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Published online by Cambridge University Press: 11 May 2021
This article focuses on the manner in which the US identifies the exchange rate and macroeconomic policies of its key trading partners and the policy advice it gives to them, when according to the US set criteria the trading partner's exchange rate and macroeconomic policies contribute to the US trade deficit. The article focuses on the US apparatus that is set in two different pieces of US legislation concerned essentially with currency manipulation mainly from the perspective of the WTO and IMF legal regimes. The paper concludes that although the US regime concerns currency manipulation, and is implemented to address a compliance void under the IMF and WTO procedures, it is flawed and that the Reports prepared under the US legislation are not qualitatively enlightening.
I am grateful to the anonymous referees of this article for their valuable suggestions.
1 Article 1 and IV of the Articles of Agreement of the IMF 1945 and its subsequent amendment in 1978 as it concerns the regulation of exchange rates.
2 Article XV of GATT 1994 and the Agreement on Subsidies and Countervailing Measures.
3 Article IV of IMF Articles of Agreement and IMF EB Decision No.15203-(12/72), 18 July 2012.
4 In August 2019, China was declared a currency manipulator under Section 3004 of the US Omnibus Trade and Competitiveness Act of 1988. This designation lasted until January 2020. Previously, China had been declared similarly in 1994. See Rappeport, A. The New York Times, 13 January 2020.
5 See, for example, Thorstensen, V. et al. (2015) ‘Exchange Rate Measures: Who Judges the Issue – IMF or WTO?’, Journal of International Economic Law 0, 1–20; Bergsten, C.F. and J.E. Gagnon (2012) ‘Currency Manipulation, the US Economy, and the Global Economic Order’, Policy Brief, Peterson Institute for International Economics; de Lima-Campos, A. et al. (2012) ‘A Case for Misaligned Currencies as Countervailable’, UNCTAD XIII Pre-Conference Event Policy Dialogue: Redefining the Role of the Government in Tomorrow's International Trade.
6 I am grateful to an anonymous reviewer of this article for prompting me to include in this article this background to the US legislation on currency manipulation, including writings that critique the IMF and the WTO in this respect.
7 Section 3004 (a) of the 1988 Act.
8 Section 3004 (a) (1) (B) of 1988 Act.
9 See ‘Population Sustainable Development Goals’, Population Matters, www.imf.org/en/Topics/SDG (last visited August 2020).
10 See WTO (2018) ‘Mainstreaming Trade to Attain the Sustainable Development Goals Geneva’, www.wto.org/english/res_e/publications_e/sdg_e.htm#:~:text=%22Mainstreaming%20trade%20to%20attain%20the,SDGs%2C%20just%20as%20it%20did (Last visited March 2021).
11 Section 3004 (b) of the 1988 Act.
12 Article IV. 3 (a) of the IMF Articles of Agreement.
13 Article IV Section 1 of the Articles of Agreement of the IMF.
14 See IMF Executive Board Decision No. 15203-(12/720, 18 July 2012, Annex paragraphs 1–2: 1. Article IV, Section 1(iii) of the Fund's Articles provides that members shall ‘avoid manipulating exchange rates or the international monetary system in order to prevent effective balance of payments adjustment or to gain an unfair competitive advantage over other members’. The language of this provision is repeated in Principle A contained in Part II of this Decision. The text set forth below is designed to provide further guidance regarding the meaning of this provision. 2. A member would only be acting inconsistently with Article IV, Section 1(iii) if the Fund determined both that: (a) the member was manipulating its exchange rate or the international monetary system and (b) such manipulation was being carried out for one of the two purposes specifically identified in Article IV, Section 1(iii).
15 Section 3004 (b) of 1988 Act.
16 Article IV Section 1 (3) and Executive Board Decision No. 15203-(12/720, 18 July 2012.
17 See for example Sheikh, A. and I. Weber (2020) ‘The US–China Trade Balance and the Theory of Free Trade: Debunking the Currency Manipulation Argument’, Working Paper Series No. 505, Political Economy Research Institute, University of Massachusetts, Amhurst, USA; Nelson, R.M. (2018) ‘Debates over Exchange Rates: Overview and Issues for Congress’, US Congressional Research Service, 22 June 2018; Vaitilingam, R. (2019) ‘Does Currency Manipulation Explain US Trade Deficits?’, Chicago Booth Review, 29 June 2019, https://review.chicagobooth.edu/economics/2019/article/does-currency-manipulation-explain-us-trade-deficits (last visited August 2020).
