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1 1 (May 16, 2016)

handle is hein.crs/govcdxy0001 and id is 1 raw text is: FF.~ May 16, 2016 Currency Exchange Rate Policies and the World Trade Organization Subsidies Agreement Some Members of Congress have expressed concerns that foreign countries are manipulating their currencies through their exchange rate policies. Such concerns have focused on policies that are seen as weakening the value of the countries' currencies against the U.S. dollar. Some commentators have suggested that these practices amount to an export subsidy. They argue that although that subsidy may benefit U.S. consumers through lower prices, it may also harm U.S. import-competing firms and their workers. Legislation introduced in the 114th Congress would amend Title VII of the Tariff Act of 1930, 19 U.S.C. § § 1671 et seq., to treat an undervalued currency as an export subsidy under U.S. trade law; describe a methodology to determine how much the currency is undervalued (i.e., the subsidy); and apply that calculation for the imposition of countervailing duties (CVDs). E.g., H.R. 820; S. 433. If enacted, such legislation could ultimately allow the U.S. Department of Commerce (DOC) to impose CVDs on certain injurious imports from foreign countries whose currencies had become undervalued as a result of government action. S ~u M ry This In Focus analyzes whether the United States could, consistent with World Trade Organization (WTO) subsidies rules in the Agreement on Subsidies and Countervailing Measures (ASCM) and the General Agreement on Tariffs and Trade 1994 (GATT), impose CVDs on imports from a WTO member country to offset what the U.S. determines is an illegal subsidy conferred by that member on its domestic industries through undervaluation of its exchange rate. This In Focus does not examine the consistency of exchange rate policies with other provisions of the WTO agreements. As discussed below, it may be difficult to argue that currency exchange rate policies constitute a countervailable export subsidy as defined under WTO law. In particular, such monetary and fiscal policies do not clearly fit within ASCM provisions that define an export-contingent subsidy, as these provisions have been interpreted in dispute settlement cases. The WTO's dispute settlement process would ultimately determine whether CVDs on imports from countries that are manipulating their exchange rates are consistent with WTO agreements. If the U.S. maintains CVDs on products in the absence of a countervailable subsidy as defined in WTO law, the WTO's Dispute Settlement Body (DSB) ultimately may authorize a complaining member to engage in trade retaliation. See, e.g., ASCM Arts. 10, 32.1, 32.5. For example, the DSB could authorize a complaining member to raise tariffs on imports of U.S. products above its bound commitment levels. For additional background on the debate over countries' exchange rate policies and a discussion of other international forums for addressing concerns with these policies, see CRS Report R43242, Current Debates over Exchange Rates: Overview and Issues for Congress, by Rebecca M. Nelson. Under WTO rules, the United States cannot impose CVDs on imports from a WTO member considered to be manipulating its currency exchange rate unless such practices provide a countervailable subsidy to that member's industry within the meaning of ASCM Article 1. This article states that a subsidy exists when a government or other public body makes a financial contribution within the territory of a WTO member that confers a benefit. This analysis assumes that the financial contribution is made in the territory of a WTO member. A subsidy may exist not only when a government makes a financial contribution, but also when another public body of a member makes such a contribution. The Appellate Body has held that determining whether an entity is a public body involves a fact-specific inquiry, but that generally such entities must possess, exercise, or be vested with governmental authority. US-Anti-Dumping and Countervailing Duties (China), WT/DS379/AB/R, paras. 317-318. Under WTO jurisprudence, the government need not delegate such authority explicitly to the entity in a law. If, in fact, a government has meaningful control over an entity and its conduct, this can serve as sufficient evidence that the entity exercises government authority when it performs a governmental function. However, mere formal links between the government and entity, such as a government's stake in the entity, are not sufficient by themselves. Id. Not all government measures or practices that benefit a domestic producer or exporter constitute subsidies. The ASCM enumerates five general categories of measures or practices that are subsidies: (a)(1)(i) a government practice involves a direct transfer of funds (e.g. grants, loans, and equity infusion), potential direct transfers of funds or liabilities (e.g. loan guarantees); .O 'T p\w -- , gn'a', goo mppm qq\ a , q 'S I 11LIANJILiN,

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