Wednesday, April 28, 2021

Currency manipulation - warning bells ringing?

Currency manipulation and trade law have often crossed paths but have never created a huge storm in terms of being n the agenda either in the ngotiating space or in the judicial fora of a panel proceedings or now defunct Appellate Body.

I have blogged about the issue pretty often over the years - here, here, here and here. My more detailed paper on the issue (has to be updated I admit) is here.

hat caught my attention this time was a piece in the The Mint by Daniel Moss stating that one must not underestimate the threat of currency undervaluation and the impending action against it. However, the piece does admit that the present steps against currency manipulation hardly proves to be a disincentive for currency manipulators.

Why is this? That is because there is still no clarity on what constitutes currency manipulaton for benefiting once exports or to take advantage in trade. A recent Congressional Research Study paper in 2020 on currency manipulation has asked some of the right questions fo rwhich there are no eay answers:

The United States has deep and liquid foreign exchange and capital markets, and trillions of dollars are exchanged for foreign currencies daily. To what extent can other countries successfully lower the value of their currency relative to the dollar? 

Many economic policies can impact exchange rate levels. Is it possible to differentiate currency manipulation from “legitimate” economic policies? 

Even though U.S. producers generally find it harder to compete when other countries have weak currencies, U.S. consumers generally benefit from less expensive imports. What are the net effects of currency manipulation on the U.S. economy? 

In addition to U.S. commitments on currency at the IMF and the G-7/G-20, U.S. laws and regulations contain multiple definitions of currency manipulation. Is the United States sending a clear signal to its trading partners about what constitutes currency manipulation and what the consequences are? 

Does a unilateral approach help the United States gain traction on currency issues? What are the retaliatory risks? Should the IMF play a stronger role in resolving currency disputes? 

 Are trade agreements an effective tool for addressing currency issues? Should currency manipulation be addressed if Congress renews TPA in 2021?

These questions have been at the heart of the debate of the intersection between currency manipulation and international trade law. The issue of currency manipulation and the consequences of it keeps arising due to the semi-annual US Treasury report on macro-economic and foreign exchange policies of its major trading partners. The Report is a detailed analysis of whether a trading partner who satisfies the three conditions (significant bilateral trade surplus, material current account surplus and persistent one-sided intervention in the foreign exchange market) is manipulating currency for trade. Another interesting aspect of the report was the varying degrees countries employ in publishing data on their foreign exchange interventions - some are open about it while for others it is shrouded in secrecy. Some of the recent trade agreements have tried to address this issue with the transparency clause on foreign exchange interventions.

The debate would perhaps continue - but was is evident that there is more scrutiny and discussion on this issue. Though multilaterally we have not seen any appeal for this issue to be taken up as a negotiating agenda, it may be sooner than later when CVD are imposed and the measure challened at the WTO. Who would bite the bait first is the issue.

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