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U.S. Weighs Letting Companies Seek New Penalties Over Currency Manipulation

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05/24/2019 | 05:55pm EDT

By Josh Zumbrun

U.S. companies would be able to seek penalties against foreign competitors they say benefit from artificially weak currencies, under a new rule proposed by the Trump administration.

The proposal -- on which the Commerce Department is now seeking public comment -- would treat an undervalued currency as a subsidy that allows foreign businesses to export their goods more cheaply. The rule would allow U.S. companies to file a complaint with the U.S. International Trade Commission, the first stop in arguing for countervailing duties that could lead to additional tariffs on certain imports.

Currently, companies can't cite currency weakness in claims of improper foreign subsidization of their competitors.

Commerce Secretary Wilbur Ross said the measure adds to the administration's arsenal in fighting foreign-currency manipulation, which the Trump administration says hurts American industry.

"This change puts foreign exporters on notice that the Department of Commerce can countervail currency subsidies that harm U.S. industries," Mr. Ross said. "Foreign nations would no longer be able to use currency policies to the disadvantage of American workers and businesses.

The Trump administration's criticism of currency manipulation has primarily targeted China. Before their trade talks reached an impasse this month, the U.S. and China had negotiated terms that would force Beijing to disclose more information about its currency activities and to commit to refrain from undervaluing the yuan.

A Commerce Department spokesman didn't respond to questions about the extent to which the latest proposal was aimed at China. As written, the proposal would apply to any country found to have a currency that is artificially weak.

"It is welcome news to see Commerce working through a process where parties can address such things," said Terence Stewart, managing partner of Stewart and Stewart, who specializes on trade-remedy cases.

Mr. Stewart, however, said that while many companies would welcome the ability to include alleged currency manipulation in their cases, the rule's overall impact could be small.

The Commerce Department said in its proposal that it expected only a few additional countervailing-duty cases to be filed each year under the new rule, and for duties assessed to amount to between $4 million and $21 million a year. Also, countervailing-duty cases apply only to a small slice of U.S. trade.

While companies may welcome the ability to bring such claims, they also may face an arduous legal process before any determinations are made or tariffs are imposed.

The complexity of the issue presents a challenge for bringing cases, said Mark Sobel, a former U.S. Treasury official who worked on currency valuations. Exchange rates are influenced by a range of factors, including fiscal policies, trade and regulatory policies, capital flows and monetary policies, he noted, adding that there is no easy or straightforward measure of a "fair" exchange rate. And all those factors also could change while a case is going through the legal system.

China wouldn't necessarily meet the criteria for manipulation right now. Over the past two years, in its semiannual review of currency practices among all nations, the Treasury Department has repeatedly determined that China hasn't been manipulating its currency. Under the proposed process, the Treasury Department would weigh in on whether a currency is being manipulated, but would not necessarily be the final arbiter.

One sign of an unbalanced currency is when a country has a large current-account surplus, meaning that its exports far exceed its imports. While this was the case with China a decade ago, China's overall surplus is now small, according to the Treasury Department. Nations with bigger current-account surpluses include Japan, South Korea, Switzerland and Taiwan.

Write to Josh Zumbrun at Josh.Zumbrun@wsj.com

Stocks mentioned in the article
ChangeLast1st jan.
US DOLLAR / CHINESE YUAN RENMINBI (USD/CNY) 0.04% 7.0682 Delayed Quote.2.98%
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