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POLITICS IN GLOBAL CURRENCY REGULATIONS: IMF & WTO COOPERATION IN THE LIGHT OF CURRENCY DISPUTE BETWEEN USA AND CHINA

Research Area:  International Business Laws, Currency Laws.

Keywords: IMF-WTO Relations, Conflicts in Global Currency Regulations, US – China Politics of Currency. 

Abstract: There is an ongoing political conflict between United States & China. The history of currency conflict between USA and China is more than two decades but it is still unresolved. Recently, USA President – Mr. Donald Trump – tweeted, “Russia and China are playing the Currency Devaluation game as the U.S. keeps raising interest rates, not acceptable!”

This Article identifies an important aspect of the ongoing currency conflict i.e. question relating IMF and WTO relationship. The IMF and WTO relation is highly contentious, complex and lacks clarity. WTO is the guardian of the international trade, and this Article attempts to decode the role of WTO in the cases where trade distortions arise out of manipulative currency policy adopted by a member. In the area of relationship between the IMF and WTO, an important change came by the act of USA calling Chinese policy of devaluation as an export subsidy (in its annual policy briefs). This Article identifies the feasibility of calling such a manipulation as subsidy.

1 – Introduction

The IMF and WTO relation is highly contentious, complex and lacks clarity. WTO is the guardian of the international trade, and this Article attempts to decode the role of WTO in the cases where trade distortions arise out of manipulative currency policy adopted by a member. In the area of relationship between the IMF and WTO, an important change came by the act of USA calling Chinese policy of devaluation as an export subsidy (in its annual policy briefs)[1].

However, the main question here is whether such incidence of currency devaluation will fall under the jurisdiction of IMF only as the IMF is the caretaker of currency and exchange rate matters, or being a matter of a trade distortion, it will fall under the ambit of WTO. This Article attempts to find the answer of this question. This Article also briefly discusses the history of GATT, and how USA played a key role in killing ITO and devising GATT, which was ultimately translated into WTO. Now, China seems to be well positioned for challenging USA position in GATT, who has been enjoying a vital role in driving it for the past many decades. 

It seems during the fixed currency regime the link between the GATT and IMF was comparatively stronger and the problem (of missing link between IMF and the WTO) became severer when the floating regime was introduced under the amended Articles of Agreement. Multiple currency practices are also barred under the GATT regime which is a matter relating to currency. It seems there are gaps between the IMF and WTO relationship and this research work attempts to understand the gaps in Law relating to IMF and WTO relation.

2- International Trade Regime and China-US Dispute

As per the principles of customary International Law, a State has the freedom to determine the value of its currency. The issue of alleged Chinese currency devaluation has exposed the weakness of the contemporary international economic Law framework in regulating the sovereign intervention on foreign exchange rate [2]. This ‘weakness’ is specifically to be taken care by the international institutions because of two reasons – first, there is no authoritative Law to ensure whether the currency devaluation by China constitutes a currency manipulation. Secondly, there is no clear mandate in our international legal regime according to which international institutions have the authority to adjudicate and resolve the issues regarding the currency manipulations. One of the most prominent goals of this research work is to find out the answer of these two questions.

Currently, for the purpose of dealing with the currency manipulation issue various States are resorting to politics and diplomacy[3] but not the rule of Law which is not a very desirable situation for an International Legal Regime [4] as it can give rise to conflicts between the States.

Primarily it is WTO, which has the adjudicatory authority to resolve the disputes relating to international trade. The IMF is the international institution, which has the expertise in dealing with the problems relating to currency and exchange rate matters, but it lacks the dispute settlement mechanism to resolve a dispute.

