WTO Will Discuss RMB Exchange Rate Disputes

The assessment of WTO has opened up a new front for the debate on China's policy of PEG to the US dollar. This Geneva based trade dispute arbitration body has become the latest international agency to deal with the global anxiety caused by this problem.

At this time, western enterprises have begun to throw their views that the renminbi is linked to the US dollar as an unfair export subsidy and should be retaliate against tariffs imposed on Chinese made products.

The government of Brazil said Monday that WTO has agreed to discuss the matter.

WTO spokesman Rockwell (Keith Rockwell) confirmed on Tuesday that the 153 member states have reached an agreement to decide on a meeting to discuss the topic, possibly in the first half of next year.

Rockwell said the trade ministers' meeting in Geneva next month may also discuss this.

Brazil first raised this question to WTO in September this year, claiming that the undervaluation of the RMB exchange rate has seriously damaged Brazil's industrial base.

Although Brazil's economic growth is relatively fast in general, its industrial output is declining, partly due to cheaper Chinese products.

Pimentel, Minister of trade and industry of Brazil (Fernando Pimentel) told reporters this week that exchange rate factors are destroying the production structure of Latin American countries.

Many countries, including the United States, have long complained that China's currency undervaluation has given it an unfair export advantage.

Many economists believe that China's exchange rate policy has kept the renminbi undervalued, to some extent, causing its huge amount.

But experts say whether such a policy violates the WTO rules will be decided by the details of international trade law.

Rockwell said that the WTO agreement prohibits member states from using exchange rate policy to set obstacles to those countries that will be able to gain market access during the period of signing agreements.

Rockwell said that this clause has never been examined by dispute settlement cases, so it is hard to say how it can be interpreted.

Pedersen, Peterson Institute for International Economics, a trade expert in Washington, D.C., says Bauer may not be able to limit exchange rate manipulation.

But he said that starting the debate on this issue alone is a way to exert greater pressure on China.

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Rockwell said that next year's meeting will also study whether the WTO regulations should be adjusted so as to give WTO the power to adjudicate the exchange rate policy.

Pimentel said this week that although China may resist the WTO's adverse ruling on the pegged exchange rate regime, WTO's decision may encourage Brazil and other countries to impose retaliatory tariffs on Chinese goods.

The United States, which has a huge trade deficit with China, has been complaining that Beijing's exchange rate policy has damaged American economic growth and employment.

American paper makers are among the first to raise the issue. They urge the Obama administration to impose tariffs on Chinese made paper, but their discontent has not attracted much attention.

The US Department of Commerce rejected the idea of paper makers, but the Ministry of commerce is ready to issue a ruling on this issue again as part of a major investigation into China's imports of solar cells.

According to the latest estimates released by Pedersen International Economic Research Institute on Monday, the degree of undervaluation of the RMB exchange rate has decreased in recent months.

According to Klein Cline (William R. Cline) and Williamson (John Williamson) of the Institute, the appreciation of RMB against the US dollar and China's domestic inflation were higher than those of the United States, which reduced the underestimation of RMB to 11% in late October, which was lower than that in April.

While the RMB exchange rate is undervalued, Brazil's currency is among the most expensive in the world.

Despite its weakness in recent months, Brazil's revaluation has prompted a significant increase in recent years, forcing Brazil to consider other measures to protect local industries.

Pimentel said that Brazil is still studying and formulating plans to impose higher taxes on imported cars from the Southern Common Market (Mercosur) trading area and outside Mexico.

The proposed increase in taxes will actually target mainly Asian cars.

He said the tax was questioned by WTO and WTO asked Brazil to explain it.