* Protectionism intensifying
* Exchange rate tensions threaten global economy
By Jonathan Lynn
GENEVA, Nov 4 The global economy is threatened
by "dark clouds" of intensifying protectionist pressures, the
heads of three international organisations said on Thursday in a
warning to leaders of the G20.
These pressures are driven by high unemployment,
macroeconomic imbalances and tensions over foreign exchange
rates, said the heads of the World Trade Organization (WTO),
Organisation for Economic Co-operation and Development (OECD)
and United Nations Conference on Trade and Development (UNCTAD).
"The stability of the trading system will be put at
considerable risk if currencies move in what some perceive as
the pursuit of an exchange-rate-induced comparative advantage,"
they said in a summary of reports ordered by the G20 for its
summit in Seoul next week.
"We urge G20 governments to address these risks," WTO
Director-General Pascal Lamy, OECD Secretary-General Angel
Gurria and UNCTAD Secretary-General Supachai Panitchpakdi said
in the summary, whose message was reported by Reuters on
SHIFT IN TONE
The G20 committed to keeping markets open at its first
summit in Washington two years ago to deal with the financial
crisis and also at subsequent meetings. It commissioned regular
reports from the three organisations to monitor trade and
investment policy for protectionism.
Previous reports from the three had concluded that
protectionism was being held in check, so Thursday's warning
marks a significant shift in tone.
The WTO forecasts that global export volumes will rebound by
an unprecedented 13.5 percent this year. But trade, both a motor
and reflection of recovery, has slowed in recent months and is
at risk from economic uncertainty and protectionism.
WTO chief Lamy and UNCTAD officials have warned in recent
weeks specifically of the risks to the economy of currency
tension, but the direct warning from the three heads to the G20
in the report shows just how strong these concerns have become.
Tensions over exchange rates and monetary policy have
bedevilled U.S.-Chinese relations for months and many other
countries, including G20-host South Korea, Japan and Brazil have
also sounded the alarm about their partners' policies.
The Federal Reserve launched a new effort on Wednesday to
support the U.S. economy by printing money to buy bonds, but
critics fear the policy will lead to high inflation and worry
low interest rates in the United States could fuel asset bubbles
in other countries and destabilise currencies. [ID:nN03163902]
In a report on trade, the WTO said G20 countries had
continued to exercise restraint in imposing new restrictions
since their last summit in Toronto at the end of June.
New measures, increasing but at a slower rate, covered 0.3
percent of G20 imports and 0.2 percent of total world imports.
But the steady accumulation of measures since the financial
crisis burst in 2008 meant restrictions now covered 1.8 percent
of G20 imports, and only 15 percent of them had been withdrawn.
"This is too low. G20 governments need to give priority to
removing those measures," the three heads said.
On foreign investment, UNCTAD and the OECD said the G20
countries were resisting protectionism, with the majority of
measures taken by 17 G20 states since the last summit aiming to
facilitate and encourage investment flows.
But James Zhan, who heads UNCTAD's investment and enterprise
division, said this assessment did not include the protectionist
way in which governments were handling existing rules.
"We do observe a kind of covert investment protectionism in
the implementation of existing investment policies," he told a
news conference. He noted approval of new investment projects
was particularly subject to obstacles -- an apparent reference
to Canada's decision to block BHP Billiton's (BHP.AX) (BLT.L)
$39 billion bid for Potash Corp (POT.TO). [ID:nN03272751]
The share of restrictive measures in total investment
policies had risen to 30 percent in 2009 from 2 percent in 2008.
Flows to G20 countries of foreign direct investment such as
cross-border mergers and greenfield investments plunged 36
percent in the second quarter of this year.
Zhan said this included a rise of 20 percent of investment
flows to China and 30 percent to Russia.
But overall UNCTAD was sticking to its view that global FDI
flows would stagnate at about $1.2 trillion this year -- still
25 percent below the average in 2005-2007, the three years
before the crisis -- with no significant recovery in sight.
(Editing by Jon Hemming)