3 – Chinese Currency Policy and Its compatibility with the IMF Rules

A lower rate of exchange helps the economy to grow its business as the devaluation in the currency makes its export cheaper in the international market and makes the import costlier in its domestic market. Thereby, the devaluation of the currency increases exports, enhances the economic growth & employment and boosts the balance of payment of the devaluing nation. However, IMF prohibits any artificial devaluation of the currency (i.e. currency manipulation) by any member to gain an unfair advantage in the trade, considering the other member by exercising their sovereign power might also retaliate with the same measure. Article IV (1) (iii) of the IMF Articles of Agreements deals with the cases of currency manipulations. It provides –  

Article IV: Obligations Regarding Exchange Arrangements

Section 1.  General obligations of members

Recognizing that the essential purpose of the international monetary system is to provide a framework that facilitates the exchange of goods, services, and capital among countries, and that sustains sound economic growth, and that a principal objective is the continuing development of the orderly underlying conditions that are necessary for financial and economic stability, each member undertakes to collaborate with the Fund and other members to assure orderly exchange arrangements and to promote a stable system of exchange rates. In particular, each member shall:

  • endeavor to direct its economic and financial policies toward the objective of fostering orderly economic growth with reasonable price stability, with due regard to its circumstances;
  • seek to promote stability by fostering orderly underlying economic and financial conditions and a monetary system that does not tend to produce erratic disruptions;
  • avoid manipulating exchange rates or the international monetary system in order to prevent effective balance of payments adjustment or to gain an unfair competitive advantage over other members[5]; and
  •  follow exchange policies compatible with the undertakings under this Section.

Article IV, Section 1(iii) provides the hard and fast obligations for the parties concerning to the external policy of the members. It provides probably the most important but the most complicated arrangements of the member’s obligations. It is also not very clear that what kind of acts would be covered under the phrase “manipulating the international monetary system.” This is notable that a member can manipulate its currency by numerous ways. It can manipulate through excessive exchange control or by preventing the rates to move from its equilibrium value or through the capital control. Simultaneously, the term “in order to prevent balance of payments adjustment” broadly covers any potential act of the members to gain balance of payment advantage by over or under valuation of the currency.

The Fund performs its surveillance function through its so-called ‘Article IV consultations’ with each individual member country to ensure compliance from the members. This consultation is held in accordance with the Article IV of the agreement. Article IV of the IMF provides for the legal basis and modes of the bilateral and multilateral surveillance by the Fund. Section 3(a) of the revised Article IV of the IMF Articles of Agreement provides that the International Monetary fund is duty bound to observe compliance from its member countries and the members will refrain from violating the provisions enumerated under Article I of the fund. The revised Articles of Agreement also imposes a duty upon the fund to oversee “the international monetary system in order to ensure its effective operation.” The fund is obliged to make a firm surveillance and adopt specific principles for the guidance of all members with respect to those policies. The Section also imposes a substantive duty on the members that they will provide the Fund with the information necessary for such surveillance, and, when requested by the Fund, shall consult with it on the member’s exchange rate policies. Even if the Fund surveillance is the most important remedy of the currency manipulations but the worst part is that out of numerous Article IV consultations no country has been declared as a currency manipulator that shows the weakness of law relating to currency manipulations. Hence, it will not be an exaggeration to say that the IMF, which is the caretaker institution of the currency & exchange, in the present form, lacks authority to deal with the threat of currency manipulation, which is not a good scenario for the international trade.

4.1 – Chinese Accession to WTO

The case of China’s accession to WTO highlights the conflict of jurisdiction between IMF & the WTO. The conflict of jurisdiction came on surface when United States attempted to include an obligation relating to exchange system in the draft protocol on China’s accession to the WTO. It (the draft protocol) required that China would comply with the obligations under Article VIII of the IMF by an agreed date. The Article VIII of the Articles of Agreement of IMF provides for the general obligations of the members including an obligation to avoid the discriminatory exchange rate policy. The draft protocol also obligated china to limit its rights to use foreign exchange restrictions in future. The objections were raised by the International Monetary Fund regarding such inclusion in the draft protocol by the United States. One of the objections regarding the draft protocol was that it contravened the ministerial declaration in the Uruguay Round Final Act. The Uruguay Round Final Act had expressly recognized the IMF jurisdiction over exchange rate matters. By posing the draft obligations on China it would be a contravention of the Final Act and would be tantamount to create two sets of classes of members which was against the letter and spirit of IMF. Later on China accepted the IMF mandate of Article VIII in 1996 but the accession protocol was not resolved for another 5 years until China acceded to the WTO in 2001[6].

