For decades, U.S. companies and industries – and lawmakers – have complained about the harmful effects of currency manipulation and undervaluation on American manufacturing and exports. Now, for the first time, the Commerce Department seems ready to do something about it.
In a notice to be published in the May 28 Federal Register, https://s3.amazonaws.com/public-inspection.federalregister.gov/2019-11197.pdf, Commerce sets forth proposed rules for treating currency undervaluation as a subsidy in countervailing duty cases. Commerce is seeking comments, which are due 30 days from publication.
The most unique aspect about the proposal is that Commerce plans to seek and defer to the Treasury Department’s evaluation of whether a governmental action on exchange rates has resulted in currency undervaluation. This could a creative breakthrough, or it could limit these new provisions. Treasury, in its semiannual reports, has never named China as a currency manipulator, despite ample evidence that China does exactly that. Notably, Commerce has said that if it has good reason to believe otherwise, it could act even without a Treasury finding of undervaluation.
Commerce has also stated that for purposes of finding a subsidy, enterprises that primarily buy or sell goods internationally can constitute a group of enterprises that is “specific.” This is important, because in the past, Commerce has expressed concerns that currency undervaluation benefits a specific group of industries or companies, which is required in order to find a subsidy.
Although China is no doubt a primary target, these proposed rules — once finalized — should strengthen countervailing duty cases involving several other countries that tend to undervalue currencies over time, potentially including Korea, Turkey, Japan, and others.