WTO chief steps into currency row, warns over trade

Pascal Lamy, Director General of the World Trade Organization (WTO), addresses a news conference on the Trade figures 2009/2010 at the WTO headquarters in Geneva March 26, 2010.

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

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, but friction over exchange rates risked undermining that.

"For the moment it's a risk, but it's a risk that can be dangerous for trade," he told reporters late on Monday.

Lamy has in the past refused to get involved in discussions about currencies, arguing that such matters are primarily the mandate of the International Monetary Fund.

But the comments, following an interview in a British newspaper on Thursday, indicate that the body that polices world trade is getting increasingly concerned about currency policies.

Currency tensions are likely to dominate next month's summit of the G20.

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.

Underlying these disputes, economists say, is the fear that countries will slip into a tit-for-tat round of devaluation to make exports more competitive and preserve jobs.

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.

(Reporting by Jonathan Lynn; Editing by Jon Boyle)