4.2 – History

GATT remained provisional for nearly a half century between the periods of 1947 -94. It was the time when the world saw the fastest growth of science & technology and trade, and GATT seemed to be firmly established even though it was a provisional agreement during this period[7].

Formation of the GATT was the result of a series of interesting developments. Immediately after the World War II, the major economies wanted to form a third organization, other than the two under the Bretton Woods regime, i.e. International Monetary Fund and World Bank, to regulate the international trade. For that purpose more than 50 countries started negotiation to establish International Trade Organization (ITO). The draft of ITO was an inclusive draft, which included the rules relating to trade, employment, international investment of goods & services. The intention of the parties was to regulate the world trade and employment and they decided to meet first in Havana (Cuba).

In the meantime, 15 countries started negotiation immediately after the World War – II to reduce tariff and other trade barriers. The parties to the negotiation were still able to reflect the damages done to the international trade by the protectionist measures adopted by the various nations in 1930s. The negotiating States wanted to avoid any of such competitive protectionist measures after the World War II.

After a series of deliberations on 30 October 1947, the GATT was signed by the 23 countries, which were parts of the larger negotiation for ITO. On the other hand, negotiation round for ITO was started in Havana on 21 Nov. 1947and it was finalized in March 1948. However, the same was never ratified by the US congress. In 1950, United States government declared that it would not seek the congress ratification for ITO any more. ITO was effectively doomed.

In the absence of a proper regulatory regime for international trade GATT was the only generally accepted code to regulate the conduct of the parties. However, time to time it grabbed focus of the international trade world to include suitable trade provisions and remained the only legal code regulating international trade until WTO came into picture. There were eight rounds of negotiations commenced between the contracting parties[8].

However, there were inherent limitations in the GATT. GATT was never formally declared as a permanent code governing the international trade. It remained merely a provisionally declared code having a limited legal force. The provisions of GATT were binding only to the extent of not in conflict with the domestic Laws. It kept the scope of manipulations wide open as the GATT provisions could be contravened in the cases of political and economic needs. However, the increasing popularity of GATT like institution emphasized the requirement of a formally declared institution to facilitate international trade and it led the path of formalization of GATT into the WTO. In 1988, US Congress passed the Omnibus Trade and Competitiveness Act, which called upon for a more effective trade dispute settlement mechanism, which ultimately resulted into the WTO in Uruguay Round (1986-1993) of GATT. GATT provisions were adopted by the WTO after its formation[9].

Joining WTO was a historic moment for China in the light of its strained relation with the United States. Both of the countries had joined hands in the Asian theater of the World War II to defeat Japan but they became enemies after the defeat of the democratic force in China in 1949 by the communists. Since then, the relationship between the both of the countries were marked by the suspicion, armed struggle (e.g. during Korean War) and rivalry. It took almost three decades for communist China to restore diplomatic relation and trade ties with USA. The normalcy of the trade ties with United States and its accession to the WTO had a great impact upon global economy & politics as it firmly placed China as a military and economic superpower in the world. Since the time China has liberalized its economy (in 1978), it emerged as a manufacturing hub of the world, flooding its exported goods to the Europe, USA and other parts of the world. World major powers are now compelled to see China as an equal partner. After China’s accession to the WTO, the international market was open for the Chinese exported goods. The Chinese accession in WTO was a forward move in the direction of the global governance[10].

