Bryan Mercurio and Celine Sze Ning Leung have posted "Is China a 'Currency Manipulator'?: The Legitimacy of China’s Exchange Regime Under the Current International Legal Framework" on SSRN. Here's the abstract:
While most economists are in agreement that China’s currency is undervalued, economists are less certain as to the effect of the undervaluation. Despite the equivocal data, critics of China’s regime claim that the undervaluation leads to cheaper, and therefore increased exported goods, while at the same time raising the price of imported goods. For this reason, U.S. lawmakers perpetually raise the issue and periodically initiate legislation, which would deem China a “currency manipulator” and thus trigger retaliatory measures. Lawyers are less certain whether there can be a multilateral solution to the perceived problem.
With the existing legal literature consisting mostly of industry-funded research, the time is ripe to undertake a large-scale legal analysis of China’s exchange regime under the existing international legal framework. This article undertakes such an analysis and in particular, evaluates the legitimacy of China’s exchange regime under applicable international law, that being the Articles of Agreement of the International Monetary Fund (IMF) and both the General Agreement on Tariffs and Trade and the Agreement on Subsidies and Countervailing Measures of the World Trade Organization (WTO). We conclude that while China clearly manipulates its currency, its measures are not inconsistent with the IMF Articles or the applicable WTO agreements. The article concludes by noting that modification of either the IMF Articles or applicable WTO agreements is the only multilateral option available to those determined to more strongly sanction “currency manipulation”.
From the conclusion:
With China’s exchange regime compliant with the IMF Articles and the relevant provisions of the WTO, the only other option available to the international community (barring amendment of the IMF Articles or relevant WTO agreement) is to negotiate a new agreement or treaty to prohibit, manage, or counter the effects of controlled exchange rate regimes. Until that time, however, China’s exchange regime remains in compliance with the international legal regime.
I have said before on this blog that I think new rules on exchange rates would be good, so I'm on board with the idea of negotiating "a new agreement or treaty to prohibit, manage, or counter the effects of controlled exchange rate regimes." But before giving up on the current rules, I'm going to throw out one other legal option: the non-violation nullification or impairment remedy. Its scope is uncertain, its remedy is unclear, and as panels and the Appellate Body have said it "should be approached with caution." But as its name suggests, it can be invoked even if there is no violation, so it could, in theory, play some role here.