A Case for Misaligned Currencies as Countervailable Subsidies

Abstract

Artificially undervalued currencies are giving an unfair competitive advantage to some World Trade Organization (WTO) Members, nullifying the trade protections of other WTO Members and undermining the predictability and credibility of WTO rules. A threshold dividing legal and illegal devaluations, from the Agreement on Subsidies and Countervailing Measures (ASCM) standpoint, must be drawn to address this issue. This paper argues that such a threshold is exceeded when a WTO Member's measures undervalue its currency far below an equilibrium level and for more than the time needed to address economic imbalances. In this scenario, an artificially undervalued currency may amount to a countervailable subsidy actionable under the ASCM.