United States: US Proposes New Rule To Address "Currency Undervaluation" As Potential Subsidy

On May 23, 2019, the US Department of Commerce ("Commerce") announced a proposal to investigate "currency undervaluation" as an actionable government subsidy. This represents a significant reversal of its prior position. In a Federal Register notice published on May 28, 2019, Commerce proposes to modify two of its countervailing duty ("CVD") (aka anti-subsidy) regulations to clarify:

  1. How Commerce would determine the existence of a benefit resulting from a subsidy in the form of currency undervaluation; and
  2. That companies engaging in international trade can constitute a group of enterprises for purposes of determining whether a subsidy is "specific."1

In the Notice, Commerce also seeks comments from the public on a variety of subjects, including (1) the proposed modifications, (2) whether there are other options under existing law to examine potential currency-related subsidies and (3) the expected economic impact of the proposed modifications if they were to become final. All written comments from the public must be received no later than June 27, 2019, to be considered by Commerce.2 If adopted, these modifications would likely lead to increased CVD tariffs (or "margins") imposed on goods imported from certain countries.


Under US law (and applicable rules of the World Trade Organization ("WTO")), in order for a subsidy to be "countervailable" (i.e., lead to the imposition of remedial tariffs), it must satisfy three legal requirements: (1) constitute a financial contribution by a public authority, (2) provide a benefit and (3) be specific within the meaning of the US CVD statute.,sup>3 Since 2006, Commerce has refused to initiate an investigation on "currency undervaluation" allegations in several CVD proceedings involving Chinese imports.4 In those cases, Commerce took the position that the petitioners failed to properly allege, and support with reasonably available evidence, that Chinese government practices with respect to currency valuation satisfy the "specificity" requirement. In those prior cases, Commerce found that China maintains a unified exchange rate regime that applies to all enterprises and individuals in the economy and that there was insufficient evidence that benefits from allegedly undervalued RMB are specific to either exporters or certain select industries or companies.5 Moreover, regarding the "benefit" requirement, Commerce's settled practice has been to compare the subsidy recipient's current situation with that which would have prevailed without the government assistance. Thus, in the case of "currency undervaluation," the benefit calculation would "require[] an identification of what the currency's value should be, absent the alleged undervaluation."6 To determine a foreign currency's normal, market-based value would no doubt be a highly complex and contentious process. As detailed below, the Notice sets forth Commerce's proposed solution to some of these salient issues that deterred investigations in the past.

Proposed Legal Framework to Analyze "Currency Undervaluation" Allegations

To address the key obstacles to investigating "currency undervaluation" allegations as actionable subsidies, Commerce now proposes to modify its CVD regulations in two respects:

  1. The first proposed amendment would clarify that enterprises that primarily buy or sell goods internationally can constitute a group of enterprises for purposes of determining specificity; and
  2. The second proposed amendment would explain how Commerce intends to determine the benefit issue when investigating or reviewing a potential subsidy in the form of currency undervaluation under a unified exchange rate system.7

With the proposed modifications, Commerce also lays out the following legal framework under which it may find that undervalued currency provides a countervailable subsidy even under a unified foreign exchange regime:

