Legal Issues Of Currency Subsidies Disputes Between China And US

April 6,2020,Modification of Regulations Regarding Benefit and Specificity in Countervailing Duty Proceedings was effective,which will apply to all segments of proceedings initiated on or after April 6,2020.These modifications clarify how the Department of Commerce will determine the existence of a benefit when examining a subsidy resulting from currency undervaluation and clarify that companies in the traded goods sector of the economy can constitute a group of enterprises for purposes of determining whether a subsidy is specific,allowing Commerce to initiate a countervailing duty investigation of potential CNY undervaluation.On July 16,2020,Commerce initiated a countervailing duty investigation on twist ties from China,such as currency undervaluation,tax benefits and export credit guarantees.On November24,2020,Commerce preliminarily determined that countervailable subsidies of CNY undervaluation are being provided to producers and exporters of twist ties from China and estimated countervailable subsidy rate 10.54%.Countervailing duty investigation of twist ties from China is the first U.S.case of Countervailing duty investigation of CNY undervaluation,implying that America’s verbal threat of countervailing duty of CNY undervaluation turns into actions.Through the analysis of the countervailing duty investigation of twist ties,this article analyzes legal issues of the countervailing CNY undervaluation dispute between China and U.S.from the perspective of substantive law and procedural law.The first chapter is “Basic Legal Issues of the Countervailing Currency Undervaluation Subsidy”.At first,this chapter defines concepts relating to countervailing currency undervaluation subsidy.Countervailing currency undervaluation subsidy is based on the premise that currency is undervalued,meaning that compared with equilibrium real exchange rate,real effective exchange rate is undervalued.Countervailing currency undervaluation subsidy is one kind of subsidies,which shall be a financial contribution,a conferred benefit and specific.Then this chapter clarifies the legal relation among currency subsidy,currency manipulation and currency undervaluation.A benefit exists if currency is undervalued.Currency undervaluation is one of results of currency manipulation.Countervailing currency undervaluation subsidy and currency manipulation exist if there is government action on the exchange rate.Second,the chapter discusses the jurisdiction conflict and coordination of countervailing currency undervaluation subsidy issues between WTO and IMF.According to Agreement on Subsidies and Countervailing Measures,WTO has jurisdiction over currency undervaluation subsidy of members,and according to article 15 of GATT1994 and Understanding on Rules and Procedures Governing the Settlement of Disputes,WTO accepts determination of IMF relating to exchange rate issues,but still owns jurisdiction over exchange rate issues of members.IMF has jurisdiction over exchange rate issues on the basis of International Monetary Fund Agreement and Decision Bilateral and Multilateral Surveillance.Though IMF shall oversee the compliance of each member with its obligations of exchange arrangements,members still have the pricing power of exchange rate.The second chapter is “Legal Judgment of Currency Undervaluation”.Currency subsidy is based on the premise that the currency is undervalued.Only after currency undervaluation did currency subsidy confer a benefit to recipients.In the countervailing duty investigation of twist ties from China,according to the Modification of Regulations Regarding Benefit and Specificity in Countervailing Duty Proceedings and Report of CNY undervaluation,Commerce preliminary found that CNY was undervalued.But this preliminary determination is not supported by the principles and rules of IMF.At first,China has the right to select an exchange rate formation mechanism.Second IMF is the authority about currency undervaluation judgment.Third there are significant differences of legal judgment of CNY undervaluation between U.S.and IMF.The third chapter is “the Legal Judgment of Financial Contribution of Countervailing CNY Undervaluation”.A subsidy exists when there is a financial contribution.There is a financial contribution by a government or any public body within the territory of a country where a government practice involves a direct transfer of funds or other required types of financial contribution.In the countervailing duty investigation of twist ties from China,Commerce preliminary found that all foreign currency exchange transactions in China constitute financial contributions by“authorities” in the form of direct transfers of funds.Governmental Control Approach,Governmental Function Approach and “Governmental Authority to Perform Governmental Functions” Approach are used by the panel and the Appellate Body to interpret the expression “public entity”.Because Chinese Commercial State banks performs a governmental function and Chinese government has the ownership of banks,Chinese Commercial State banks may be considered as “public entity” under all three Approaches.Other banks in China will not be considered as “public entity”.In addition,foreign currency exchange transactions by Chinese Commercial State banks may be considered as a form of direct transfers of funds and of providing services other than general infrastructure.The fourth chapter is “Legal Judgment of Benefit of Countervailing CNY Undervaluation”.A subsidy shall be deemed to exist if a benefit is thereby conferred.In the countervailing duty investigation of twist ties from China,Commerce preliminary found that Chinese government actions on exchange rate led to CNY undervaluation,therefore a benefit is conferred from the exchange of CNY.The accusation that China was currency manipulator is one of reasons for benefit determination.But there are significant differences of regulations and practices about currency manipulation between U.S.and IMF.Therefore,the accusation is not supported by the principles and rules of IMF.And through the benefit criterion of WTO,a benefit is not conferred from the exchange of CNY.The fifth chapter is “Legal Judgment of Specificity of Countervailing CNY Undervaluation”.A subsidy shall be specific,meaning a subsidy is specific to an enterprise or industry or group of enterprises or industries within the jurisdiction of the granting authority.In the countervailing duty investigation of twist ties from China,Commerce preliminary determined that enterprises that buy or sell goods internationally are the predominant users of the China’s currency undervaluation subsidy,CNY undervaluation subsidy is de facto specific.Enterprises that buy or sell goods internationally can be considered as a “group of enterprises or industries”within the meaning of section 751(5A)(D)of Tariff Act of 1930.However exchange of CNY are not specific for enterprises that buy or sell goods internationally but all enterprises in China.The sixth chapter is “Investigation Procedures Problems of Countervailing Duty Investigation of Twist Ties from China”.In contrast to another similar case,the countervailing duty investigation of passenger vehicle and light truck tires from the socialist republic of Vietnam,there are two obvious investigation procedures problems in the countervailing duty investigation of twist ties from China,which are“adverse facts available” rule abuse and the lack of accuracy of the evident.Abusing“adverse facts available” rule in the countervailing duty investigation of twist ties from China violates America laws and WTO rules.And the accuracy of the evident of the investigation also violates to the America laws and WTO rules.