Brazil has put forward a conceptual note (Word doc) on the issue of exchange-rate misalignment. Its focus is on developing trade remedy procedures to deal with the perceived problem:
IV. IS THERE A NEED TO CRAFT TRADE REMEDIES THAT SPECIFICALLY ADDRESS CURRENCY MISALIGNMENTS?
Existing provisions related to exchange-rate movements in the WTO agreements as well as the three Agreements providing for trade remedies at the WTO were created to deal with situations unrelated to the dynamics of exchange-rate movements in today's volatile international monetary system. The WTO seems to be systemically ill-equipped to cope with the challenges posed by the macro and microeconomic effects of exchange rates on trade.
Members may wish, against this background, to consider the need for exchange-rate trade remedies and to start some analytical work to that effect. A non-exhaustive list of key elements that will necessarily have to be considered in this analytical work is provided below:
(a) Measuring currency misalignment
It will be necessary to define methodologies to assess currency misalignments and to establish triggers/benchmarks for specific action. Cooperation with the IMF could be explored. The purpose would not be to establish optimal or equilibrium exchange rates for particular currencies, but rather to detect significant departures from historical or reasonable levels. Issues such as the basis for comparison - against other individual currencies; basket of currencies; both - and time-frames would be part of this evaluation.
(b) Product-specific/sector-specific or economy-wide scope
Should corrective measures be applicable only to a specific product or sector in the country affected or to its entire economy? What are the implications of either choice? The three agreements on trade remedies do not contain any provision on sector specific or economy wide corrective measures. A sector-specific approach would need a definition of and/or a classification of sectors.
An appropriate time-frame for the application of corrective measures. The argument could be made that sustained long-term misalignments would no longer be a misalignment; rather, they would become a new structural point of equilibrium. The discussion on time-frames would equally touch on review and extension/termination of corrective measures.
(d) Origin of covered products
Should corrective measures be applied on an MFN basis or specifically for currencies against which the misalignment is found? As exchange rate misalignments may not necessarily occur against a large number of key trading partners and may have a focus on bilateral trade (or on a wider volume of world trade representing in any case the sum of a certain number of bilateral trade flows), it may be the case to consider a non-MFN approach.
(e) Injurious effects
Corrective measures could be crafted to be triggered automatically or, alternatively, following the finding of injury or threat of injury to the domestic industry. The automatic format would probably demand more stringent requirements.
(f) Investigation procedures
The need for investigation procedures would depend largely on the automaticity of the mechanism adopted. The more automatic, the less need for such procedures. In case these procedures are necessary, work could be inspired by the parameters found in the ADA, ASCM and AS.
With trade remedies, a government acts on its own, but subject to WTO rules. In a sense, the government action is unilateral in nature, but still subject to multilateral oversight. Is this the best model for actions against currency measures? Or would a pure multilateral model work better, with explicit WTO rules developed (e.g., on "measuring currency misalignment"), and any concerns brought directly to the DSU?