  1. Financial Contribution – Commerce proposes to take the position that the receipt of domestic currency from a governmental authority (or an entity entrusted or directed by an authority) in exchange for US dollars could constitute the financial contribution under section 771(5)(D) of the Tariff Act of 1930, as amended;
  2. Benefit – Commerce proposes an interagency process to address the "benefit" requirement of a countervailable subsidy as follows:
    1. Prima facie evidence for petition – Where possible, petitioners making "currency undervaluation" allegations are expected to submit objective, thirdparty, publicly available estimates of the nominal US dollar rate consistent with the "real effective exchange rate" ("REER") needed to achieve external balance (i.e., the equilibrium REER). To the extent that a country's equilibrium REER exceeds its REER in the relevant time period, a benefit may exist;
    2. Post-initiation
  1. The US Department of the Treasury ("Treasury") would timely provide Commerce with an evaluation and conclusion as to whether and to what extent the government action on the exchange rate has resulted in undervaluation of the currency and, if Treasury deems appropriate, an evaluation of the benefit arising from such undervaluation;
  2. Treasury would use a consistent framework to assess currency undervaluation resulting from government action on the exchange rate, recognizing country-specific factors; and
  3. Commerce would place Treasury's evaluation on the record of the particular CVD proceeding and defer to Treasury's evaluation as to undervaluation in making Commerce's determination as to countervailability, unless Commerce has good reason to disagree with that evaluation, based on the record as a whole, in which case Commerce will provide Treasury an opportunity to review and rebut the contrary reasoning; and
    1. Benefit calculation – The amount of benefit related to "currency undervaluation" may be calculated (a) as the difference between the amount of local currency that an enterprise actually received for converted US dollars and the amount that it would have received based on the nominal dollar exchange rate determined by Commerce through the abovementioned process (i.e., the amount of extra local currency received when converting US dollars due to the undervaluation) and (b) using any other ways considered appropriate in the particular CVD proceeding; and
  1. Specificity – Commerce proposes to employ a two-step process to decide whether benefits from the undervalued currency may be found specific to enterprises that primarily buy or sell goods internationally:
    1. Step 1Determine the total amount of US dollars converted into the subject country's local currency: The market supply of foreign currency (i.e., the amount of foreign currency supplied by broad categories of entities or activities in the subject country) could provide a reasonable proxy for the amount of US dollars converted into the undervalued domestic currency of the country under investigation; and
    2. Step 2Determine the portion of this total amount that is composed of foreign exchange supplied by enterprises that primarily buy or sell goods internationally: This step may start with gross foreign currency supplied by exporters and then deduct the foreign exchange needed by these exporters to purchase any imported inputs used in the production of exported goods, which would result in a figure for net foreign exchange supplied by the enterprises in the exporting and importing sector of that country. If enterprises in a country that primarily buy or sell goods internationally collectively constitute a predominant user or account for a disproportionate share of net foreign exchange supply, Commerce could find a currency undervaluation subsidy to be specific to that group of enterprises.8

Advice for Interested Parties

The new rule proposed by Commerce regarding "currency undervaluation," if adopted, would have wide-ranging effects on future CVD proceedings. As the Federal Register notice states, "[i]n FY 2018, countervailing duties were deposited on various products imported from 19 countries. For 12 of these 19 countries, at least one of the two sources (IMF or Peterson Institute for International Economics) deemed the domestic currency undervalued during 2017."9 In addition, Commerce has generally indicated a broad interest in considering public comments on any related issues, suggesting possible revisions before it finalizes the new approach. Commerce's broad interest is necessitated by the contentious nature of the "specificity" issue that derailed investigations in prior cases, other complex legal issues such as what type of government action may be properly considered a market-distorting subsidy practice (as opposed to a legitimate regulatory act), and the inherently difficult task of attempting to quantify the extent of undervaluation of a currency. Parties potentially affected by the proposed modifications should consider seeking timely advice from legal counsel and preparing comments for submission by the June 27 deadline.


1 Modification of Regulations Regarding Benefit and Specificity in Countervailing Duty Proceedings, 84 Fed. Reg. 24,406 (Mar. 28, 2019) (the "Notice"). 

2 Id. 

3 19 U.S. Code § 1677(5) & (5A). 

4 See, e.g., Coated Free Sheet Paper From China, Indonesia, and Korea, 71 Fed. Reg. 68,546 (Initiation Notice); Utility Scale Wind Towers From China (C-570-982), Initiation Checklist (Jan. 18, 2012).

5 Id. 

6 The Notice at 24,408. 

7 Id. at 24,407–24,408.  The proposed rule would provide that in cases involving a unified exchange rate system, Commerce normally will consider a benefit to be conferred when the domestic currency of the country is undervalued in relation to the United States dollar.  In making this determination, Commerce will request the US Department of the Treasury to provide its evaluation and conclusion as to (1) whether the currency of a country is undervalued as a result of government action on the exchange rate and (2) the extent of any such undervaluation. 

