* Doha Round of trade talks deadlocked
* But negotiators say situation is now slightly better
* However, global trade tensions are rising
By Tom Miles
GENEVA, Oct 3 (Reuters) - The World Trade Organization may be beginning to break the diplomatic deadlock that derailed a decade of talks on trade liberalisation last year despite growing global trade tensions, trade negotiators said on Wednesday.
The WTO's credibility suffered a serious blow last December when its member states recognised that the 10-year old Doha Round of trade talks - meant to culminate in a bold new trade liberalisation deal - was, if not dead, at an "impasse".
The WTO's 157 members - whose ranks grew after Russia joined this year - have repeatedly lowered their sights when it comes to how much liberalisation they are willing to consider and have failed to hit deadlines for agreeing new steps to open up trade.
But trade negotiators said on Wednesday there were now tentative signs of progress despite rising global trade tensions which have led to a rash of disputes this year, many of which have involved China, the United States, the European Union, Japan and Argentina.
"When we compare the situation in Geneva this year with where we were at last year, we just see lots of signs that almost everybody is working to find areas of consensus," U.S. Ambassador Michael Punke told reporters outside a closed-door meeting of the WTO's General Council.
"We agree with those who would suggest that we may be able to find broader areas of consensus. The challenge would be to find those areas without degenerating into a poison pill contest like we saw in 2011."
In his report to the members, WTO Director General Pascal Lamy said there were now "signs of momentum" after no progress in the first half of the year.
"We need to explore any and all options, small as they may be, for incremental progress on the negotiating agenda. Taking small steps now will be crucial for the credibility of the rule-making capacity of the WTO tomorrow," Lamy said.
However, Lamy warned against expecting too much progress too soon.
"I am neither under any illusion that the factors that have shaped the impasse which we face have changed substantively, nor do I harbour any dream about achieving grand designs or comprehensive deals," he said.
The potential prize is vast because global trade is worth many trillions of dollars, and cutting costs by even a fraction of a percent would be worth many billions.
Many countries believe the easiest target for a global agreement would be a deal to cut red tape and simplify customs procedures, known as "trade facilitation".
However, many developing countries say that trade facilitation would have costs for them and they do not want it to go ahead as a "stand-alone" without a payoff in other areas. China's ambassador said it needed to be "balanced by some other issues".
Punke said the United States had never seen trade facilitation as a stand-alone item, signalling a willingness to negotiate and not to hive it off as a quick win.
A possible component of a "balanced" deal to satisfy both developed and developing countries is agriculture, where 20 developing countries led by Brazil have put forward a new proposal to wide acclaim.
The proposal includes suggestions on sharing out import quotas and scrapping export-distorting subsidies, something that the WTO said it would do by 2013 but has failed to agree on.
Australia's representative described the proposal as "extremely encouraging", according to one participant at the meeting. European Union Ambassador Angelos Pangratis said the EU was willing to discuss the new ideas.
The WTO should use the 14 months it has until the next meeting of WTO trade ministers "wisely and with a sense of urgency", Pangratis said.
But hopes of finding a consensus - the only way that global trade deals can happen - were soured by criticism of Ukraine, which is using a loophole in WTO rules to renegotiate legal limits on its tariffs, something other countries believe is undermining the basis of the WTO system.
At least 19 member states voiced criticism or warned of the systemic and legal implications, including the United States, Japan, China, Canada, Mexico, Australia and Cambodia on behalf of the Association of Southeast Asian Nations.
Brazil's ambassador said Ukraine's move would affect 15 percent of Brazil's exports to Ukraine, while Pangratis it risked "undermining the credibility of Members' commitments to their WTO obligations." (Editing by Andrew Osborn)