"Currency Wars"

I have blogged about the issue of currency undervaluation and potential of a trade law dispute here.The G-20 recently spoke about it here.

Just finished a book called "Currency Wars: The Making of the next Global Crisis" by James Rickards that provides an overview of the history of currency undervaluation as a tool to boost one's economy and the significance it has on the international economy. Scary scenarios have been suggested. The interesting part of the book is that currency misalignment and manipulation are seen as tools of economic warfare that need to be recognized by countries as part of their national strategy.

As  have said, is 2013 the year of the big current war or trade dispute?

Currency undervaluation - Simmering tensions

I have blogged about the issue of currency undervaluation and international trade here and here. 

Robert Zoellick in a recent piece titled "A New US International Economic Strategy" outlining what he thinks should be the international economic strategy of the US brought to the fore the increasing possibility of currency misalignment as one of the most contentious issues in the coming years for international trade.

"...the extraordinary monetary policies of late, led by the Federal Reserve's continued near-zero interest-rate policy, are taking us into uncharted territory. Central banks have tried most every tool to stimulate growth; if Japan is any warning, the next tactic is competitive devaluation, which risks a new protectionism. "Currency manipulation" could become a danger that reaches far beyond the debate about Chinese policies. The world economy will need at some point to withdraw the drug of cheap money and negative real interest rates. The United States should anticipate these dangers. 

The International Monetary Fund (IMF) also could help set standards about exchange-rate policies and serve as a referee that blows a whistle, even if it cannot penalize. The IMF and the World Trade Organization (WTO) should anticipate this risk and give effect to the existing WTO agreement that economies must "avoid manipulating exchange rates... to gain an unfair competitive advantage."

How can the existing WTO agreement be given "effect" to? Probably by a dispute settlement proceeding? Are we increasingly looking at such a possibility?

Global trade pie, new disputes and the WTO

(Courtesy: LA Times)

Los Angeles Times has this interesting piece on the possible reason for increasing trade disputes in the context of growing pressure on the global trade pie.The currency undervaluation issue is slowly gaining prominence in the international trade arena - are we going to see a dispute soon? While Brazil is taking it up at the WTO Committees, voices from the EU against the Chinese currency marks a move towards growing unease with currency misalignment as a trade policy tool. WIll undervalued currencies be challenged as being WTO incompatible? While the sustainability of a legal claim on this issue is an entirely debatable matter (and requires a separate post or posts!), the possibility of a legal dispute being initiated cannot be ruled out. Is the WTO the right forum for it?

Rethink on subsidies required?

The Airbus-Boeing dispute is one of the longest trade disputes that has dominated the WTO dispute settlement mechanism for years now. I have blogged about the issue here, here and here. Both the aircraft manufacturing giants allege, through their respective governments, that the other is a recipient of illegal subsidies that need to be scrapped. The WTO Appellate Body in both the cases has come to the conclusion that there have been illegal subsidies in both the cases. The dispute has reached the final stages of compliance and counter measures.

A recent piece in the Chicago Tribune tracing the history of the dispute called for a stop to the "launch aid" given by Europe to Airbus.

"In a surprising move that puts a welcome spotlight on launch aid, Germany reportedly held back the final 600 million euros of loans that it had promised. Alas, the decision has nothing to do with restoring fair trade practices. Germany is withholding its contribution to ensure that it gets a fair share of the jobs from the aircraft manufacturing it subsidizes.

 Nevertheless, even an internal European dispute over launch aid is a step in the right direction.Launch aid has got to go. The trade dispute between the world's leading markers of commercial aircraft has gone on too long. It must be resolved before it erupts into an all-out trade war — which could happen in relatively short order, by WTO standards."

While launch aid remains on the Airbus side, large subsidies on the Boeing side too needs to be addressed against which the WTO Appellate panel has found incompatible with WTO law. While China is normally in the dock for "subsidizing" its industry, the Airbus-Boeing dispute highlights the "all-pervasive" nature of subsidies in both the developed and developing worlds. Renewable energy is the next big area where the battle over subsidies is going to be fought. What should the international legal framework be in the context of renewable energy subsidies? Should it be different from aircraft subsidies as suggested by Gulzar here? Should we move towards a new phase of differentiation between different types of subsidies? Does the ASCM allow such a distinction? Do we need a rethink obout subsidies under WTO law?