Currency manipulation by foreign countries may be deemed a subsidy and subject to countervailing duties under a new rule from the International Trade Administration that will apply to all segments of CV proceedings initiated on or after April 6.

U.S. law provides for the imposition of CV duties on subsidized imports to offset the portion of the subsidy attributable to the imported goods. Subsidies include financial contributions and income or price support from government or public entities and must be specific and provide a benefit to a foreign producer or exporter to be countervailable.

The new rule will allow the ITA to impose CV duties on imported goods that benefit from unfair currency subsidies that cause harm to U.S. industries. However, there are several conditions attached to this authority that appear likely to limit its use and effect.

- The ITA can determine if CV duties should be imposed for subsidies in the form of currency undervaluation if the following conditions (among others) exist: (a) multilateral undervaluation (i.e., relative to a basket of currencies) and any corresponding bilateral undervaluation relative to the U.S. dollar, (b) government action on the exchange rate that contributes to the undervaluation (which will not normally include monetary and related credit policy of an independent central bank or monetary authority), and (c) predominant or disproportionate use of the currency subsidy by the traded goods sector.

- The ITA will seek and generally defer to the Treasury Department’s expertise in currency matters. On this point it is worth noting that, aside from an August 2019 determination that China was manipulating the value of its currency for trade advantage that was subsequently rescinded in January 2020, Treasury has not named any country a currency manipulator in quite some time. However, the ITA states that it is possible CV duties could be applied against a country not so designated by Treasury and that the ITA will retain ultimate decision-making authority in CV proceedings.

- The ITA will only impose CV duties on imports of specific products that both benefit from countervailable subsidies and are found by the International Trade Commission to injure U.S. industries.

The ITA has said it does not believe this rule will lead to an increase in the number of CV petitions filed or dramatically change the total volume of imports subject to CV duties but does believe it likely to increase the number of CV allegations in such petitions.

The ITA notes that any objection to this rule on the part of a foreign trading partner is likely to result in litigation in U.S. courts or at the World Trade Organization rather than retaliatory trade measures.

For more information on this rule, please contact trade attorney Kristen Smith at (202) 730-4965.

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