Saturday, May 25, 2013

Currency wars - When will the bell toll?

Currency manipulation has been a subject of this blog for sometime. I have written about it here, here and here.

For those following the currency wars debate in international economic law and policy, this lecture by Fred Bergsten is quite illuminating. Giving an exhaustive account of an US perception of the currency undervaluation issue "Currency Wars, the Economy of the United States and reform of the International Monetary Systemoffers, inter alia, some approaches to address the issue:
"Two changes should also be made in the rules of the WTO. The simpler would be to explicitly add “manipulated currency undervaluation” to the list of proscribed export subsidies against which countervailing duties can be levied by member countries. This could be quite potent if a “coalition of the injured” then used the new authorization to countervail in a variety of their sectors that are injured by the manipulation. 
The second, and potentially even more significant, change would be to amend or re- interpret Article 15(4) to clarify that manipulated undervaluation by individual countries justifies the erection of across-the-board barriers against their exports by all members of the organization that choose to do so (Mattoo and Subramanian 2008). As under its current rules, the WTO would under both remedies first ask the IMF for a judgment as to whether a currency is “undervalued” and “manipulated” and then apply its own standards to the trade measures that were proposed in response.  
These changes could be made either through amendment of the charter or (more likely) via developing a consensus on the issue.The latter approach, following standard WTO practice, could be achieved initially by a plurilateral group that fell short of the full membership of the organization as laid out in detail by my colleagues Gary Hufbauer and Jeffrey Schott. Another tactic would be to begin including such mechanisms in bilateral or regional trade agreements, rather than or in addition to the WTO itself, that would suspend the benefits of the agreement to countries that were found to be manipulating their currencies; the United States should seek to add such chapters to the TransPacific Partnership, which already includes several current and former manipulators, and the Transatlantic Trade and Investment Partnership, where the negotiating agenda is still to be determined and the participating countries are more like- minded."
Are we seeing a trend of increasing calls to address the currency issue within the WTO framework? Are we going to see this discussion more in bilateral or regional trade agreement negotiations?

Thank you Vera Thorstensen for bringing this piece to my notice.


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