ANNOUNCED AS TEMPORARYNo
On May 23, 2019 the U.S. Department of Commerce started a process that could lead to a major expansion in the scope of actions that may be subject to countervailing duties (CVDs). The department announced that under a proposed rulemaking to be published on May 28 it would impose CVDs on countries that act to undervalue their currency relative to the dollar.
The department followed up by publishing a final rule on February 4, 2020. This rule will apply to all segments of proceedings initiated on or after April 6, 2020. In this later rule the department observed that it had received 47 comments on the proposed rule, of which the "majority ... expressed support for a regulation that addresses subsidies resulting from currency undervaluation." The department nonetheless made some changes to its proposal in response to these comments, generally by adding language to describe "in greater detail the steps of the benefit determination and the additions regarding the role of government action on the exchange rate."
The department believes that it has the authority to make this change without going to Congress. Existing U.S. law defines a countervailable subsidy as a financial contribution from a government or public entity that is specific and that provides a benefit to a foreign producer or exporter. While currency manipulation would appear not to be “specific,” insofar as currency rates affect all sectors, the department’s move suggests that it believes otherwise.
“This change puts foreign exporters on notice that the Department of Commerce can countervail currency subsidies that harm U.S. industries,” said Commerce Secretary Wilbur Ross upon the initial release of the proposed rule. “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.”
The department described the draft regulation in the following terms:
[T]he modifications described below propose one way to analyze whether the exchange of an undervalued currency results in a countervailable subsidy. They are developed with the recognition that while Commerce is, by statute, the administering authority of the countervailing duty law, the issue of currency undervaluation is complex and unlike many of the subsidies we have examined in the past. As described below, during any countervailing duty proceeding involving a potential subsidy in the form of currency undervaluation, we intend to seek and to defer to the Department of the Treasury’s (Treasury’s) evaluation and conclusion as to whether government action on the exchange rate has resulted in currency undervaluation, unless we have good reason to believe otherwise, based on the record as a whole, in which case we will provide Treasury an opportunity to review and rebut the contrary reasoning. Treasury will use a consistent framework to assess currency undervaluation resulting from government action, recognizing country-specific factors. If it is determined that there is currency undervaluation based on government action on the exchange rate, Commerce will proceed to determine whether such action is countervailable.
In determining whether there has been government action on the exchange rate that undervalues the currency, we do not intend in the normal course to include monetary and related credit policy of an independent central bank or monetary authority.
The department stated that it would comments for thirty days, and noted that it invited “comments not only on this proposed approach, but also as to whether there are other options under the existing law to examine potential currency-related subsidies.”
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