Currency undervaluation back in business!

The IELP blog has a recent discussion on currency undervauation issues being brought in countervailable duty investigations by the US against Vietnam tyre exports to the US.

The US Department of Commerce Report is here. The relevant part of the currency undervaluation analysis is here:

In determining whether there is undervaluation, we will normally “take into account the gap between the country’s real effective exchange rate (REER) and the real effective exchange rate that achieves an external balance over the medium term that reflects appropriate policies (equilibrium REER).”159 Pursuant to 19 CFR 351.528(a)(2), we normally will make an affirmative finding of undervaluation only if there has been government action on the exchange rate that contributes to that undervaluation. Next, pursuant to 19 CFR 351.528(b)(1), after making an affirmative finding of undervaluation, we will determine the existence of a benefit after examining the difference between the “nominal, bilateral United States dollar rate consistent with the equilibrium REER,” and the “actual nominal, bilateral United States dollar rate during the relevant time period, taking into account any information regarding the impact of government action on the exchange rate.” Consistent with 19 CFR 351.528(c), we requested that “the Secretary of the Treasury provide its evaluation and conclusion as to the determinations” under 19 CFR 351.528(a) and (b)(1).

 In its August 24, 2020 response to our request,160 Treasury reported that the VND was undervalued during 2019, because there was a gap between Vietnam’s REER and its equilibrium REER.161 Treasury also reported its finding that “on a bilateral basis, {it} assesses that the Government of Vietnam’s actions on the exchange rate had the effect of undervaluing the dong vis-à-vis the U.S. dollar by 4.7%.”162 Based on this evidence, we preliminarily determine that Vietnam’s currency vis-à-vis the U.S. dollar was undervalued during the period of investigation by 4.7 percent. 

The Report relied on Treasury inputs which have a detailed explanation of the methodology for determining undervaluation is here.

This CSIS piece explains the whole issue and the implications it may have. A critique of the move to use currency undervaluation in subsidy investigations is found here.

Added to this is the semi-annual report of the US Treasury on currency undervaluation.The last one published in January 2020 is here.

Someone had said currency undervaluation and trade are remotely connected. Time to reconsider it's entry into the world of global trade rules. If currency undervaluation rules is one way, CVD investigations are surely the other way it is going to set policy makers thinking.