FP Explainer

What Happens After You Label a Country a Currency Manipulator?

You ask them to stop it.

In Tuesday night's presidential debate, Republican nominee Mitt Romney repeated his pledge to get tough on China's currency policies. "[T]he president has a regular opportunity to label them as a currency manipulator but refuses to do so," he said. "On day one, I will label China a currency manipulator, which will allow me as president to be able to put in place, if necessary, tariffs where I believe that they are taking unfair advantage of our manufacturers." There is widespread agreement in Washington that Chinese currency policies are harmful to the U.S. economy. Some economists have estimated that they could be costing the United States as many as one million jobs. But what would actually happen if Romney made such a declaration?

Technically, not a whole lot. Under legislation passed in 1988, the secretary of the Treasury is required to "analyze on an annual basis the exchange rate policies of foreign countries ... and consider whether countries manipulate the rate of exchange between their currency and the United States dollar for purposes of preventing effective balance of payments adjustments or gaining unfair competitive advantage in international trade."

If the Treasury finds that manipulation is taken place, the law requires them to "take action to initiate negotiations ... for the purpose of ensuring that such countries regularly and promptly adjust the rate of exchange." As a number of experts have pointed out, the United States and China already are in negotiations over China's exchange rate, so it's not clear what the label would actually change.

Treasury has labeled three countries as currency manipulators in the past: Japan in 1988, Taiwan in 1988 and again in 1992, and China from 1992 until 1994. According to a report by the Government Accountability Office, all three countries made "substantial reforms to their foreign exchange regimes" after the negotiations, and were removed from the list after their "currencies appreciated and external trade balances declined significantly." However, the U.S. trade deficit with China -- a much larger trading partner than the other countries -- has increased every year since 1988. Evidently, the labeling in the early 1990s didn't do the trick.

Treasury's 2012 report noted that "underlying factors that distort China's economy and constrain global demand growth remain" but gave China some credit for "gradually allowing necessary external adjustments to take place" in its exchange rate. According to the report, the RMB has appreciated by 8 percent since 2010, when Beijing moved it off its peg to the dollar. Treasury would like to see it increase more, but for the time being, doesn't feel the manipulator label is appropriate.

Contrary to Romney's suggestion, the law doesn't actually give the president authority to immediately impose punitive tariffs on manipulators, and the Economic Policy Institute has suggested that such a move would violate U.S. commitments under the World Trade Organization, which require that trade spates be worked out through the organization's the dispute settlement mechanism -- potentially a years-long process.

Romney's move might carry more firepower if Congress were to pass the Currency Exchange Rate Oversight Reform Act of 2011, a bill that would deem currency manipulation a form of subsidy and require the Commerce Department to consider what tariffs could be issued in the response. Perhaps ironically for Romney, the bill, which has already passed overwhelmingly in the Senate, was sponsored by Ohio Democrat Sherrod Brown -- one of the Senate's most liberal members -- but faces opposition in the House from Republican leaders John Boehner and Eric Cantor.

Of course, just because the legal ramifications of the manipulator label are unclear doesn't mean the political consequences wouldn't be major. Romney's comments last night were enough to prompt threats of a currency war in China's state media. Such a move on "day one" of the Romney administration would certainly send a message -- but more of a symbolic than a legal one.

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FP Explainer

What Exactly Is 'Non-Lethal' Aid?

Anything not designed to kill. But that doesn't mean it can't be used for bloody ends.

Barack Obama's administration announced on Aug. 1 that it is setting aside an additional $10 million in "non-lethal" military aid to the anti-Assad rebels in Syria on top of $15 million already committed. U.S. officials suggest that most of the aid will take the form of communications equipment such as encrypted radios. But just what exactly counts as "non-lethal" aid?

Anything that's not specifically designed to kill someone. Title 10 of the U.S. Code, which defines the role of the armed forces, describes "nonlethal supplies" as anything that "is not a weapon, ammunition, or other equipment or material that is designed to inflict serious bodily injury or death." In other words, communications equipment, medical supplies, intelligence assistance, body armor, and infrastructure are fine. Guns, ammunition, mines, and missiles are not. It's a vague definition but a legally significant one. With some restrictions -- such as on countries that use child soldiers, though that's not always a hard-and-fast rule -- non-lethal aid can be given to foreign military or law enforcement and drug interdiction agencies under Title 10 or Title 22, which pertains to State Department programs. Lethal aid falls under Title 50, which pertains to war and national defense and requires a full presidential finding and a briefing to congressional leaders.

But just because body armor doesn't actually kill people doesn't mean that it can't be an accessory to the act. Obviously, waging war entails a lot more than just shooting a gun, and the non-lethal aid can have results that are decidedly lethal. A radio transmitter can kill a lot more people than a rifle if, say, it's used to call in an airstrike or trigger an improvised explosive device. And a non-lethal truck quickly becomes a weapon when it's packed with explosives obtained elsewhere. Likewise, a surveillance drone may be designated a non-lethal object, but it can be easily weaponized. There are a lot of gray areas.

In addition to the legal distinction and lower bar for provision of non-lethal aid, there's also PR value. Given the uncertainty about the makeup of the rebel forces, the administration might want to emphasize the non-lethal nature of the aid in order to underline the fact that U.S. weapons won't be falling into the hands of terrorists. (It's a lot easier to tell a congressional panel down the line that you can't account for a few hundred radios rather than rocket-propelled grenades.) The administration also provided a similar level of "non-lethal" aid to the anti-Qaddafi rebels in Libya last year. When the United States resumed military aid to Uzbekistan this year, despite its abysmal human rights record, the administration was quick to point out that it was "non-lethal."

Controversies over non-lethal aid are nothing new. The United States provided more than $1 billion of it to El Salvador's military during the country's brutal civil war in the 1980s, despite criticism from human rights groups. Ronald Reagan's administration controversially gave hundreds of millions of dollars in non-lethal aid to Nicaragua's Contra rebels. In 1977, the United States halted weapons shipments to dictator Mobutu Sese Seko's government in Zaire (now the Democratic Republic of the Congo), but continued providing non-lethal aid including a C-130 transport aircraft, a plane that has been frequently modified to carry bombs and artillery.

Even with the wide variety of equipment that can fall under the non-lethal category, the restriction can sometimes be frustrating for groups Washington is supporting. In 1989, Cambodian resistance leader Prince Norodom Sihanouk told the Los Angeles Times in broken English, "Up to now we got from the United States of America non-lethal aid, but we want a few lethal aids." (He didn't get them.) Likewise, Syrian rebels are desperately calling for ammunition and heavier weapons to use against Bashar al-Assad's forces. But for the time being, they won't be coming from Washington.

The United States isn't the only country that makes the distinction between lethal and non-lethal aid. China has donated non-lethal aid to countries ranging from Nepal to Mozambique.

Meanwhile, the Syrian rebels do appear to be getting weapons from somewhere. A recent U.N. report suggests they're now using tanks and heavy artillery, though these assets were likely captured from government forces. Media reports, however, suggest that other weapons are being funneled across the border and paid for by Turkey, Saudi Arabia, and Qatar, though Ankara denies that it is supplying weapons to the rebels. CIA agents are reportedly also playing a role in vetting exactly which rebels receive the weapons (read: hopefully not al Qaeda).

All this is to say that though Washington may not be actually placing deadly weapons in the hands of Syrian rebels, it's definitely contributing to their ability to fight. Right or wrong, the consequences will be anything but "non-lethal."

Thanks to Fernando Lujan, visiting fellow at the Center for a New American Security.

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