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WTO review the perfect opportunity to tackle currency manipulation

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President Trump announced recently that he had tasked Commerce Secretary Wilbur Ross with undertaking a broad-based review of the U.S. membership in the World Trade Organization. Such a review is long overdue, but it should be expanded to include the U.S. membership in the International Monetary Fund (IMF) and a review of the U.S. law that identifies and sanctions currency manipulation by our trading partners.

First, the WTO is woefully slow in addressing concerns about unfair trade practices. The United States should create a special WTO trade assistance counsel within the office of the U.S. Trade Representative for U.S. companies and industries to file complaints assisted by attorneys, free of charge, against foreign competitors they allege to be cheating.

Those complainants whose cases are determined to be supported should be able to file their allegation with the WTO within 30 days. If, after another 90 days, the WTO has not resolved the matter, the United States should impose countervailing tariffs against the offending producer, to be held in escrow, until the case is resolved. If the case remains outstanding for another 60 days, the countervailing tariffs should become permanent and the escrow released to the complainant.

In the meantime, as the case is working through the process, the United States should offer loans, credit and unemployment benefits to support the continuation of the business by the complainant company or industry until such time as the case is resolved.

But Secretary Ross’s review of the WTO should go further.

The United States should insist that the IMF adopt WTO-style sanctions on foreign currency manipulators or that the WTO expand the definition of an export subsidy to include currency manipulations.

Ostensibly, the IMF already has rules that prohibit currency manipulation, but it has no enforcement mechanism to apply against malefactors. Similarly, the WTO does not include currency manipulation as an export subsidy in its rules.

Consequently, instead of having the unified authority of the WTO to defend against currency manipulators, each nation is left to its own devices to enforce currency manipulation at its own border and with its own laws. Of course, the nations that “go it alone” to defend their market risk the possibility of the foreign manipulator commencing a retaliatory tariff against them. (Imagine how much more efficient the process would all be if all the nations in the WTO were to sanction manipulators that divert from market-based currency rates!)

Until that happens, though, Wilbur Ross and Treasury Secretary Steve Mnuchin should more aggressively enforce the Omnibus Trade and Competitive Act of 1988, to identify not only “currency intervention (but) other actions undertaken to adjust the actual exchange rate of the dollar,” as described in Section 3005(b)(3) of the legislation.

That’s because, as we have seen for some time, and even Paul Krugman acknowledges, currency manipulation can be achieved by more opaque means outside the currency markets. It is the unwritten policy for Germany and the European Central Bank to extend loans into the weaker economies of Portugal, Italy, Greece and Spain — loans that are unlikely to ever be repaid — in order to have those countries remain part of the eurozone and thereby reduce the value of the euro relative to other currencies. It’s how Europe, and particularly Germany, has built up such a veritably impregnable favorable balance of payments (i.e., current account surplus at 8.3 percent of GDP in 2016) relative to competing nations. 

The U.S. law should impute currency manipulation even if it occurs outside the currency markets and whenever consistent, aberrational trade balances occur. We can leave it to the WTO, the IMF or the foreign country itself to prove otherwise.

Secretary Ross will need to take a bit more on his plate if he hopes to return the U.S. to a policy of fair trade among its trading partners. 

J.G. Collins is the managing director of the Stuyvesant Square Consultancy in New York. A “Never Trumper” during the 2016 election, he is a long-time critic of the bipartisan U.S. policy of unlimited free trade. He has previously written on U.S. trade policy for Forbes, The Daily Caller, and The American Conservative.

The views expressed by contributors are their own and not the views of The Hill.

Tags Currency manipulation International Monetary Fund Trade Wilbur Ross World Trade Organization

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