8 See, generally, the Notice.

9 The Notice at n. 13.

Visit us at mayerbrown.com

Mayer Brown is a global legal services provider comprising legal practices that are separate entities (the "Mayer Brown Practices"). The Mayer Brown Practices are: Mayer Brown LLP and Mayer Brown Europe – Brussels LLP, both limited liability partnerships established in Illinois USA; Mayer Brown International LLP, a limited liability partnership incorporated in England and Wales (authorized and regulated by the Solicitors Regulation Authority and registered in England and Wales number OC 303359); Mayer Brown, a SELAS established in France; Mayer Brown JSM, a Hong Kong partnership and its associated entities in Asia; and Tauil & Chequer Advogados, a Brazilian law partnership with which Mayer Brown is associated. "Mayer Brown" and the Mayer Brown logo are the trademarks of the Mayer Brown Practices in their respective jurisdictions.

© Copyright 2019. The Mayer Brown Practices. All rights reserved.

This Mayer Brown article provides information and comments on legal issues and developments of interest. The foregoing is not a comprehensive treatment of the subject matter covered and is not intended to provide legal advice. Readers should seek specific legal advice before taking any action with respect to the matters discussed herein.

To print this article, all you need is to be registered on Mondaq.com.

Click to Login as an existing user or Register so you can print this article.

In association with
Related Topics
Related Articles
Related Video
Up-coming Events Search
Font Size:
Mondaq on Twitter
Mondaq Free Registration
Gain access to Mondaq global archive of over 375,000 articles covering 200 countries with a personalised News Alert and automatic login on this device.
Mondaq News Alert (some suggested topics and region)
Select Topics
Registration (please scroll down to set your data preferences)

Mondaq Ltd requires you to register and provide information that personally identifies you, including your content preferences, for three primary purposes (full details of Mondaq’s use of your personal data can be found in our Privacy and Cookies Notice):

  • To allow you to personalize the Mondaq websites you are visiting to show content ("Content") relevant to your interests.
  • To enable features such as password reminder, news alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our content providers ("Contributors") who contribute Content for free for your use.

Mondaq hopes that our registered users will support us in maintaining our free to view business model by consenting to our use of your personal data as described below.

Mondaq has a "free to view" business model. Our services are paid for by Contributors in exchange for Mondaq providing them with access to information about who accesses their content. Once personal data is transferred to our Contributors they become a data controller of this personal data. They use it to measure the response that their articles are receiving, as a form of market research. They may also use it to provide Mondaq users with information about their products and services.

Details of each Contributor to which your personal data will be transferred is clearly stated within the Content that you access. For full details of how this Contributor will use your personal data, you should review the Contributor’s own Privacy Notice.

Please indicate your preference below:

Yes, I am happy to support Mondaq in maintaining its free to view business model by agreeing to allow Mondaq to share my personal data with Contributors whose Content I access
No, I do not want Mondaq to share my personal data with Contributors

Also please let us know whether you are happy to receive communications promoting products and services offered by Mondaq:

Yes, I am happy to received promotional communications from Mondaq
No, please do not send me promotional communications from Mondaq
Terms & Conditions

Mondaq.com (the Website) is owned and managed by Mondaq Ltd (Mondaq). Mondaq grants you a non-exclusive, revocable licence to access the Website and associated services, such as the Mondaq News Alerts (Services), subject to and in consideration of your compliance with the following terms and conditions of use (Terms). Your use of the Website and/or Services constitutes your agreement to the Terms. Mondaq may terminate your use of the Website and Services if you are in breach of these Terms or if Mondaq decides to terminate the licence granted hereunder for any reason whatsoever.

Use of www.mondaq.com

To Use Mondaq.com you must be: eighteen (18) years old or over; legally capable of entering into binding contracts; and not in any way prohibited by the applicable law to enter into these Terms in the jurisdiction which you are currently located.

You may use the Website as an unregistered user, however, you are required to register as a user if you wish to read the full text of the Content or to receive the Services.

You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these Terms or with the prior written consent of Mondaq. You may not use electronic or other means to extract details or information from the Content. Nor shall you extract information about users or Contributors in order to offer them any services or products.

