalignment are not that sound, will 2013 see the first dispute settlement case where an undervalued currency is challenged on the grounds that it is violative of GATT or is a prohibited subsidy under the ASCM? Who will take the plunge?