The Impact of Exchange Rate Changes on U.S. Trade Laws and the GATT System

GAO discussed how exchange rates influence the effectiveness of U.S. trade laws and the international trading system, specifically the compatibility of U.S. antidumping duty and countervailing duty provisions and the international trading system's rules with the floating exchange rate. GAO noted that: (1) exchange rate changes do not reduce the effectiveness of duty provisions, but exchange rate appreciations restrict tariffs from protecting industries; (2) there are potential advantages to using auctioned quota rights to administer safeguards; (3) exchange rate movements determine whether the U.S. will impose a duty to offset unfair foreign practices; (4) domestic industries can obtain temporary relief from import competition under section 201 of the Trade Act of 1974 through quotas or voluntary restraint agreements; (5) auctioned quota rights would enable the U.S., rather than foreign producers, to capture the excess profits that the quotas create; (5) indexing of tariffs based on bilateral exchange rates might be a violation of the General Agreement on Tariffs and Trade (GATT); and (6) the GATT system serves U.S. interests as well under floating rates as under fixed rates. GAO proposed that the U.S. Trade Representative explore the auction of import rights to administer quantitative restrictions in the safeguard code negotiations.