MNI EXCLUSIVE: US To Target FX Pledges In Trade Deals

By Evan Ryser

     WASHINGTON (MNI) - The Trump administration is likely to push for any new

U.S. trade deals to include legally-binding commitments to avoid exchange rate

manipulation, although details will vary according to the partner, a former

senior official in the office of the United States Trade Representative told

MNI.

     "Each deal is going to have its own framework in terms of what makes sense

in the context of that deal," the former official, who wished to remain

anonymous, said.

     "I would think that a situation like the euro would have different

considerations that would go into that, if you ever got into a situation where

you were doing a deal with the EU, as opposed to dealing with someone like China

or Japan."

     U.S. anger over the level of the yuan has been a major bone of contention

in Washington's trade dispute with China, and an attempt to include references

to exchange rates has already complicated talks towards agreements with partners

such as Japan. The U.S. is also aiming for deals with the EU and the UK.

     Until the USMCA agreement with Mexico and Canada, the U.S. had avoided

legally-binding commitments to free exchange rates in its trade deals, which

could have reduced its freedom for policy maneuver. The Trans-Pacific

Partnership, from which Trump withdrew the U.S., was accompanied by a

declaration on currencies, but as it was only a side agreement and not included

in the key text, it was not enforceable. While USMCA's promise to "prevent

balance of payments adjustment or to gain an unfair competitive advantage" does

not cover central banks, it establishes transparency and reporting requirements

and the IMF can be invited to settle disputes.

     Under a system of floating exchange rates, bilateral trade deficits should

correct naturally over time, but the former official said that "obviously that

doesn't happen" in today's world.

     The USMCA agreement, which will replace NAFTA, was ratified by the Senate

of Mexico this summer and awaits ratification in Canada, and in the U.S., where

it goes before Congress in the fall and is likely to be approved.

     Under USMCA, the three countries will provide monthly data on international

reserves balances, intervention in foreign exchange markets, and quarterly

balance of payments data. Implementation will be monitored in meetings which

will take place at least annually.

     --NO BACKING DOWN ON WTO

     The former senior USTR official also indicated that the U.S. will not back

down over the brewing crisis over the functioning of the WTO Dispute Settlement

Body's appellate division.

     The Trump administration, which has been bitterly critical of the WTO

despite winning a majority of complaints it has filed, particularly for its

failure to push China to open its economy, has blocked the nomination of new

judges. If no judges are approved by December 11, the appellate branch will not

have the quorum required to hear cases and resolve international trade disputes,

at a time when trade tensions are casting an ever-longer shadow over the global

economy.

     According to USTR Robert Lightizer, the dispute settlement system

established under the 1994 agreements has morphed the WTO from a negotiating

forum to a litigation forum.

     "The WTO appellate body is trying to change the benefit of the bargain that

you thought you had made. That is a real concern," the former official said.

"Can the appellate body impose rules and sanctions on the United States for

commitments that the United States never made?"

     Canada and the European Union in July announced plans to set up a temporary

appeals court to settle trade disputes, but that deal does not offer a broader

solution to the potential WTO appellate body shutdown.

     Asked whether the WTO will have a quorum following December, the official

said, "it is up to the other people."

     "The President and the USTR have been very, very clear. We think the

appellate body is arrogating power that it was never intended to have, and we

are not interested in filling these vacancies until we understand more about why

that happened and about how we can be sure that it wouldn't happen again in the

future. And up to this point the other members have made very little effort to

respond to U.S. concerns," the former official said.

--MNI London Bureau; +44 203 865 3829; email: jason.webb@marketnews.com

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