Is Currency Undervaluation a Subsidy: US Law and Practice and the WTO Compatibility

Abstract

On 4 February 2020, the Department of Commerce (Commerce) adopted revised Regulations Regarding Benefit and Specificity in Countervailing Duties Proceedings after reviewing solicited comments. Soon after, the Commerce initiated countervailing investigations against Vietnamese passenger vehicle tires and Chinese twist ties, and for the first time imposed preliminary countervailing duties (CVDs) against these two countries based on currency undervaluation. This article considers the revised regulations, two CVD investigations and their WTOcompatibility. We argue that views on whether or not currency undervaluation constitutes a subsidy reflect divergences between the US and other negotiating parties during the Uruguay Round on the definition of a subsidy. Whereas currency undervaluation does confer benefits to producers and exporters, it does not fulfill the criteria of ‘financial contribution’ and specificity as laid down in the Subsidies and Countervailing Measures (SCM) Agreement; thus the CVD decisions of the Commerce are WTO-incompatible. Currency undervaluation, Countervailing duties, subsidy, specificity, financial contribution