TPP Currency Language Marks Shift in US Policy, Says Peterson Economists
A Trans-Pacific Partnership joint declaration on macroeconomic policies and exchange rates marks the first time the U.S. has included currency language in a free trade agreement, and that language will strengthen the Treasury Department’s hand in cracking down on manipulation, said Peterson Institute TPP experts Fred Bergsten and Jeff Schott in a Nov. 6 blog (here). The declaration (here), endorsed by all TPP parties, pledges a commitment to “refrain from competitive devaluation” and avoid targeting exchange rates for “competitive purposes” in line with an International Monetary Fund pact.
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TPP parties also approved a list to measures to boost currency policy transparency, through disclosures of a range of reports, and enhance consultation among members. Such consultations may lead to discussions on whether quantitative easing constitutes manipulation, but a set of differences between QE and manipulation make the prospect of confrontation against U.S. QE unlikely, said the blog. “The fear that the new declaration and its consultative group could disrupt the use of legitimate policy instruments by the United States or any other TPP member is groundless,” said the blog.
Bergsten and Schott cautioned, however, that the rules aren’t legally binding and won’t be subject to dispute settlement. The negotiators opted for an early warning system via enhanced reporting requirements, and frequent monitoring and consultations to deter future episodes of currency manipulation, instead of the ‘hard deterrence’ approach preferred by some members of Congress that would have involved binding dispute settlement with the possible imposition of trade sanctions against the offending country,” said the blog. “The administration argued that the latter approach was not negotiable and would have torpedoed the entire TPP negotiation.”
Unions and trade critics on Capitol Hill have aggressively pushed enforceable currency measures in TPP, despite repeated rejections of that from the administration (see 1509280020). Approval of currency language in Customs Reauthorization will also boost the administration’s ability to fight manipulation, said the blog. Controversial language to allow the Commerce Department to impose countervailing duties on imports from manipulators is unlikely to make it into a final package, but language to require Commerce reports on manipulation will likely survive, said the blog. The Senate approved both bills in its version of customs (see 1507070066). Customs Reauthorization conference hasn’t yet formally launched despite suggestions of increased negotiations (see 1510260021).