No legal basis for labelling China as currency manipulator

Updated: 2010-10-22 11:05
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NEW YORK - With mid-term elections looming, and a meeting of G-20 members scheduled for next month, the US government has halted calls for an immediate revaluation of China's currency yuan, or Renminbi.

US Secretary of Treasury Timothy Geithner postponed the release of its semiannual international economic and exchange rate policies report to the Congress, which could have paved the way for passing legislation that might label China a currency manipulator.

Analysts say there is no legal basis for labelling China as a currency manipulator and that the delay also allows Washington to attend the G-20 meeting without damaging chances for striking good trade deals there.

G-20 is a group of the world's 20 leading economies. China, as a member of the group, is America's No 1 trade partner.

No manipulation

The US Treasury decided to delay the publication of the report until G-20 leaders meet on Nov 11-12 in Seoul, South Korea. In a statement on Oct 15, it said that Geithner "recognized China's actions since early September to accelerate the pace of currency appreciation, while noting it is important to sustain this course."

"I find it very hard to be able to come to the conclusion that China is a currency manipulator," said Robert Howse, an expert on international trade law and professor of international law at New York University.

Speaking to reporters at New York University last week, he said, "We do not have objective, legally agreed standards, internationally agreed standards for what constitutes a manipulation."

The US administration says China pegs the yuan to US dollar at an artificially low rate, making it cheaper for the United States to import Chinese goods, and relatively more expensive to export its own goods.

As the mid-term election is drawing near, and unemployment rate stands at nearly 10 percent, US lawmakers want President Barack Obama's administration to take a tough line with China, including penalties for what it believes China's undervaluing of yuan.

They want to see a stronger yuan and relatively weaker dollar, which would benefit US manufacturers and exports, analysts say.

China's yuan has in fact been allowed to appreciate 3 percent to the value of dollar since June this year, and strengthened by 1 percent per month since September. As the US Treasury report says, "If sustained over time, this would help correct what the IMF (International Monetary Fund) has concluded is a significantly undervalued currency."

But Howse, who spoke to Xinhua the day before the Treasury's decision to delay the release of the report, noted that an undervalued currency does not necessarily point to a "manipulation."

He said both the General Agreement on Trade and Tariffs, which is the basis for multilateral trade, and the IMF, disallow currency manipulation to gain competitive advantage in trade. "But in neither is currency manipulation defined," he said.

Conciliatory moves

"I also think that there are legitimate reasons that haven't much to do necessarily with trade, but to do with the stability of financial markets in China, and its overall strategy of how to develop its financial markets in a way that does not pose dramatic, systemic risks, for China to control its currency in the way that it is doing," Howse said.

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"It is a huge leap to basically say that we are now going to let the currency traders and their judgments determine the destiny of our financial system," he added.

"I think that the (US) administration is playing a very sophisticated game," Howse said.

"On the one hand, they know they have to appease, in a way, the people in Congress who say that there is a big problem. On the other hand, the experts in the Treasury know full well that the Chinese have reasons, unrelated to trade, why they do not want to simply float the Renminbi," the expert said.

The upcoming G-20 summit will likely provide a way of highlighting these issues. As the US Treasury statement says, "The Treasury will delay the publication of the report on international economic and exchange rate policies in order to take advantage of the opportunity provided by these important meetings."

After all, a souring of US-China relations before an important trade summit is in neither country's best interest, experts say.