The full text of the Section 301 currency petition is available here. The legal arguments start here. Here are some excerpts (based on an OCR conversion of a scanned document -- hopefully the text came through OK, but there may be occasional typos):
SCM Agreement Article 1/3.1(a) (prohibited export subsidy)
The Chinese govermnent's foreign-exchange scheme provides to Chinese exporters and their exports to the United States a financial contribution within the meaning of the SCM Agreement. The Chinese govermnent requires its citizens to exchange their dollars for local currency, sets the rate of exchange by fiat, and prints the money to fund the transaction. By directing the conversion of U.S. dollars at an extremely undervalued rate, the Chinese govermnent provides a financial contribution and service within the meaning of Article 1.1(a)(1)(iii) of the SCM Agreement.
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... there is no doubt that, under these terms, Chinese exporters and exports receive a primary benefit from China's essentiaIIy pegged-exchange rate of the considerable difference between the govemmentaIIy-controIIed exchange rate and the rate that would prevail under a market-exchange system for the yuan.
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The application of these factors to China's foreign-exchange policy and practice confirms that China's undervalued-exchange-rate regime constitutes a de facto export subsidy. First, the Chinese government, as the granting authority, imposes a condition based on export performance in providing the subsidy. The subsidy, derived from the undervalued yuan, is dependent upon the existence of export performance in order to take effect. The nexus between the subsidy of the yuan's exceptional undervaluation and the prerequisite ofexportation for a company in China to enjoy that subsidy is so close and inextricably linked that conditionality is indisputable.
Second, the facts demonstrate that the granting of the subsidy is tied to or contingent upon actual or anticipated exports from China, because the subsidization would not occur if exports did not occur. In order for the foreign-exchange program to operate, products must be traded internationally. Without export performance, there would be no foreign currency to exchange. Moreover, the fact that the subsidy results in increased exports to the United States and elsewhere and in the accumulation by China of massive foreign-exchange reserves provides additional evidence oftying. Thus, the required tying/contingency element is satisfied.
Finally, while not a definitive factor, the primary recipients of the subsidy under this foreign-exchange program are undoubtedly manufacturing companies in China that export and that are exporting in ever-increasing amounts so as to benefit from this program. These beneficiaries of China's undervalued-exchange-rate regime accordingly are export-oriented.
Agriculture Agreement
... China's undervaluation of the yuan is an export subsidy that is contrary to China's commitment to end export subsidies upon its accession to the WTO and prohibited by the Agriculture Agreement on exports from China to the United States of agricultural products.
GATT Article XV:4
... by means of the expedient of undervaluing and misaligning its currency as it has, China dramatically has frustrated the intent of the GATT. This exchange action by China at once is undercutting all of the GATT's principal concepts that together have formed the backbone of the international trading system since the end of World War II. With reference to the addendum to Article XV:4, China's undervaluation of the yuan appreciably departs from the intent of the foregoing provisions of the GATT. In actuality, China's refusal to set a realistic exchange rate for the yuan based on market conditions or allow the yuan to seek its own market-driven balance against the U.S. dollar is a direct challenge to the GATT's principles with debilitating effects both for the United States and the global economy as a whole. China's undervaluation of the yuan violates Article XV:4 ofthe GATT.
Article IV of the IMF's Articles of Agreement
China's undervalued-exchange rate system causes prices of U.S. products in the Chinese market to be higher than what would prevail under market conditions and causes prices of China's products to be lower in the U.S. market than what would prevail under market-determined exchange rates. This subsidized practice gives China's products a competitive advantage when competing with U.S. products in the Chinese marketplace, in the United States and in third-country markets, contrary to the obligations under the IMF's Article IV, section l(iii).
Article VIII of the IMF's Articles of Agreement
Other currencies adjust simultaneously to the yuan and the U.S. dollar, because the exchange rate is essentially pegged. Those currency adjustments, however, must be greater than what would be required under market conditions, because the yuan is undervalued and unable to appreciate significantly in real terms against the dollar. China's undervalued exchange rate clearly discriminates against the United States and other IMF members. The fact that China has shown no real flexibility indicates that China has continued to be in violation of its obligations to the IMF under Article VIII ofthe IMF's Articles ofAgreement.
