Foreign Exchange Interventions and WTO Subsidy Law : Conditions for Currency Interventions to Be Countervailable

The amendment to the US countervailing duties (CVDs) regulations in 2020 enabled the US government to impose CVDs against currency manipulation, and the first two cases under the new rule are being investigated. Because of the potential wide usage and uncertainty in the lawfulness of imposing CVDs against currency undervaluation, hasty use of them could cause significant controversies in the already fragile WTO regime. This paper examines whether and under what conditions it is permissible to take countervailing measures to counter currency manipulation under the current WTO rules. Unlike most of the prior scholarly analyses, the paper does not confine the analysis only to China’s currency scheme, as the new regulation can apply to almost all exchange rate regimes. This paper addresses multiple legal issues that such a broad scope requires us to examine, including analyses about financial contributions and benefits, two elements of subsidy under the Agreement on Subsidies and Countervailing Measures (ASCM), in relation to different exchange regimes and interventions measures. The author concludes that using CVDs against currency manipulation is unlikely justified against usual foreign exchange interventions under floating exchange regimes, whereas it is likely permissible if the target country’s government tightly controls exchange rate transactions under fixed or managed float exchange rate regimes, together with some other conditions. However, from a policy perspective, this paper recommends that WTO Members refrain from using such CVDs against ordinary currency intervention measures to avoid further damaging the international trade regime. WTO Members’ assumed expectation based on the lack of specific mention to currency manipulation in ASCM and the relationship between WTO and the IMF, the potentially huge impact of CVDs based on currency-manipulation subsidies, and the lack of consensus about the method for calculating the amount of undervaluation, call for such self-refrain from a policy standpoint