In your use of the Website and/or Services you shall: comply with all applicable laws, regulations, directives and legislations which apply to your Use of the Website and/or Services in whatever country you are physically located including without limitation any and all consumer law, export control laws and regulations; provide to us true, correct and accurate information and promptly inform us in the event that any information that you have provided to us changes or becomes inaccurate; notify Mondaq immediately of any circumstances where you have reason to believe that any Intellectual Property Rights or any other rights of any third party may have been infringed; co-operate with reasonable security or other checks or requests for information made by Mondaq from time to time; and at all times be fully liable for the breach of any of these Terms by a third party using your login details to access the Website and/or Services

however, you shall not: do anything likely to impair, interfere with or damage or cause harm or distress to any persons, or the network; do anything that will infringe any Intellectual Property Rights or other rights of Mondaq or any third party; or use the Website, Services and/or Content otherwise than in accordance with these Terms; use any trade marks or service marks of Mondaq or the Contributors, or do anything which may be seen to take unfair advantage of the reputation and goodwill of Mondaq or the Contributors, or the Website, Services and/or Content.

Mondaq reserves the right, in its sole discretion, to take any action that it deems necessary and appropriate in the event it considers that there is a breach or threatened breach of the Terms.

Mondaq’s Rights and Obligations

Unless otherwise expressly set out to the contrary, nothing in these Terms shall serve to transfer from Mondaq to you, any Intellectual Property Rights owned by and/or licensed to Mondaq and all rights, title and interest in and to such Intellectual Property Rights will remain exclusively with Mondaq and/or its licensors.

Mondaq shall use its reasonable endeavours to make the Website and Services available to you at all times, but we cannot guarantee an uninterrupted and fault free service.

Mondaq reserves the right to make changes to the services and/or the Website or part thereof, from time to time, and we may add, remove, modify and/or vary any elements of features and functionalities of the Website or the services.

Mondaq also reserves the right from time to time to monitor your Use of the Website and/or services.


The Content is general information only. It is not intended to constitute legal advice or seek to be the complete and comprehensive statement of the law, nor is it intended to address your specific requirements or provide advice on which reliance should be placed. Mondaq and/or its Contributors and other suppliers make no representations about the suitability of the information contained in the Content for any purpose. All Content provided "as is" without warranty of any kind. Mondaq and/or its Contributors and other suppliers hereby exclude and disclaim all representations, warranties or guarantees with regard to the Content, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. To the maximum extent permitted by law, Mondaq expressly excludes all representations, warranties, obligations, and liabilities arising out of or in connection with all Content. In no event shall Mondaq and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use of the Content or performance of Mondaq’s Services.


Mondaq may alter or amend these Terms by amending them on the Website. By continuing to Use the Services and/or the Website after such amendment, you will be deemed to have accepted any amendment to these Terms.

These Terms shall be governed by and construed in accordance with the laws of England and Wales and you irrevocably submit to the exclusive jurisdiction of the courts of England and Wales to settle any dispute which may arise out of or in connection with these Terms. If you live outside the United Kingdom, English law shall apply only to the extent that English law shall not deprive you of any legal protection accorded in accordance with the law of the place where you are habitually resident ("Local Law"). In the event English law deprives you of any legal protection which is accorded to you under Local Law, then these terms shall be governed by Local Law and any dispute or claim arising out of or in connection with these Terms shall be subject to the non-exclusive jurisdiction of the courts where you are habitually resident.

You may print and keep a copy of these Terms, which form the entire agreement between you and Mondaq and supersede any other communications or advertising in respect of the Service and/or the Website.

No delay in exercising or non-exercise by you and/or Mondaq of any of its rights under or in connection with these Terms shall operate as a waiver or release of each of your or Mondaq’s right. Rather, any such waiver or release must be specifically granted in writing signed by the party granting it.

If any part of these Terms is held unenforceable, that part shall be enforced to the maximum extent permissible so as to give effect to the intent of the parties, and the Terms shall continue in full force and effect.

Mondaq shall not incur any liability to you on account of any loss or damage resulting from any delay or failure to perform all or any part of these Terms if such delay or failure is caused, in whole or in part, by events, occurrences, or causes beyond the control of Mondaq. Such events, occurrences or causes will include, without limitation, acts of God, strikes, lockouts, server and network failure, riots, acts of war, earthquakes, fire and explosions.

By clicking Register you state you have read and agree to our Terms and Conditions