Members of Congress are currently threatening to enact legislation authorizing the US Department of Commerce to investigate China’s allegedly undervalued currency as a countervailable subsidy. If this happens, then China will very likely challenge the United States at the World Trade Organization’s (WTO’s) dispute settlement mechanism. This paper analyses whether a countervailing duty (CVD) applied to China’s currency regime would be consistent with the WTO’s Subsidies and Countervailing Measures (SCM) Agreement. Contrary to many commentaries, this paper concludes that, while there are several significant potential obstacles, there are in fact legitimate arguments that a WTO panel could use to uphold a US-imposed CVD on China’s undervalued currency.
Journal of World Trade