A commenter mentioned the House Committee Report related to the currency bill. I have uploaded it here.
I found a number of aspects of the report interesting. One thing that comes out is that, despite the perception that Congress doesn't care whether it violates WTO rules, clearly the people involved with the bill have thought a good deal about how WTO rules apply here. You may disagree with their conclusions, but they are certainly not ignoring the WTO.
Here are a few extracts.
First, both the Democratic majority and the Republican minority (in the "Additional Views" section of the report) believe China's currency policies are a big problem. The Democrats:
With regard to trade, the undervalued RMB makes China’s exports cheaper than they would be if China allowed its currency to appreciate, leading many economists to describe China’s policy as effectively operating as an export subsidy. It also makes U.S. and other countries’ exports to China more expensive. The Committee notes that U.S. trade deficit with China is by far the largest contributor to the overall U.S. trade deficit, which has been at record levels over the past ten years.
And the Republicans:
China’s currency is fundamentally misaligned. We all agree that China must take prompt action to allow market forces to determine the value of its currency.
Both sides agree that WTO consistency of any Congressional action is important. The Democrats:
The bill, as amended in the Chairman’s amendment in the nature of a substitute, responds directly to the problem by providing relief for American companies and workers materially injured by mercantilist exchange rate policies—and it does so in a manner that is fully consistent with U.S. obligations under the Agreement Establishing the World Trade Organization.
The Republicans:
WTO-CONSISTENCY IS ESSENTIAL
We all agree that any legislative action meant to address currency undervaluation must be consistent with international commitments and the overarching values of the multilateral trading system. Legislation that is WTO-inconsistent exposes the United States to WTO-sanctioned retaliation and undoubtedly does more harm than good. Such legislation would set American exporters and American workers up for significant legal retaliation and would inevitably undermine multilateral efforts to address China’s undervalued currency. We cannot credibly pursue remedies to China’s WTO violations if we are acting inconsistently with our own obligations.
Now on to the substance. The Democrats explain what the bill does in relation to export contingency and why:
Specificity/Export Contingency. Finally, the bill provides a clarification with respect to export contingency. The bill clarifies that Commerce may not refuse to find that there is export contingency in a given case based on the single fact that a subsidy is available in circumstances in addition to export. While this provision relates to the case of subsidy claims relating to a fundamentally undervalued currency, the Committee expects that Commerce would apply the same, WTO-consistent principle broadly in other contexts as well.
REASONS FOR CHANGE
On August 30, 2010, in two pending countervailing duty investigations ..., the Department of Commerce decided not to investigate allegations that the undervaluation of the currency of the People’s Republic of China (the renminbi, or ‘‘RMB’’) confers a countervailable subsidy. The petitioners in those investigations noted that the subsidy would be provided if the merchandise subject to the investigation (i.e., aluminum extrusions, paper) were exported, but would not be provided if that merchandise were sold in the Chinese market. The petitioners also cited data showing that exporters account for 70 percent of China’s foreign currency earnings. This legislation clarifies that maintenance by a foreign government of a fundamentally undervalued currency can be considered to be contingent upon exportation, and so to constitute a countervailable export subsidy, notwithstanding that the subsidy is also available in circumstances other than export. The change responds to the determinations described above, in which Commerce found that the receipt of potential subsidies through China’s currency regime was not contingent upon exportation, because such subsidies were provided not only to exporters, but also to parties not engaged in exportation.
In order to keep this post to a reasonable length, I'm going to cut a lot of the next part, but if you read the report you'll see that in trying to craft a bill that was consistent with WTO rules, they did look at a number of WTO cases:
In the view of the Committee, the principle applied by the Department (i.e., that a subsidy cannot be contingent upon export if the subsidy can be provided in circumstances not involving export) is more restrictive than required under WTO disciplines. Moreover, it is at odds with World Trade Organization (WTO) precedent recognizing that a subsidy may still be export contingent, even if it is available in some circumstances that do not involve export. The WTO Agreement on Subsidies on Countervailing Measures (SCM Agreement) specifically provides that the requirement of ‘‘export contingency’’ can be met either by showing there is a link to export contingency in law (either express or implicit) or ‘‘when the facts demonstrate that the granting of a subsidy, without having been made legally contingent upon export performance, is in fact tied to actual or anticipated exportation or export earnings.’’ (Footnote 4 to the SCM Agreement) The SCM Agreement does not support an approach that would have a single fact—the existence of a subsidy recipient other than an exporter—being determinative in all cases.