America played an important role in the China’s accession in the WTO regime. China’s efforts to join the institution dated back to 1986 when it made an effort to join GATT as a contracting party. The multilateral negotiation went on to fix the modalities of Chinese accession to WTO for the next 15 years[11]. For the purpose of accession of China, three conditions were put forward – to reduce the tariff on the imported goods, to allow the foreign firms to sell in the China market and to open the telecommunication and financial sector for foreign competition. It was also agreed that foreign manufacturers would sell directly their goods to Chinese people; foreign investors could hold 40% shares in Chinese commercial banks, up to 48% shares in the telecom companies and foreign firms would be able to provide various professional services in the field of accounting, management, engineering etc.

Implementation of  China’s WTO commitments, included but not limited to the reduction of tariffs for agricultural products and industrial goods by 8 and nearly 6 percentage points respectively, all of them bound tariffs, the elimination of non-tariff measures for products of 424 tariff headings, the opening of 100 out of the 160 service sectors categorized by the WTO,  and more forceful IPR  protection  have, all facilitated the access of foreign goods and services into the huge Chinese market.[12]

It seems the inclusion of China in the WTO has a great economic ramification for the international trade along with politics. In 2001 at its WTO accession, China’s GDP stood at 1.33 trillion USD, ranking the world’s 6th, while in 2014, it topped 10 trillion USD, increasing by nearly 8 times, and ranking the 2nd largest economy globally. Still in 2001, China’s  trade in goods was valued at 0.51  trillion USD, ranking the 6th in the world, while in 2014,  it reached 4.3 trillion USD, growing over 8 times, and ranked the world’s no.1 for the second consecutive year. China boasts of being the largest trading partner of over 120 WTO members today.[13]

5.1 – Currency Manipulation as a Subsidy

Presently, in controlling the cases of currency and exchange rate matters, IMF has a role to play in the cases of trade distortion arises out of sovereign interference in the exchange rates[14].  However, IMF lacks an adjudication system to resolve the disputes between the members hence a good number of legal experts and economists have adopted a viewpoint that the currency manipulations should be treated as a Subsidy. By declaring a currency manipulation as an export subsidy, the dispute (of currency manipulation) will fall under the auspices of WTO, which has a proper adjudication mechanism at place. After having a reach to the WTO, the aggrieved party could get the dispute resolved and will have the right to ban (or impose duty on) the goods being exported by the manipulating country.

5.2 – Subsidy Rules and GATT

Probably, the question of subsidy is the most complicated issue in the GATT/WTO regime. Subsidies are the transfers of wealth from the general treasury to a particular group of beneficiaries, who, it is believed, could not survive, or at least could not maintain their standing, on the basis of market forces alone[15]. These transfers always allowed by a State (government) in the forms of export credits, grants, tax exemptions, low interest financing, to a domestic producer for the purpose of attainment of certain trade goals. Such grants (i.e. financial contributions) by the government are seen as an excessive protection to their domestic industries. Such financial contributions by the governments may distort the fresh competitions and may cause an artificial advantage for beneficiary in the international market.

The question of subsidy is not merely legal but also economic and political. Indeed, the General Agreement on Tariffs and Trade, which forms much of the foundation for the subjects addressed (in this volume,) is clearly based on the perception that international trade is beneficial, that the gains to society from trade outweigh the losses to those who are hurt by competition from abroad, and that the value is created through specialization and exchange in open markets. It is this perception, which leads to the overriding principle of the GATT/WTO system that barriers to the trade imposed by government should be subjected to international discipline, and that regular procedures should be established looking to reduction or elimination of such barriers.[16]

Article XVI of the GATT dealt with the matter of subsidies under the GATT.  Part A of the Art. XVI was the part of original Article XVI. Part A of the Art. XVI provides –

If any contracting party grants or maintains any subsidy, including any form of income or price support, which operates directly or indirectly to increase exports of any product from, or to reduce imports of any product into, its territory, it shall notify the CONTRACTING PARTIES in writing of the extent and nature of the subsidization, of the estimated effect of the subsidization on the quantity of the affected product or products imported into or exported from its territory and of the circumstances making the subsidization necessary. In any case in which it is determined that serious prejudice to the interests of any other contracting party is caused or threatened by any such subsidization, the contracting party granting the subsidy shall, upon request, discuss with the other contracting party or parties concerned, or with the CONTRACTING PARTIES, the possibility of limiting the subsidization.

