As mentioned here, a number of experts recently weighed in on the consistency of China's currency policy with WTO rules. Here are some highlights:
Staiger / Sykes
GATT XV:4/SCM
... we question whether China’s trading partners can readily make a convincing case that China has violated its WTO commitments by intervening in currency markets in a manner that frustrates the intent of the General Agreement on Tariffs and Trade. Similarly, the suggestion that one can characterise China’s policies as the equivalent of an illegal tariff and an illegal export subsidy is problematic. We do not necessarily advocate that China’s policies be ignored, but urge a great deal of caution toward proposals that would sweep them into the domain of unfair trade practices and bring to bear the arsenal of unilateral or multilateral trade sanctions.
Miranda
GATT XV:4
this paper argues that the existing language in Article XV(4) would permit challenging the undervaluation of the renminbi and that the prospects for obtaining a favourable outcome under this approach are reasonable
...
the sentence "Contracting Partners shall not by exchange action frustrate the intent of the provisions of the GATT", read in the context of Article II, arguably means that Members shall not institute "exchange action" (including exchange-rate policy or exchange-rate management) in order to "make ineffectual", "counteract" or "invalidate" the tariff concessions protected under Article II.
It would appear that a challenge of China’s currency undervaluation under Article
XV(4) would require showing that:
- exchange-rate intervention to support the renminbi has been massive;
- absent such intervention, the renminbi would have heavily appreciated (given the underlying trade flows);
- the degree of currency undervaluation is such that it has "made ineffectual", "counteracted", or "invalidated", in whole or in part. the tariff concessions granted by China under Article II; and that
- currency undervaluation has been mainly caused by government intervention, and thus meets the threshold requirement set forth in the Ad Note to Article XV(4) for triggering a violation of this provision by reason of a violation of Article II;
...
This paper has discussed the prospects for challenging currency undervaluation under GATT Article XV(4) and concluded, contrary to the existing literature, that such challenge is perfectly viable and has a reasonable chance of success. Notably, unlike US law, the legal standard under Article XV(4) does not require demonstrating that currency undervaluation constitutes "currency manipulation" targeted at preventing effective balance-of-payments adjustment "or to gain an unfair competitive advantage over other Members".
Trachtman
GATT XV:4/SCM
But Article XV(4) is a confusing provision when read, as it must be, in conjunction with its "ad note."5 The example of frustration provided by the ad note suggests that Article XV(4) might not be intended to provide an independent basis for claims against national exchange action, but instead is intended to reduce the coverage of other substantive provisions. Infringements of the letter of another substantive provision are only to be considered violations if they frustrate the intent of that substantive provision. If this were all that Article XV(4) covered, then it would definitely not expand prohibitions beyond the existing substantive provisions. And it is by no means clear that China’s currency regime violates the explicit prohibition of any substantive provision of GATT. However, this part of the ad note is framed as an example. So it is possible that there might be other unstated examples, such as a circumstance where the letter of a substantive provision is not violated, but its intent is violated. We simply do not know. If this broadening interpretation is available, however, then we might understand Article XV(4) as having a purpose similar to the concept of "non-violation nullification or impairment" in WTO law: making the nullification or impairment of the intent of another provision, through an exchange action, an independent violation of GATT. Indeed, this seems to be the natural meaning of the language of Article XV(4), absent the ad note.
...Article 3 of the Subsidies and Countervailing Measures Agreement prohibits export subsidies and import substitution subsidies. But the definition of "subsidy" contained in Article 1 of the agreement demands that there be a financial contribution by a government. It is difficult to view the Chinese exchange action through the PBC as a financial contribution by a government to an exporter in this sense. If a creative reading of this provision were to result in a finding that the Chinese exchange action is indeed a subsidy, it is difficult to see it as a prohibited export subsidy or import substitution subsidy. This is because the availability of the alleged subsidy does not seem to be contingent on exportation or on the substitution of domestic products for imported goods.
Waibel
GATT XV:4/SCM
The IMF Articles draw a distinction between exchange policies (convertibility) and exchange-rate policies (Denters 2003). Article XV(4) presumably refers only to exchange policies.
...
It is difficult to qualify a fundamentally undervalued exchange rate as an export subsidy.
- First, Article 1 of the SCM Agreement contains a closed list of financial contributions, and exchange-rate valuations do not feature in this list.
- Second, the benefit to Chinese exporters as a result of the allegedly undervalued yuan is ambiguous. These benefits are also not sector-specific, but broadly shared.
- Third, even if a benefit is conferred, it does not appear to be contingent on export performance. This is because the exchange-rate applies across the board to various types of transactions.
Ahn
GATT XV:4/SCM/Non-violation
what the US government is complaining about is not the adoption of crawling peg system per se, but rather "maintaining" the current exchange rate for a prolonged period of time despite huge trade and financial consequences. This specific governmental policy choice can be understood as "exchange action", although adoption of crawling peg system may not be qualified for deliberate and specific nature connoted from "exchange action".
...
Although it is argued that China’s exchange-rate policy somehow provides financial contribution, those arguments are not tenable....
it is very difficult to argue that China’s exchange-rate policy satisfies specificity requirement by affecting only a small number of enterprises or industries.
...
it will be very difficult to demonstrate that China’s exchange-rate policy is a measure to be disciplined under the SCM Agreement simply because it has export promoting effects.
...
In the case of China’s exchange-rate policy, it will be unattainable to demonstrate that other WTO Members cannot legitimately expect China to maintain basically the same exchange-rate policy as that retained prior to the WTO accession. Accordingly, it is unlikely that a non-violation complaint can be successfully raised in the case of China’s exchange-rate policy.
Magnus / Brightbill
SCM/CVD
The Commerce Department began applying the US CVD law to Chinese products in 2007. Since that time, US industries have filed numerous petitions asking Commerce to include Chinese currency practices among the investigated subsidy programmes. Although the standard for initiating with respect to an individual subsidy programme alleged in a CVD petition is relatively low, Commerce has each time refused to investigate currency subsidies. In the first few China CVD cases, Commerce simply said, without detail, that the currency subsidy claims were inadequately pleaded. Yet the petitions did allege, with reasonably available supporting information, all the required elements: financial contribution (which exists any time a government and a company trade one thing for another, even yuans for dollars), benefit (the petitions adequately alleged, although one could not say that they fully proved, undervaluation), and specificity (more on this below). So Commerce was wrong, but there was no way to tell where it went wrong.
In a more recent case on coated paper, Commerce at last named the required element that in its view had been pleaded insufficiently: specificity1 In particular, Commerce stated: "Petitioners have failed to sufficiently allege that the receipt of the excess renminbi is contingent on export or export performance because receipt of the excess renminbi is independent of the type of transaction or commercial activity for which the dollars are converted or of the particular company or individuals converting the dollars."2
...Commerce’s statement on specificity has some superficial plausibility since tourists and foreign investors receive the same exchange rate as Chinese exporters when converting dollars to renminbi; if there is any excess, it is made available to "dollar sellers" in all three categories. However, those familiar with US and international law on specificity regard Commerce’s position as indefensible. Among other things, the vast majority (reportedly at least 70%) of the subsidy goes to companies who can receive it only by exporting. This is precisely the fact pattern that led the WTO to decide in 2002 that the US’ extraterritorial income regime constituted a countervailable subsidy. In particular, the WTO Appellate Body found that the subsidy conferred by the extraterritorial income regime - an interim measure promulgated en route to full repeal of the earlier foreign sales corporation scheme - was export-contingent.3 Export-contingent subsidies are automatically specific.
