An Enforcement Regime is Needed
On February 19, 2013, the Group of Twenty Finance Ministers and Central Bank Governors (G20) issued a communique which addressed global currency misalignments. In it, they pledged to:
“move more rapidly toward more market-determined exchange rate systems and exchange rate flexibility to reflect underlying fundamentals, and avoid persistent exchange rate misalignments… . We will refrain from competitive devaluation. We will not target our exchange rates for competitive purposes… .”.
The Coalition for a Prosperous America (CPA) appreciates the commitment of the G20 to move away from currency market intervention. We further appreciate the G20, including China, pledging collectivelyto move toward market-determined exchange rates. However, these pledges are essentially a restatement of their legal obligations under Article 4 of the International Monetary Fund Articles and a mere continuation of over a decade of futile negotiations.
CPA continues to call for an effective, WTO-consistent enforcement mechanism to neutralize the injury caused by persistently undervalued exchange rates.
The U.S. has negotiated with China and others for over a decade trying to resolve the problem of persistent currency undervaluation. These negotiations have occurred at the highest levels, including the Presidential level, under names such as “Strategic Economic Dialogue”. Yet foreign reserves held by countries intervening in currency markets continue hitting record highs, exchange rate misalignments continue unabated, and trade imbalances worsen. The absence of an effective enforcement mechanism is the reason those negotiations have failed to produce a tangible result.
The U.S. has the opportunity to resolve a substantial part of the problem by supporting and enacting legislation classifying persistent currency undervaluation as a countervailable export subsidy. We hope other countries with market-based currencies will adopt the same remedy to ensure that no nation can gain an export advantage by manipulating [Gaining a trade advantage is an important reason other countries manipulate] exchange rates.
Without an effective enforcement remedy, the persistent currency undervaluation problem cannot be solved. Congress should immediately consider, debate, and enact legislation that enables us to neutralize currency subsidies through countervailing and anti-dumping duties.