Part A of the Art. XVI was the part of the original GATT. One may easily conclude that this is a no prohibition provision as it uses the term like “notification” and “discussion” in place of the remedies, which are in fact no remedies. Hence, the original Article XVI of the GATT provided a weak law against the subsidies. The subject was once again discussed in the review session of the GATT in 1954-55. An addition of Section B in Article XVI was the outcome of such review session under which Para 2-5 were added. Paragraph 1 of Article XVI (i.e. Section A of Article XVI) was based upon the Article 25 of the draft Charter whereas the text of Section B of Article XVI was based on the Article 26 to 28 of the Havana Charter (it is notable here that the Section B was drafted by the review commission but Paragraph 1 remained same as it was originally drafted in the 1947 draft). The new addition, i.e. Section B was applicable only to export subsidies. However, due to its inherent inadequacies the amended Article XVI was also failed to provide any respite from subsidies. The amended Articles XVI was not acceptable to the developing nations. The amended Article had distinguished between the primary and other products. Under the GATT Article XVI (Section B), a “primary product” is understood to be any product of farm, forest or fishery, or any mineral, in its natural form or which has undergone such processing as is customarily required to prepare it for marketing in substantial volume in international trade.

5.3 – Question of Subsidy in WTO

Even though subsidies are provided by the government for achieving certain trade objectives, subsidizing a commodity has a bearing upon the growth of international trade because a subsidy may distort free competition and hurt the interest of the contracting parties. A valid international Law question may be, to which extent a subsidy may be allowed to be given by a particular State and after which the other State will have the right to counteract.[17]  The GATT was failed to give the answer of this question convincingly. Ultimately, the question of subsidy was addressed by the Agreement on Subsidies and Countervailing Measures (“SCM Agreement”) which was negotiated in the Uruguay round and adopted during the Tokyo round. The Agreement on Subsidies and Countervailing Measures (“SCM Agreement”) addresses two separate but closely related topics: multilateral disciplines regulating the provision of subsidies, and the use of countervailing measures to offset injury caused by subsidized imports.[18] Under the SCM Agreement, a government support to the exporter is treated as coutervailable if it satisfies the following three conditions –

1. There is a financial support by the government under Article 1.1(a) (1) of the SCM Agreement or an income support under Article XVI of GATT.

2. Exporters of the states have been benefitted by such government supports, i.e. the exporters have a competitive edge over others player of the market due to these price/income/ financial supports.

3. Such assistance provided by the government is specific in nature, i.e. specific to certain company or industry.[19]

A case of currency manipulation does not fulfill the above criteria of specificity. An effect of artificial devaluation of currency may not be limited to merely a company, an industry, or a sector of economy. The impact of currency manipulation is felt across all the sectors of the economy. Hence, a currency manipulation cannot be treated as an export subsidy.

6 – The Link between Currency and Trade – Relevant Provisions of GATT/WTO

The policy of liberalizing world trade cannot be carried out successfully in the absence of parallel efforts to set up a monetary system which shields the world economy from the shocks and imbalances which have previously occurred. The Ministers will not lose sight of the fact that the efforts which are to be made in the trade field imply continuing efforts to maintain orderly conditions and to establish a durable and equitable monetary system.[20] However, the intricacies in demarcating the jurisdiction between the IMF and GATT/WTO was recognized long back.[21]

Article XV (1) mandates a coordination between IMF and WTO, and allocates the jurisdiction between the IMF and WTO to the extent that – “the contracting parties and the Fund may pursue a coordinated policy with regard to exchange questions within the jurisdiction of the Fund and questions of quantitative restrictions and other trade measures within the jurisdiction of the contracting parties.”[22] The use of the word “shall” shows that the Article XV (1) mandates a positive obligation on the parties and hence it obligates the parties to cooperate with the other parties even if the party has taken a unilateral currency measure. Further, Article II: (6) of GATT obligates that the contracting parties would negotiate their specific bound tariffs after a 20% or more devaluation of its currency by a contracting party.[23]

