WTO Disputes Based on RMB Value Not So Easy

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One of the things I’ve been harping on the past few months is that in many of these cases of “obvious” trade violations by China, a formal trade dispute with the World Trade Organization (WTO) might be difficult.

Remember the recent case involving China’s application of its own anti-dumping law? The United States is saying that China violated WTO anti-dumping rules in several ways. Among the counts I object to include issues that could best be described as within the discretion of the Chinese trier of fact (i.e., the administrative agency), and I find it difficult to believe that the WTO would step in and second-guess China’s application of its own law unless the problem was much more egregious than the U.S. complaint suggests.

Many trade complaints to the U.S. administrative authorities by industry in the past several years have highlighted China’s currency exchange regime. Most of these claim that China is keeping the RMB artificially low, which they say is an unfair subsidy.

As I’ve said on many occasions, most everyone thinks the RMB is too low, but leaping to the further conclusion that this is therefore an unfair subsidy in violation of WTO law is another thing entirely. Moreover, even if there was some merit to this argument (trade lawyers I’ve read/spoken to are basically split on this point), proving it to a WTO dispute resolution panel would be extremely difficult.

Just to keep all of this in the real world, here is an example of what happens when a company actually tries to follow through on the RMB argument and petitions the U.S. government:

US Commerce Department announced on Tuesday its decision not to initiate investigation on allegations that China’s currency practices constitute an unfair subsidy.

The currency allegations under review were made in the context of countervailing duties (CVD) investigations of two Chinese products — aluminum extrusions and coated paper.

“Two allegations before it that China’s currency practices constitute an unfair subsidy under US countervailing duty law failed to meet the requirements for the initiation of an investigation,” the Commerce Department said in a statement.

Don’t read too much into the language here. “Failed to meet the requirements” is standard when a complaint is rejected. That being said, the rejection itself is just another indication that this kind of argument is not straightforward, and the evidentiary burden is not insubstantial — in other words, in addition to very important political considerations, there is a good reason why the U.S. government has not pursued this sort of case thus far.