Related article ~ Debate on Yuan Value Moves to the WTO November 16, 2011
WTO to Study Relationship Between Trade, Exchange Rates
The World Trade Organization will discuss the relationship between trade and exchange rates and plans to hold a meeting on the topic in March, said Roberto Azevedo, Brazil’s ambassador to the WTO.
The trade arbiter’s 153 members, including China, agreed to examine whether trade rules can be used when a currency is artificially cheap, causing global imbalances, Azevedo said.
“What we’re looking for, in temporary circumstances, is the effect or the impact that certain currency misalignments may have on particular segments of one country’s economy,” he said today in a phone interview from Geneva. “In the future we may have an agreement on what the problem is, whether this kind of problem needs some kind of remedy, whether we already have the remedy in the WTO agreements.”
Continues ...read more ..
The U.S., Europe and Brazil, Latin America’s biggest economy, have criticized China for what they say are measures to keep its currency undervalued and using the weak yuan to give Chinese companies an unfair edge over foreign rivals. Brazil isn’t targeting a specific country’s policies, Azevedo said.
“This question was put to” Brazilian Trade and Development Minister Fernando Pimentel “and he said the initiative was not oriented against any single currency,” Azevedo said. “I assume that the yuan, like any other currency, would be under scrutiny. Wherever you have misalignments, you would have some kind of concern to be addressed.”
‘Steep Fluctuations’
Brazil proposed to the WTO in September that it allow members to protect their industries from trade imbalances prompted by currency fluctuations. Rules covering anti-dumping and safeguard mechanisms, as well as retaliation rights, must be updated to deal with “steep fluctuations in exchange rates,” Brazil’s Foreign Ministry said on Sept. 19.
China, the biggest holder of U.S. debt, has allowed its currency to rise. The yuan has appreciated 30 percent against the U.S. dollar since the currency was revalued in July 2005 and gained about 8 percent since the central bank ended a two-year peg in June 2010 after the global financial crisis. In real terms the gain has been more than 10 percent, because inflation is higher in China than in the U.S.
Criticism of China’s exchange rate is “groundless and unreasonable” and the yuan’s value isn’t the cause of lopsided trade flows, Commerce Ministry spokesman Shen Danyang said in Beijing today.
WTO members agreed that the trade arbiter “is not the forum to debate, discuss, investigate, analyze the reasons for a particular currency misalignment,” Azevedo said. “There also seemed to be consensus that, given that a particular alignment does exist, it is the WTO’s competence to look at the impact and what to do about it, in terms of trade.”
The WTO decision to study exchange rates and trade was reported earlier by the Wall Street Journal.
link
