Commerce Department’ unveils new trade rule to slap countervailing duties on countries that undervalue currencies

In a significant development, the U.S. Commerce Department stated, it has finalized a new rule which it will apply to products from countries that it determines undervalues their currencies against the dollar.

This could potentially impact China and be a fresh source of irritation in U.S.-China trade talks. In theory the U.S. Commerce Department could use the new rule to impose duties on China despite the fact that the U.S. Treasury Department recently removed its designation of China as a currency manipulator, as part of the Phase-1 trade agreement.

The U.S. Commerce Department said, it would normally rely on the Treasury’s expertise in determining undervaluation; however the two processes could come to different conclusions since they come from different two different statutes.

The U.S. Commerce Department said it would only impose countervailing duties on specific imported products that benefit from countervailable subsidies and are found by the U.S. International Trade Commission to injure U.S. industries. The new rule will not apply duties to all imports of a given country, since not all such imports injure U.S. industries.

The new rule is a measured response to longstanding bipartisan calls to use existing statutes to address unfair foreign currency practices, said the Commerce Department while adding, “The Trump Administration is doing the right thing by confronting the problem head-on”.

The new rule marked another important step intended to “level the playing field for American businesses and workers,” said U.S. Commerce Secretary Wilbur Ross.

The new rule fails to address many of the concerns raised after the draft rules were published in May, and would most likely be inconsistent with World Trade Organization rules, said Mark Sobel, former senior U.S. Treasury official.

“There is no precise way to measure currency undervaluation,” said Sobel while adding, Commerce had no responsibility or expertise in international monetary and currency matters.

“This is a unilateral policy which will alienate countries around the world.”

In addition to China, if the new rule were to be applied it could place goods from other countries, including China, Ireland, Malaysia, Germany, South Korea, Japan, Vietnam, Switzerland, Singapore, and Italy at risk of higher tariffs.

These countries were on the “monitoring list” included in the Treasury Department’s semi-annual currency report.

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