Manipulating the WTO? Challenging Undervalued Exchange Rates Under WTO Rules

The Chinese exchange rate policy is a hotly debated topic. Comments are heard from politicians, economists and lawyers alike, with fingers pointed at the Renminbi (RMB) undervaluation blaming it for job loss in the United States or for causing the credit crisis by creating global imbalances and a search for yield through a low interest rate environment. Most of the criticism focuses on the trade effects of undervalued currencies, where an unfair trade advantage is gained by China “manipulating” its currency. This paper investigates what options exist under WTO/GATT provisions for members that would like to take trade actions against countries that have undervalued currencies. It will be put forward that the WTO rules do not provide the solution for countering the trade effects of undervalued currencies. The only correct forum for dealing with exchange rate issues and undervaluation is the IMF