Commerce Proposes to Impose CV Duties for Currency Undervaluation
The Commerce Department is proposing to amend its regulations to provide for the imposition of countervailing duties to address currency undervaluation. Under the proposed rule, Commerce would consider a foreign exporter’s currency exchanges a potential form of subsidy, and seek Treasury’s input in CV duty cases on the extent of undervaluation and whether that undervaluation is a result of government intervention. Comments are due June 27.
The approach outlined in the proposed rule’s preamble, though not included in the text of the regulation itself, would be to consider real effective exchange rates to determine the extent to which a currency is undervalued. After getting Treasury’s formal, non-binding evaluation on whether the foreign government’s actions were responsible for the undervaluation, Commerce would then potentially consider currency exchanges by the country’s international traders to be a subsidy, because they’d receive more domestic currency in return for their exchanges of U.S. dollars than they otherwise should have.
Commerce would then look at each individual exporter’s currency exchanges, and specifically the amount of additional domestic currency received in exchanges due to undervaluation. It would add the currency subsidy amount to the exporter’s overall CV duty rate.
Commerce gave two wildly varying estimates on the change’s practical effect. In its first estimate, the agency said it’s unlikely more petitions for CV duty investigations would be filed as a result of the change, because the determining factor for domestic petitioners is whether they can prove injury. At the time of filing, petitioners don’t generally know about every subsidy program, Commerce said. Undervaluation would just be another type of subsidy, likely only resulting in about $4 million to $21 million in additional CV duties collected annually. That’s a small fraction of the $527 million in CV duties collected on average over the past five years.
On the other hand, according to a second estimate based on the impact of CV duties on electricity subsidies, which are similarly general, between $1.71 billion and $3.14 billion in new CV duties would be collected just on Chinese imports. That’s roughly a threefold to sixfold increase in overall CV duty collections.
“This change puts foreign exporters on notice that the Department of Commerce can countervail currency subsidies that harm U.S. industries,” Commerce Secretary Wilbur Ross said in a May 23 press release. “Foreign nations would no longer be able to use currency policies to the disadvantage of American workers and businesses. This proposed rulemaking is a step toward implementing President Trump’s campaign promise to address unfair currency practices by our trading partners.”
At least one domestic manufacturer group applauded the proposal. “The Alliance for American Manufacturing strongly supports the proposed move by the U.S. Department of Commerce to penalize currency misalignment,” AAM said in a statement May 24. “This is long overdue. There’s no doubt it will help defend American workers and businesses against one of the most egregious and unfair trade practices.”