MNI POLICY: Schott: US Commerce Rule 'Assuredly' Violates WTO

By Evan Ryser

     WASHINGTON (MNI) - The U.S. Commerce Department's new rule to impose duties

on products from countries that undervalue their currencies "almost assuredly"

violates World Trade Organization subsidy obligations, Jeffrey Schott says in a

new blog post published Friday by the Peterson Institute for International

Economics.

     "Bluntly put, Commerce has manipulated the definition of currency

manipulation for protectionist purposes," said Schott, a former Treasury

official and member of the delegation who negotiated the GATT Subsidies Code.

     "[T]his regulatory change conflicts with current Treasury practice and

almost assuredly violates World Trade Organization (WTO) subsidy obligations,

which I helped write 40 years ago," he wrote.

     --NEW RULE

     The U.S. Department of Commerce on Monday finalized a new rule to impose

anti-subsidy duties on products from countries that it has determined undervalue

their currencies against the dollar, including potentially China.

     Under the new process, companies will be able to file a complaint that

would be evaluated by the Commerce Department and the U.S. International Trade

Commission, an independent agency which evaluates damage from unfair trade

practices. If successful, tariffs would be imposed against the competitor.

     A finding of currency manipulation by the Treasury is not required for a

company's complaint to be successful. The rule would not result in the

application of such duties to all imports from a given country.

     Commerce said it would generally rely on the Treasury's expertise in

determining undervaluation, but the two processes could come to different

conclusions since they resulted from different statutes. Companies will be able

to pursue such tariffs as soon as April 6.

     -- 'PHASE ONE'

     Schott wrote that "China didn't seem to give up much to satisfy US demands"

in the currency provisions of the 'Phase One' deal, but China "didn't calculate

that the United States would move the goalposts defining what constitutes

manipulation and thus open the door for new protectionist actions."

     The US-China pact gives USTR authority to act against what it deems to be

Chinese currency manipulation if US complaints about Chinese currency practices

are not resolved to its satisfaction during bilateral consultations, Schott

said.

     "The new enforcement mechanism contains elaborate consultative requirements

and explicit retaliation rights, but it would essentially lead to the same

stand-off and subsequent unilateral actions that have occurred throughout the

two-year trade war. China can either accept the US actions or withdraw from the

pact, presumably reigniting the trade war."

--MNI Washington Bureau; +1 202 371 2121; email: evan.ryser@marketnews.com

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