Position:  CPA supports neutralizing foreign government currency misalignment by establishing both countervailing duties and antidumping remedies.  CPA opposes utilizing a diplomatic process to evaluate and remedy currency misalignment.

Underlying CPA Principle: Economic Regulation - CPA supports the right of all countries to transparently regulate their currency, tax regimes and domestic policies in a nondiscriminatory manner.  We also support the right of countries to respond appropriately to trading partner policies that distort trade.

Background: Currency values should fluctuate based upon a country’s economic performance, balance of payments, interest rates and inflation, among other factors.  If a country’s economy is performing poorly, its currency value diminishes making its products cheaper and more attractive from the international trade perspective.  If a country’s economy is performing well, its currency value strengthens making its goods more expensive on the international markets.

Government policies inherently affect currency values, just as government policies inherently affect the economy.  Money supply and interest rates are fundamentally affected by central bank decisions.  But policy excesses have occurred and are occurring that distort trade, whether or not that is the intent.

Asian nations, including China, prevent their currency values from responding to market forces.  For 13 years, the U.S. Treasury Department has reported that neither China nor any other country manipulates currency for the purpose of achieving unfair trade advantages.  That position is not generally deemed credible.  The distinction between intentional currency manipulation and unintentional currency misalignment is rooted in diplomatic concerns.  The distinction should be eliminated because the effect is the same.

It is generally agreed that China devalued its currency (remnimbi) in relation to the U.S. dollar by about 40% in 1995, and has pegged the remnimbi value to the dollar since that time.  China’s economy has seen explosive growth in size, and in exports since 1995 which, in a flexible currency regime, would cause the remnimbi to gain in value.  But the remnimbi value has stayed relatively constant, in a gravity-defying feat.  The result is a 12 year period in which all China products have a 40% (estimates vary between 9% and 57%) export price advantage.  Conversely, U.S. exports to China are 40% more expensive than they should be.

Rationale:  Government currency manipulation or misalignment should be neutralized to start down the path of elimination. As a first step, injured American industries should be granted by law the right to seek countervailing and antidumping duties to offset the unfair advantage given to imports benefiting from undervalued currencies.  Such duties are remedial, not punitive.  They have been relied on for 85 years or more to neutralize unfair practices that distort competition.  They fall within the sovereign rights of the United States to defend its legitimate trade interests and in no way can be considered as “protectionist.”

Either antidumping or countervailing duties should be allowed, but not both.  A double remedy for the same injury is prohibited by U.S. law.  However, both remedies should be available because each is appropriate in different circumstances.

The anti-dumping remedy has the advantage of reaching back to all existing orders when they come up for annual reviews .  There are, for example, 60 orders in effect on Chinese goods.  However, anti-dumping proceedings are complex, cumbersome and costly (up to $2 million plus substantial amounts for each annual review). 

However, for industries in which the foreign producers are chronically profitable – such as Japanese autos and parts - the threat of anti-dumping action only is not effective because the foreign firms would get "credit" for their profitable export sales, reducing the anti-dumping remedy.  As a sole remedy, anti-dumping is inefficient as a result.

By contrast, countervailing duty (CVD) cases are quicker, simpler, and less costly.  The cost of a CVD case is approximately five to ten percent of an anti-dumping case.  Also, because the U.S. Commerce Department only recently decided to begin applying the countervailing duty law to non-market economies, the countervailing duty remedy by itself will would be less effective than the two together.

An effective strategy would allow injured industries to choose which of the remedies to seek in a given set of circumstances.

This approach allows all countries to implement internal economic policies which may have an impact upon currency values.  To the extent those foreign government policies impact trade balances, the U.S. can efficiently neutralize that impact through objective and non-penal remedies swiftly.  Whether or not “intentional” currency manipulation is found, the “effect” becomes the focus.  The sovereignty of each nation is protected, while the policy excesses of each nation are curbed.