However, the key provision relating to the link between the currency and trade is Article XV (4) of GATT. The GATT Article XV recognizes the importance of link between the exchange action and trade action. It provides –

“Contracting parties shall not (1) by exchange action, frustrate the intent of the provisions of this Agreement (i.e. GATT) & (2) by trade action, frustrate the intent of the provisions of the Articles of Agreement of the International monetary Fund.”[24] The word “frustrate” is intended to indicate, for example, that infringements of the letter of any Article of this Agreement by exchange action shall not be regarded as a violation of that Article if, in practice, there is no appreciable departure from the intent of the GATT. Thus, a contracting party which, as a part of its exchange control operated in accordance with the Articles of Agreement of the International Monetary Fund, requires payment to be received for its exports in its own currency or in the currency of one or more members of the International Monetary Fund will not thereby be deemed to contravene Article XI or Article XIII. [25]

Since the Article XV (4) of GATT provides the major guideline, it is to be decided first whether the action taken by China will constitute an exchange action or a trade action. An exchange action may be related to currency, capital or movement of capital whereas a trade action may be related to movement of goods & services. Historically, the Chinese action is the outcome of currency peg, a policy that China has been pursuing since early nineties. China pursued a tight monetary policy from 1994 to 2001 during which the inflation was all time high with the exemplary rate of 24%. The tight monetary policy helped in curbing the inflation without thinning the prospects of economic growth and employment in the Chinese economy. During the Asian financial crisis though many Asian currencies depreciated dramatically against the US dollars but RMB loosening its value only to the extent of continuing commitment to the fixed exchange rate with the US dollar.[26] During the period of 1997 – 2005 China had adopted the policy of a de facto peg of RMB against the US Dollars. It was a crawling peg with a narrow band within which the RMB was allowed to move. RMB showed a good appreciation in the period 1994 to 1996 from 8.7 RMB per US$ in 1994 to 8.3 RMB per US Dollar. This de facto peg was further narrowed down during the Asian financial crisis and it stood at 0.4 per cent around the RMB/US$ 8.28 peg.  This peg was further tightened in November 2000 as 0.04%, which was continued until 21 July 2005. During this period and afterwards the Chinese economy grew with a very fast pace. The foreign exchange reserve of People’s Republic of China stood at whopping US$3.44 trillion.[27] During 1994 to 2009, China retained a very high rate of GDP growth (e.g. in 1994 – 13%, 1998 – 7.8%, 2004 – 10.1%, 2007 -14%).[28] Since, Chinese action involves currency peg, movement of income and capital, the Chinese action constitutes an exchange action and not a trade action.

Now, the second question is whether China frustrates the intent of the GATT provisions. The GATT Article XV, interpretative note provides that a contracting party may not be in the breach of Article XV unless it does not frustrate the intent of GATT by its exchange action, i.e. makes an appreciable departure from the intent of GATT. However, this is a very vague obligation. What is the meaning of “appreciable departure”? Will an infringement of GATT provision constitute the “appreciable departure”? Until now, GATT/WTO has provided no guidance on this matter. According to Subramanian & Mattoo, there is no jurisprudence on this provision of the GATT, and it is highly unlikely that WTO dispute settlement panels would be willing to rule against undervalued exchange rates on this tenuous basis.[29]

7. Conclusion

The IMF and WTO both have been formed to prevent any protectionist measures taken by a country. Further, the WTO silence on the matter of currency manipulations is not a good sign for the international trade as the parties could be encouraged to resort to politics and diplomacy instead of invoking the jurisdiction of WTO.

