UPDATE 1-WTO chief steps into currency row, warns over trade

Tue Oct 19, 2010 10:19am EDT

* Currency tensions pose risk to trade, Lamy says

* Some countries see Doha deal in 2011 (Substitutes fresh Lamy comment, adds Doha round, byline)

By Jonathan Lynn

GENEVA, Oct 19 (Reuters) - The head of the World Trade Organization stepped into an escalating row over currency policies on Tuesday, saying growing disputes about exchange rates could threaten global trade and economic recovery.

WTO Director-General Pascal Lamy said governments had largely resisted resorting to conventional trade measures such as higher tariffs to protect jobs in the wake of the crisis.

Disorderly currency movements could damage stability in the trading system, especially if they were seen to be the pursuit of comparative advantage through exchange rates, he said.

"In other words, the hard-won path towards stability and trade-led recovery could be put in serious jeopardy by uncooperative currency behaviour," Lamy told a meeting of the WTO's 153 members.

"I believe history will judge us harshly if our collective efforts towards exiting the economic crisis were to be frustrated by short-sighted individual rent-seeking." <^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^ Take a Look on currency tensions [nLDE69308R] "Currencies: Race to the bottom" r.reuters.com/gez77p Reshaping financial regulation r.reuters.com/zys68p ^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^>

Lamy has in the past refused to get involved in discussions about currencies, arguing that such matters are primarily the responsibility of the International Monetary Fund -- a view he repeated on Tuesday -- but the comments indicate his concern.

Currency tensions are likely to dominate next month's summit of the G20 developed and emerging economies in Seoul.

The United States and European Union are calling on China to let its yuan appreciate, China has condemned lax monetary policy in the United States for distorting the global economy, Japan and Switzerland have been selling their currencies to ward off deflation and emerging economies from Thailand to Brazil are seeking to block inflationary capital inflows.

WTO rules do include an article that requires members not to circumvent trade agreements through exchange rate policy, but this measure has never been tested in a WTO dispute.

Lamy declined to comment on the bill passed by the U.S. House of Representatives that would allow the U.S. government to treat China's undervalued currency as a subsidy and impose countervailing duties in response.

WINDOW OF OPPORTUNITY

Lamy also told WTO members he hoped leaders at the G20 would send a clear political signal that they were ready to enter the end-game of the Doha round.

The Doha round was launched in 2001 to free up global commerce and help poor countries prosper through trade, and the poorest developing countries are keen to secure its benefits.

But it has been virtually deadlocked since an abortive meeting of ministers in July 2008, largely over differences between the United States and big emerging economies such as China, India and Brazil over the extent each should open up.

Lamy said a series of meetings of small groups of ambassadors in Geneva in recent weeks to brainstorm the issues had got trading powers engaged again and identified the main gaps. But they had been less successful in establishing where governments could be flexible and make trade-offs.

Ambassadors will hold another round of small-group talks and then WTO members will assess after the Seoul summit what the next steps should be.

Delegates at the meeting expressed broad support for the approach, as long as all members were kept informed, and several countries including Japan, Mexico and South Korea said 2011 now offered a window of opportunity finally to conclude the talks.

Differences persist over domestic farm subsidies in rich nations, a safeguard allowing poor countries to raise tariffs to withstand a destabilising flow of food imports, and calls for duty-free zones in some industrial sectors.

But many negotiators believe it now simply requires a political push from U.S. President Barack Obama, Chinese Premier Wen Jiabao and other leaders.

"What we need is for Mr Obama and Mr Wen to look each other in the eye and say 'Let's get this done!'. If they do, we can do it," said one diplomat from an industrialised country. (Editing by Stephanie Nebehay and Kevin Liffey)