Thursday, March 28, 2013

Vera Thorstensen on currency manipulation and world trade

I have written about the growing significance of the currency question in international trade law here, here, here and here. Though there does not seem to be any immediate dispute at the WTO around this critical issue, Vera Thorstensen and others have summarised the issues in this CUTS paper. Titled "Trade and Exchange Rates: Effects of Exchange Rate Misalignments on Tariffs" the paper argues that the WTO must play a more active role in addressing the concerns that a devalued or manipulated currency could adversely impact a country's rights under the international trading system. 

Persistent exchange-rate misalignments cannot but create potentially infinite variations of market-access conditions among WTO members. This situation is directly the opposite of what the multilateral system sought with the establishment of the MFN principle, that aimed to assure that no particular country would have a commercial advantage in its trade with another contracting party, which otherwise could raise tensions and divert trade

The effects of misalignments are also distorting many other rules and instruments negotiated under the WTO, such as antidumping, subsidies, safeguards, rules of origin, GATT articles I, II, III, and XXIV.
The WTO can no longer ignore what is happening behind its magnificent structure of complex trade rules. The persistence of opposite exchange-rate misalignments, of countries with overvalued currencies and others with undervalued ones, for long periods is eroding the objectives of the rules-based multilateral trading system.

The core principles of WTO construction - transparency, predictability and confidence - are under question. The strengthening of trade rules, with the negotiation of instruments to neutralise the effects of exchange rates, is fundamental to the existence of the WTO. Otherwise, the WTO might become a diplomatic-juridical fiction - void of economic reality. 

Historically currency exchange issues have been dealt with by by the IMF and this jurisdictional barrier has kept the WTO from intervening. Will the WTO members allow this topic to gain centre stage at the multilateral body? Will Brazil's submissions be discussed in more detail at the Committees of the WTO? Will a dispute settlement case be initiated by a WTO member against a persistent manipulator of currency? How will the Panel and Appellate Body react? Will ti get included in future trade negotiation rounds as an addendum? Is the situation as serious as made out to be that the WTO would become void of economic reality if it does not recognize and address the issue of widespread currency manipulation? What impact does this have on domestic policy space, multilateral rules and barriers to international trade?

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