Currency manipulation plan gets key endorsement

A currency manipulation plan connected to a far-reaching Pacific Rim trade pact received a key endorsement from the architects of a widely cited proposal to crack down on the practice.

Several leaders at the Peterson Institute for International Economics, who developed a framework for deterring currency manipulation that was embraced by a majority in Congress — said the side agreement to the Trans-Pacific Partnership (TPP) meets the standard set in the trade promotion authority (TPA) law passed by Congress and should strengthen the Treasury Department’s ability to stop the practice.

{mosads}Fred Bergsten, director emeritus at Peterson, and Jeffrey Schott, a senior fellow in international trade policy and economic sanctions, said in a blog post that the currency plan “substantially meets the negotiating objectives set out in the TPA.”

And even though the TPP’s currency agreement doesn’t include provisions that would punish violators, “the commitments in the declaration are far-reaching in ruling out competitive devaluations and persistent exchange rate misalignments,” Bergsten and Schott wrote. 

They said the TPP currency plan combined with an amendment to the customs bill proposed by Sens. Michael Bennet (D-Colo.), Orrin Hatch (R-Utah) and Tom Carper (D-Del.) will give the Treasury more tools to deter exchange rate intervention. The customs bill is still awaiting a House-Senate conference. 

Schott wrote in a tweet that the side deal gives Treasury a chance to push its “financial diplomacy with partner countries.”

Three years ago, Bergsten teamed up with Joseph Gagnon, a senior fellow at Peterson, and wrote the oft-noted currency research report that became the bedrock of the congressional argument that deliberate exchange rate intervention was the reason for trade deficits and had cost the United States between 1 million to 5 million jobs — a rallying cry for trade detractors.

Their plan quickly gained traction on Capitol Hill, attracting the support of a bipartisan majority of lawmakers and even business and labor groups, resulting in the currency issue becoming a key negotiating objective in trade promotion, or “fast-track” authority.

But President Obama argued that adding currency rules into the TPP would be too complicated and could torpedo a final deal.

Bergsten and Schott noted that TPP negotiators opted for what they consider an early warning system that requires enhanced reporting and frequent monitoring and consultations instead of the “hard deterrence” approach preferred by some lawmakers in Congress who wanted a system that could impose trade sanctions on violators.

“In addition, the requirements for more transparency and public disclosure of data on exchange rate policies, including currency intervention, should make the ‘naming and shaming’ of manipulators more effective,” they wrote.

There have been other expressions of support for the plan.

Daniel Drezner, a professor of international politics at the Fletcher School of Law, wrote that “it strikes me that the extraordinary thing is that there’s a currency provision at all in TPP.”

And Fabio Ghironi, a professor of economics at the University of Washington, tweeted that there is a “very important novelty in a trade agreement: TPP, exchange rate policy, and macro cooperation.”

But the endorsement hasn’t quelled concerns of some lawmakers and firms that have deemed currency their top problem with global trade. 

Critics of the currency provisions argue that while the side agreement requires more data from countries such as Malaysia, Vietnam and Singapore, the deal won’t force violating nations to change policies they have already agreed to follow.

Steve Biegun, Ford’s vice president of international government relations, said that while the agreement yields additional data for Treasury to examine, there are still no consequences for manipulating. 

“There’s no loss of benefits, and there’s no enforceability; this is why we don’t think this will change anything,” Biegun told The Hill in an interview.  

He said the “naming and shaming” plan won’t lead to better behavior when violating nations already refuse to follow International Monetary Fund currency rules. 

“It’s a problem of political will to enforce what violators have already agreed to,” he said.

When the TPP text was released last week, Ford said that the new “currency forum does nothing to change the status quo.”

Biegun raised the specter of renegotiating the currency side agreement, arguing that enforcement mechanisms will need to be added to gain enough support for the deal to clear Congress. 

But the Obama administration has pushed back on the idea that making changes would improve the agreement.

On Tuesday, Japan’s trade minister Akira Amari said that reworking the TPP deal is “impossible” and would probably cause the entire agreement to fall apart, according to news reports.

Hatch, chairman of the Senate Finance Committee, suggested Friday that the TPP may need to be renegotiated to improve biologics protections provisions, among others, or risk the loss of critical support on Capitol Hill. 

“The idea that renegotiating this agreement could deliver a better deal is patently false,” a senior administration official told The Hill last week. 

Rep. Debbie Dingell (D-Mich.), who argues that the currency issue is a top concern for her district, said the side agreement, regardless of who supports it, doesn’t make much-needed changes to the currency landscape to protect U.S. jobs. 

“This hurts my industry in Michigan,” Dingell said in an interview with The Hill. 

“Nothing I’m hearing from anybody in my state is making me feel any better.”

Dingell argued that a statement made by a Japanese official saying that the deal wouldn’t change Tokyo’s policies “said it all for me.”

On Friday, Japan’s Finance Minister Taro Aso said that the TPP currency deal isn’t binding and “there won’t be any change” in Japan’s currency policy, according to news reports. 

Currency watchers say Japan is not currently manipulating its exchange rate. 

Meanwhile, Gagnon argued in a separate post that the economic considerations of currency fluctuations have a smaller effect on the U.S. economy as it has perked up.

He said that when the U.S. economy is at or above full employment — the jobless rate was 5 percent in October — currency manipulation “has no net effect on jobs.”

Gagnon argued that the effects of currency manipulation on U.S. employment is much smaller now because many former manipulators appear to have stopped buying foreign currency assets recently, and some, even China, are selling them. 

“Currency manipulation can be a job-stealer when times are toughest, and it distorts the U.S. and world economies even when times are good,” he wrote. “

“It is important to protect against a return of currency manipulation. But we should not exaggerate its impact on the U.S. economy right now.”

Tags Currency Currency intervention fast-track Macroeconomics Michael Bennet Orrin Hatch Tom Carper Trans-Pacific Partnership
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