18 Section 3004 (b) of 1988 Act.
19 Omnibus Trade and Competitiveness Act of 1988, Section 3005.
20 See for an explanation as to whether currency undervaluation can constitute a prohibited subsidy de Lima-Campos, A., and J.A. Gaviria Gil (2012) ‘A Case for Misaligned Currencies as Countervailable’, UNCTAD. https://unctad.org/meetings/en/SessionalDocuments/ditc_dir_2012d2_deLima-Campos.pdf (last visited August 2020).
21 See for an interpretation of Article XV of the GATT 1994, Thorstensen, V., C. Muller, and D. Ramos (2015) ‘Exchange Rate Measures: Who Judges the Issue – IMF or WTO?’, Journal of International Economic Law 0, 1–20. See also on the difficulties of interpretation of ‘exchange action’, including the scope for its interpretation GATT L/332/Rev.1 and Addenda, adopted on 2, 4, and 5 March 1955, 3S/170, 196, para. 2.0.
22 Trade Facilitation and Trade Enforcement Act of 2015, Section 701 (a) 2 (A).
23 US Treasury Department's Semi-Annual Report to Congress, ‘Macroeconomic and Foreign Exchange Policies of Major Trading Partners of the United States’, October 2017. Hereinafter referred to as ‘Report’.
24 May 2019 Report.
25 October 2017 Report.
26 October 2017 Report.
27 See, for example, October 2017 Report.
28 Trade Facilitation and Trade Enforcement Act of 2015, Section 701 (a) 2 (B).
29 October 2017 Report.
30 Trade Facilitation and Trade Enforcement Act of 2015, Section 701 (b) 1.
31 Ibid.
32 Section 701 subsection (c) of the 2015 Act.
33 19 US Code § 4421 (C) (2).
34 Trade Facilitation and Trade Enforcement Act of 2015, Section 702.
35 See for instance ‘Central Bank Accountability, Independence, and Transparency’, IMFBLOG, 25 November 2019, https://blogs.imf.org/2019/11/25/central-bank-accountability-independence-and-transparency/ (last visited August 2019).
36 Not all the Reports, however, seem to be available in electronic form on the US Treasury website. Thus, in the April 1989 Report there is a reference to Korea and Taiwan having been found to have manipulated their currencies as set out in the October 1988 Report. This Report is not available electronically.
37 Agreement between the United States of America, the United Mexican States, and Canada (2019) – the renegotiated North American Free Trade Agreement (NAFTA).
38 See Qureshi, A.H. (2018) ‘International Legal Aspects of ‘Monetary’ Relations in North East Asia’, Contextualising International Law in Northeast Asia. Oxford, UK: Hart, Chapter 5.
39 IMF EB Decision No. A-9786-(93/20) as amended.
40 Article IV Section 3 of the IMF Articles of Agreement.
41 Economic and Trade Agreement between the Government of the United States of America and the Government of the People's Republic of China 2020.
42 See May 2019 Report.
43 Article XI of GATT 1994.
44 Panel Report, United States Trade Act of 1974, Sections 301–310, paras. 7.88–7.90; Panel Report, Thailand – Customs and Fiscal Measures on Cigarettes from the Philippines, Second Recourse to Article 21.5 of the DSU by the Philippines, T/DS/371/RW2 (2019), para. 7.164.
45 See IMF Executive Decision Decision No. 144-(52/51), 14 August 1952.
46 Needless to say, disclosure that would hamper the objective of the intervention in the first place (leaving aside national security concerns) would not be forthcoming nor expected.
47 Panel Report, Russia – Measures Concerning Traffic in Transit, WT/DS/512 (2019).
48 IMF Executive Decision Decision No. 144-(52/51), 14 August 1952.
49 EB Decision No. 15203-(12/72), 18 July 2012.
50 Article 25 of the ILC Draft Articles on State Responsibility.
51 See this author ‘International Legal Aspects of ‘Monetary’ Relations in Northeast Asia’, in Contextualizing International Law in Northeast Asia. Oxford, UK: Hart, pp. 147–155.
52 See Sen, J. (2019) ‘The Weaponization of the Dollar: Policy Options for Small Countries’, LSE Ideas! www.lse.ac.uk/ideas/Assets/Documents/updates/LSE-IDEAS-Weaponisation-Dollar.pdf (last visited August 2020).
53 May 2019 Report.
54 See the Reports of the US Treasury between October 2017 to January 2020.
55 See for example Arslan, Y. and C. Cantu (2019) ‘The Size of Foreign Exchange Reserves,’ in Bank for International Settlements (ed.), Reserve Management and FX Intervention, Vol. 104, pp. 1–23. Bank for International Settlements.
56 See for example advice to Korea in all the Reports between 2017 to 2020.
57 See for example January 2020 Report.