The WTO-Consistency Issues of Countervailing Currency Undervaluation

Abstract

The US Department of Commerce (USDOC) adopted a new rule to impose a countervailing duty (CVD) on imports from countries undervaluing their currencies, arguing that an artificially weak exchange rate amounts to an export subsidy. This ruling, however, raises a variety of systemic and legal problems of whether it is possible to regulate exchange rates under the multilateral trading system. In fact, it raises a fundamental issue about coherent governance on international economic systems to bridge between financial and trade institutions. In addition, it questions whether it is possible to consider currency undervaluation as a countervailable subsidy under the Agreement on Subsidies and Countervailing Measures (ASCM). This paper highlights the structural limitations of regulatory evolution in the WTO and IMF. In addition, this analysis shows that the manner the CVD was applied causes many legal problems in terms of WTO consistency. Considering huge potential implications of currency-based CVDs, it is imperative for the WTO Members to agree on proper guidelines that discipline overly excessive use of trade remedy measures.