Writing in The American, Marc Busch and Phil Levy are are skeptical of a WTO complaint against China's currency policies:
... the legal merits of the case are dubious. China’s exchange rate regime could be attacked as a subsidy scheme or as a way of frustrating market opening under the WTO’s trade agreements. Subsidies are only prohibited if they meet certain criteria. Along these lines, China’s exchange rate regime does not benefit a specific firm or industry, nor is it contingent on export promotion or import substitution.
Alternatively, the case could rest upon Article XV:4 of the General Agreement on Tariffs and Trade (GATT), which says that WTO members “shall not by exchange action frustrate the intent of the provisions of the GATT.” There is no case law on the article and no consensus on how it might work. The language of the article is brief and sketchy, prominently pointing away from the WTO and toward the International Monetary Fund as a source of exchange rate expertise.
Given the lack of established case law, arguments for Chinese violation tend to the creative. One line of argument is that China’s exchange rate action is not an illegal violation under WTO law per se, but is prohibited because it undermines the intent of the trade pact. The challenge here is that China’s exchange rate regime is the same one it had when it joined the WTO, so the United States (and others) would be hard-pressed to argue that there has been a new policy action that casts doubt on China’s obligations. While there is a pro-plaintiff bias at the WTO, the dispute system has treated this sort of “non-violation” complaint with skepticism.
Even if all went according to plan, what might U.S. litigators hope for? There would be years of appeals and uncertainty about what Chinese compliance should look like. A bigger concern is how this could recast the role of the WTO dispute settlement system. That system has been very successful when there is agreement among trading powers on principles and argument over facts. Using a dispute to try to compel action where no such principled agreement exists, however, poses serious risks. It could strain the system’s ability to compel compliance, it could set a precedent for expansive interpretation of agreements and broadened WTO authority, and it could cause countries to rethink their commitment to the WTO. All of this happens should the United States win. Should the case fail, China would claim its policies have been vindicated.
It seems to me their last point ties in nicely with the prior post on the limits of WTO dispute settlement.