...
One such relevant WTO precedent arises out of the United States—Tax Treatment for ‘‘Foreign Sales Corporations’’ Recourse to Article 21.5 of the DSU by the European Communities, WT/DS108/AB/RW, adopted January 29, 2002. ...
The Committee also notes with interest the line of reasoning of the Panel and the Appellate Body that led to the conclusion that the subsidy was contingent upon export performance in the first set of circumstances. The panel noted that, in the first set of circumstances, the subsidy was available with respect to goods produced within the United States that are exported, but ‘‘the subsidy is not available in relation to goods produced within the United States sold for use within the United States[.] . . . Thus, in relation to U.S.-produced goods, the words of the statute itself make it clear that exporting is a necessary precondition to qualify for the subsidy. . . . [T]he existence and amount of the subsidy depends upon the existence of income arising from the exportation of such goods.’’ (Panel Report, United States—Tax Treatment for ‘‘Foreign Sales Corporations’’—Recourse to Article 21.5 of the DSU by the European Communities, WT/DS108/RW, pp. 31–32, para. 8.60.) The Appellate Body took the same approach to this issue. (Appellate Body Report, United States—Tax Treatment for ‘‘Foreign Sale Corporations’’— Recourse to Article 21.5 of the DSU by the European Communities, WT/DS108/AB/RW, p. 36, para. 117). In the view of the Committee, it is important and appropriate to bring Commerce practice into line with the above-cited SCM Agreement provisions and WTO precedent on the issue of export contingency.
Now over to the Republicans. First off, they are happy that this version of the bill is, in their view, WTO-consistent:
With respect to countervailing duties, the substitute does not require the Administration to take action that would violate our obligations, unlike the original version of H.R. 2378, which would have mandated that the Department of Commerce automatically adjust countervailing duty calculations to account for a country’s currency policy. Instead, the substitute leaves the decision to impose countervailing duties entirely in the discretion of the Department of Commerce, as under current law, allowing Commerce to consider many factors in determining whether or not a country’s currency policy satisfies the technical definition of an export subsidy. It does not presuppose an outcome.
Then they question whether it will have any impact at all on the Department of Commerce:
In fact, contrary to majority staff testimony at the markup and other statements by the majority, we are not convinced that this legislation invalidates Commerce’s reasoning to date, in which Commerce has found that a country’s currency policy does not constitute a countervailable substitute.2 Specifically, we do not believe the fact that the alleged subsidy is available to non-exporters is the only reason for Commerce to find that a country’s currency policy does not constitute an export subsidy.
Finally, they contest the Democrats' view on the role of specific WTO precedents:
We also question whether reference to the FSC/ETI decision made by majority staff during the Committee consideration of this legislation to justify a finding that currency undervaluation constitutes a countervailable subsidy is appropriate here. That case involved a de jure export contingent subsidy—a subsidy that was written directly into the law—that is not evident here. Under the ETI regime, the law specified that a good was required to be sent overseas to obtain the tax benefit. The same is not true of an exchange rate regime such as China’s. Rather, we would expect that the WTO would use a de facto analysis, which, as USTR has previously argued, requires the WTO to evaluate the totality of the circumstances. Using such an analysis, it is hard to imagine that China’s currency policy would be considered export contingent given that anyone who seeks to exchange currency, whether an exporter, a tourist, an investor, or a Chinese purchaser of imports, benefits.
The Democrat-Republican back and forth reminds me a bit of the discussion in the comments of this blog, in particular here.
