Walter Mitty and the Dragon: An Analysis of the Possibility for WTO or IMF Action against Chinas Manipulation of the Yuan
Authors: Fudge Nathan 
Published: April 2022

Given the recurring debate over whether China's monetary policies constitute currency manipulation actionable under the World Trade Organization (WTO) or International Monetary Funds (IMF) Agreements, a legal analysis of these possibilities is prudent. As shown in this article, China's policies do not run afoul of the Agreement on Subsidies and Countervailing measures, as they do not constitute a financial contribution under Article 1.1(a)(1) nor are they 'specific' within the meaning of Article 5. These policies are also not prohibited by General Agreement on Tariffs and Trade (GATT) Article XV, primarily because they are not covered by a proper interpretation of the scope of this Article. Finally, Article IV of the IMF Agreement is not violated because the necessary wrongful intent is not present and/or cannot be demonstrated. There is therefore no legal basis for action against China under these Agreements.

Over the past year renewed calls for China to re-value its currency against the threat of legal action have been made in legal and economic periodicals, international conferences, and, perhaps most effectively, the US Congress. Considering the dismal state of the American and indeed the world economy, such a demand is not surprising. As one of the world's largest markets, China's economic and political policies have a major impact on the global economy. If in fact the yuan - the basic denomination of the Renminbi (RMB) - is undervalued, it is generally agreed that Chinese exports would be favoured while international imports would be penalized. Thus, a strong argument exists for China to remedy this imbalance by re-valuing their currency.

Despite this, commentators overshoot the mark when they demand legal action under the Agreement on Subsidies and Countervailing Measures, GATT Article XV, or the IMF Articles of Agreement. The fact of the matter is that while a case may be made for the finding of a violation of one or more of these regimes, it is ultimately unlikely to succeed. The main reasons for this are that the relevant articles are not intended to cover a situation where a country artificially keeps the value of its currency low, and that even if they can be read to, the facts do not support the finding of a violation in this case. Moreover, assuming that a violation could be found, serious difficulties arise with regard to implementing remedies.

While there is an abundance of commentary on this issue, most authors focus on economic or political discussions and they are not necessarily incorrect for doing so. This paper, however, intends to fill the gap through an in depth analysis of whether China's policy is actionable under the Agreement on Subsidies and Countervailing Measures, the GATT, and/or the IMF Articles of Agreement. It will further be considered whether and what kind of remedies would be available in the event that a violation of one or more of these agreements is found. In the end, though, it will be seen that in this case it is better to simply let the dragon lie.