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India Added to Monitoring List but Treasury Again Finds No Currency Manipulation

Tuesday, April 17, 2018
Sandler, Travis & Rosenberg Trade Report

The Treasury Department’s semiannual foreign exchange rate report does not list any U.S. trading partner as a currency manipulator but adds India to a list of countries targeted for close scrutiny of their currency practices. The report also raises the possibility of expanding the number of economies that may be reviewed in the future.

The Trade Facilitation and Trade Enforcement Act established a process to determine whether a country may be pursuing foreign exchange policies that could give it an unfair competitive advantage against the U.S., engage countries that may be pursuing such policies, and impose penalties on those that fail to adopt appropriate policies. The TFTEA requires Treasury to undertake an enhanced analysis of exchange rates and externally-oriented policies for each major trading partner that has a significant bilateral trade surplus with the U.S. (which Treasury has set at greater than $20 billion) and a material current account surplus (i.e., at least three percent of the country’s gross domestic product) and has engaged in persistent one-sided intervention in the foreign exchange market (i.e., conducted repeated net purchases of foreign currency that amount to at least two percent of its GDP over the year).

Treasury has determined that for the most recent period Japan, Korea, Germany, Switzerland, and India each met two of these three criteria. India was added this year because it has a significant bilateral goods trade surplus with the U.S. and increased its purchases of foreign exchange in 2017. China met only one of the criteria but accounted for “a large and disproportionate share” of the overall U.S. trade deficit. These six countries will remain on Treasury’s monitoring list but no enhanced analysis will be undertaken.

In addition, Treasury has determined that during the second half of 2017 no major U.S. trading partner met the standard of manipulating the rate of exchange between its currency and the U.S. dollar for purposes of preventing effective balance of payments adjustments or gaining unfair competitive advantage in international trade.

If such a determination were made, Treasury would be required to commence enhanced bilateral engagement with that country. If that country failed to adopt appropriate policies to correct its undervaluation and external surpluses within a year, the president would be required to take one or more of the following actions: (1) denying access to Overseas Private Investment Corporation financing, (2) excluding the country from U.S. government procurement, (3) calling for heightened surveillance by the International Monetary Fund, and (4) instructing the Office of the U.S. Trade Representative to take such failure into account in assessing whether to enter into a trade agreement or initiate or participate in trade agreement negotiations. The president could waive the remedial action requirement under specified circumstances.

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