Since, there is no dispute settlement mechanism under the IMF legal regime; the only remedy of currency manipulation under the IMF is the process of surveillance. It is already discussed that the process of surveillance alone have been proved insufficient to curb the cases of currency manipulations, as IMF has not declared any member as a currency manipulator until now. On the other hand, the GATT/WTO regime has a dispute settlement mechanism but IMF – WTO relationship is full of gaps. The GATT Article XV (4) recognizes the link between the IMF & WTO, but the Article XV (4) lacks enough guidance to bring a case of currency within the jurisdiction of WTO. Further, a case of currency manipulation does not also constitute an export subsidy because it does not fulfill the condition of specificity, i.e. it is not specific to any industry or sector of economy as required under Article 2 of Agreement on Subsidies and Countervailing Measures. Hence, bringing a case of currency manipulations under the ambit of the WTO dispute settlement system is not also possible in the present GATT/WTO regime and it will be important for the member nations to again sit together and deliberate the ways to save the international trade from currency manipulations. As long as there are the gaps in the IMF and WTO relationship, it will be difficult to hold China or any other country wrong for a case of currency manipulations. In spite of the fact that the currency manipulation is an important phenomenon in the international trade, it is not given its due weight by the parties to trade agreement. The impact of currency manipulation may be controlled if the governments give due regard to the currency matters (especially sovereign interference in the currency market) while entering into any trade agreement.  


[1]See, U.S. – China Economic and Security Review Commission, 2010 Report to Congress of the U.S. – China Economic and Security Review Commission, PETERSON INST. INT’L. ECON., available at http://origin.www.uscc.gov/sites/default/files/annual_reports/2010-Report-to-Congress.pdf  (accessed on 05.April.2018).

[2] See also, Haneul Jung, Tackling Currency Manipulation with International Law: Why and How Currency Manipulation should be adjudicated? 9 MANCHESTER J. OF Int’l Econ. L. 184–200 (2012).

[3] For example, the US strategy to pressurize China through its diplomatic channels to appreciate its currency is well known. US also brought Currency Exchange Rate Oversight Reform Act of 2011 to exert pressure on China. These efforts were successful in many ways as it resulted into appreciation of Chinese currency.

[4] Supra note 2, at 185.

[5] This is the key specific obligation that relates to exchange rates. The first two deals with macroeconomic policies to foster growth with low inflation and policies to promote economic and financial stability; and the fourth is a general injunction to “…follow exchange rate policies compatible with this section.” – Michael Mussa, IMF Surveillance over China’s Exchange Rate Policy, PETERSON INST. INT’L. ECON 11–12 (2007).

[6] Background Document of IMF, Cooperation between the IMF and the WTO 59, Available at http://www.ieo-imf.org/ieo/files/completedevaluations/Background%20Document%202.pdf    (accessed on 05.April.2016).

[7]Understanding the WTO: Basics: The GATT years: from Havana to Marrakesh, available at https://www.wto.org/english/thewto_e/whatis_e/tif_e/fact4_e.htm (accessed on 05.April.2016).

[8] See e.g. The WTO in Brief: Part 1, The multilateral trading system—past, present and future, available at https://www.wto.org/english/thewto_e/whatis_e/inbrief_e/inbr01_e.htm (accessed on 05.April.2016); Understanding the WTO: Basics, The GATT years: from Havana to Marrakesh, available at, https://www.wto.org/english/thewto_e/whatis_e/tif_e/fact4_e.htm (accessed on 05.April.2016).

[9] See e.g. Id.

[10]Id.

[11] Although the negotiation was interrupted many times due to various extra ordinary incidences like Tiananmen Square killings, China poor record in human rights etc. See also, Id.

[12]Id.

[13] Yuan Yuan, Transition from Accession to Membership—Maximizing the Benefits of WTO Membership and Global Economic Integration, Third China Round Table on WTO Accessions, 2.   https://www.wto.org/english/thewto_e/acc_e/Session2YuanYuanPostAccessionLookingback14yearafter.pdf  (accessed on 05.April.2016).

[14] The policymakers and economists against this prevailing situation have expressed serious reservations. Most notable in the Background Document of IMF, Id. at 78.

