Legal Knowledge: Exchange Rate Adjustment

　　 Exchange rate adjustment It belongs to the sovereign category of a country, but the manipulation of exchange rate is explicitly prohibited by IMF and WTO. Some western countries, led by the United States, have repeatedly accused China of "manipulating the exchange rate" and believe that countervailing measures should be taken against China. Among them, a number of members of the United States Congress have introduced a series of bills against China, such as the exchange rate retaliation bill, the China currency act and the US trade rights exercise bill. Here we analyze whether China's manipulation of the exchange rate constitutes a countervailing element between China and the United States.

Therefore, the definition of manipulating exchange rate, on the one hand, is related to the sovereignty of a country because of the exchange rate system. On the other hand, because the exchange rate issue is also a financial issue, not a trade issue, it should be governed by the International Monetary Fund. If the United States appeals to the WTO on the grounds of China's manipulation of exchange rate as a financial subsidy, it will be rejected by the dispute settlement body (hereinafter referred to as DSB) for the precondition is not available or procedural conflicts.

Moreover, in accordance with the principles laid down by IMF, we should respect the domestic social and political policies of Member States and give due attention to the situation of Member States. Obviously, China's exchange rate system is in line with the provisions of the fund agreement; on the other hand, it aims at creating an orderly economic and financial condition, keeping the exchange rate unchanged and making efforts to promote the stability of the foreign exchange system.

If the United States regards China as a currency manipulator, it must do so. China The implementation of severe trade sanctions is likely to trigger a large-scale trade war between the two sides and beyond the two countries and spread all over the world.

According to international currency Fund Agreement

(hereinafter referred to as the agreement) stipulates that the IMF executive board adopted a resolution in April 29, 1977 to avoid manipulation of the exchange rate or the international monetary system. The resolution stipulates three principles: first, the member states of the fund are obliged to avoid manipulation of the exchange rate, to manipulate the international monetary system, to impede the effective adjustment of other member countries to the balance of payments, or to gain unfair competitive advantage over other member states. Second, if the disorder of the foreign exchange market constitutes short-term interference with the exchange rate of member countries, the relevant member countries should intervene in the foreign exchange market if necessary to eliminate the situation of the disorder. Third, this intervention should take full account of the interests of other member countries, including the foreign countries concerned.

According to the analysis, whether a country should be included in the currency manipulation countries is mainly due to political factors, and economic and financial factors may be relegated to the second place. Recently, the US anti-dumping action against China has been frequent, not only impose 31% tariffs on China's steel pipes for oil wells and natural gas wells, but also impose a 35% tariff on imported Chinese tyres. If the United States once again listed China as a manipulator of currency manipulation, it will probably make Sino US relations extremely tense, which is not conducive to the Obama administration's quest for China's cooperation in dealing with the Korean nuclear issue and global climate change. {page_break}

To determine whether or not to manipulate the exchange rate should be analyzed from two aspects: subjective and objective.

subjective element

It means that the purpose of influencing exchange rate is to produce the result of impeding the effective adjustment of other member countries to the balance of payments, or unfair competition advantage over other member states.

There are two levels of objective elements.

One is the conditions for regulation and influence, including three situations: a member state's adjustment to its exchange rate and the change of its policy and the leading economic and financial situation are irrelevant, and will affect its competitiveness and long-term capital flow. A member state has no sufficient economic and financial situation for the increase or restriction of capital exchange or capital transfer under the balance of payments or regular transactions, and the financial policies of a member state which impose unusual incentives or restrictions on capital international flows surpass the scope and extent needed to achieve their balance of payments. The two is the result of behavior, which means whether these policies will have a negative impact on the legitimate interests of other countries.

According to the provisions of GATT fifteenth, WTO and IMF are cooperative relations. Any measures that comply with the agreement can be exempted from GATT/WTO. Even if WTO considers that it constitutes a trade barrier, it can not take action, and it should report to IMF, which is under the jurisdiction of IMF. Obviously, IMF is in the leading position, and WTO must follow the advice of IMF. On the other hand, if the purpose of some measures is to achieve import restriction, rather than to protect its balance of payments and maintain its financial stability, this measure is not only contrary to WTO's purpose, but also IMF's disapproval.

US Treasury's semi annual assessment report on major trading partners exchange rate will be submitted to Congress in October 15th.

In October 16, 2009, the US Treasury Department said in its foreign exchange report on Thursday that the major US trading partners, including China, had not manipulated the currency exchange rate. In its semi annual report released on Thursday, the US Treasury said that between January 2009 and June, the major US trading partners did not violate international foreign exchange regulations and did not list China as a currency manipulator.

According to the US Treasury report, the renminbi has appreciated by 21.2% against the US dollar in the past 4 years, so "China has not manipulated the exchange rate policy in order to gain unfair trade advantages". The US Treasury's report acknowledges that China's policies have played an important role in stabilizing the world economy and reducing its own trade surplus.