WTO multilateral trade rules provide the legislative realm for measures to address trade disputes, and the legal action the US is seeking to restrict China is not in line with the WTO rules.
The issue of China's foreign exchange mechanism has remained on the political agenda of the US for some years now and has popped up from time to time, eroding bilateral ties. Since the beginning of this year, the US has been pressing China to revaluate the yuan. Some US senators allege that its foreign exchange rate has been manipulated to keep the yuan's value low.
The latest US attempt is centered on how to link the so-called Chinese currency problem to its America's internal legal framework. In other words, it wants to lay down the legal basis for imposing anti-dumping and countervailing measures on Chinese imports for the so-called currency manipulation.
WTO multilateral trade rules provide the legislative realm for measures to address trade disputes, and the legal action the US is seeking to restrict China is not in line with the WTO rules. The WTO anti-dumping rules are aimed at imposing sanctions against dumping by private parties. The countervailing rules are aimed at sanctioning against member states providing illegal subsidies to their specific industries.
In China, the foreign exchange mechanism is decided by the government and has nothing to do with private parties. Since private parties in all industries have to follow this foreign exchange arrangement, no specific industry can be identified as the beneficiary of a "special currency treatment".
Besides, China does not tie its foreign exchange policy to its export sector's performance, and importers and exporters follow the same exchange policy.
Currency manipulation is a legal term in the IMF's Articles of Association which governs the relationship between the IMF and its member states, and does not appear in the WTO framework. The IMF has the legal power to impose sanctions on its member states that contravene the Articles of Association, which means member states do not have the right to impose sanctions on each other for violation of the Articles of Association.
So the US has no right to impose restrictions on other IMF member states for currency manipulation. If it does so, it would override the IMF's jurisdiction. On the other hand, the IMF won't delegate its judicial authority to member states. So America's restrictive action against China's currency regime can't be justified under WTO rules, even though the WTO gives way to IMF decisions on foreign exchange matters.
In essence, America's proposed legal action against China on the currency issue can be described as an attempt to use trade remedy weapons offered by the WTO to curb the so-called violations of the IMF obligations. In doing so, the US is overriding the IMF's judicial right, increasing China's obligations under the WTO to include the IMF obligations, and abusing its trade remedy right under the WTO.
Though the WTO pursues free trade, its current rules reflect a mixture of free trade and trade protection. Apart from the trade remedy rights, WTO rules provide member states with various other protective means which constitute exceptional clauses, such as the balance of payment exception that allows a member to restrict imports if its balance of payment sinks into a critical situation.
Besides, the discriminatory China-specific trade measures in the WTO rules unfortunately push the WTO toward the protectionist track and give other member states a better chance of guarding against imports from China.
We can't help wondering why the US doesn't resort to all the protective, or even protectionist weapons that the current WTO framework offers to settle the so-called Chinese currency problem it has been severely criticizing.
The possible answer is that either the US is not satisfied with the present weapons or it does not qualify for such weapons and that it needs a new weapon, easy to use and effective than ever.
What we will see next is the US hesitating to sue China in WTO, and prefering sanctions in its own territory or bilateral negotiations when necessary.
The author is director of Policy Review Division, Beijing WTO Affairs Center.
(China Daily 06/23/2010 page9)