“The two institutions did not come to grips with the potential jurisdictional overlap between trade and exchange rate measures. As noted earlier, the IMF considers exchange rate measures to fall solely within its jurisdiction but there is a possibility that exchange rate measures with significant trade effects may fall within the WTO’s jurisdiction as well”.

It is further provided, whereby the Fund has no capacity to enforce its prohibition of exchange rate manipulation while the WTO has the capacity to adjudicate trade disputes but it is unclear whether currency disputes fall within its jurisdiction. Along the same lines but more concretely, Mattoo and Subramanian (2008) argued that the IMF has not been effective in addressing currency manipulation “[f]or reasons of inadequate leverage and eroding legitimacy” and that the two institutions should thus cooperate “with the IMF providing the essential technical expertise in the WTO enforcement process” under “new rules in the WTO to discipline cases of significant undervaluation that are clearly attributable to government action.”

[15] Andreas F. Lowenfeld, International Economic Law, OXFORD UNIVERSITY PRESS, 216 (2nd ed. 2008).

[16] Id at 5 (2nd ed. 2008).

[17] See Id.

[18] Subsidies and Countervailing Measures: Overview, available at https://www.wto.org/english/tratop_e/scm_e/subs_e.htm (accessed on 20 Aug.2018).

[19] Bryan Mercurio & Celine Sze Ning Leung, Is China a “Currency Manipulator”? The Legitimacy of China’s Exchange Regime Under the Current International Legal Framework, 43 THE INT’L LAWYER 1293, 1294(2009).

[20] The Tokyo Declaration of 1973 (Para 7).

[21] Ninth (review) Session of GATT, from 28 October 1954 to 18 March 1955.

[22] Article XV (1), GATT.

[23] It is notable that after the collapse of the par value system, Guidelines for Decisions under Article II: 6(a) of the General Agreement (L/4938, 27S/28-29), on January 29th 1980 was adopted by the  contracting parties for the purpose of renegotiating the policy of devaluation of currency by the contracting parties. The important part is the Guideline reaffirmed the Fund’s power to review the sovereign interference made by the contracting parties in the area of currency and exchange rate policies.

[24] Article XV (4) of the GATT.

[25]General Agreement on Tariffs and Trade, Interp. Note to XV(4), Oct. 30, 1947, 61 Stat. A-11, 55 U.N.T.S. 194, 429 [para.4 of Interpretative Note Ad Article XV from Annex I].

[26] Richard C. K. Burdekin and Pierre L. Siklos, What Has Driven Chinese Monetary Policy Since 1990? Investigating the People’s Bank’s Policy Rule, (abstract), available at https://www.eastwestcenter.org/system/tdf/private/ECONwp085.pdf?file=1&type=node&id=32100 (accessed on 23.08.2018).

[27] Financial Statistics, Q1, 2013, available at  http://www.pbc.gov.cn/publish/english/955/2013/20130417083528793671703/20130417083528793671703_.html

Analysts have generally seen this huge quantum of reserve as a potential threat to US economy. See, Christoph Herrmann, Don Yuan: China’s “Selfish” Exchange Rate Policy and International Economic Law, 31 – China could “pull the plug” on the American economy, write off its US dollar reserves and cause the dollar to crash by putting the dollar share of its foreign reserves of about 2 trillion US dollar, approximately 650billion US dollar in treasury bonds, on the market.

[28] Available athttps://data.worldbank.org/indicator/ny.gdp.mktp.kd.zg?locations=cn

[29] Arvind Subramanian & Aaditya Mattoo, Currency Undervaluation and Sovereign Wealth Funds: A New Role for the World Trade Organization, PETERSON INST. INT’L. ECON., Working Paper Series, WP 08-2, 4 (2008) available at https://piie.com/sites/default/files/publications/wp/wp08-2.pdf (Footnote Omitted) (accessed on 05.April.2016).

Note – Published in GJLDP, 2018 Vol No. 8.2.

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