Summary: In response to a congressional request, GAO provided information on the floating exchange rate regime's compatibility with the international trading system's principles and U.S. trade laws to determine: (1) how exchange rate fluctuations can affect import relief the Trade Act of 1974 grants under section 201; (2) whether exchange rate changes alter the findings and the protection of the antidumping and countervailing duty laws; and (3) whether General Agreement on Tariffs and Trade (GATT) goals, principles, and remedies are compatible with a system of floating exchange rates.
GAO found that: (1) exchange rates influence the effectiveness of tariffs in protecting domestic industries; (2) if the dollar appreciates relative to other currencies after imposition of a tariff, the domestic industries' protection would diminish; (3) when exchange rate changes impair the ability of tariffs to protect industries that have obtained relief under the Trade Act's provision, they create substantive problems in achieving the law's objectives; (4) quantitative restrictions on imports impose considerable economic costs on the country seeking to limit imports; and (5) GATT favors tariff protection, rather than quantitative restrictions, since tariffs create less trade distortion, are less burdensome, and are a less ambiguous form of protection.
