Exclusive - WTO, OECD and UN to warn G20 on currency threat

GENEVA Wed Nov 3, 2010 6:41pm GMT

A customer deposits yuan banknotes at a branch of Bank of China in Hefei, Anhui province, October 14, 2010. REUTERS/Stringer CHINA OUT. NO COMMERCIAL OR EDITORIAL SALES IN CHINA

A customer deposits yuan banknotes at a branch of Bank of China in Hefei, Anhui province, October 14, 2010.

Credit: Reuters/Stringer CHINA OUT. NO COMMERCIAL OR EDITORIAL SALES IN CHINA

GENEVA (Reuters) - The global economy faces an increased threat of protectionism because of tensions over exchange rates, the heads of three international organisations will warn leaders of the G20 in a forthcoming report.

The warning is contained in a report on trade and investment from the World Trade Organisation (WTO), Organisation for Economic Co-operation and Development (OECD) and United Nations Conference on Trade and Development (UNCTAD), commissioned by the G20 for its summit in Seoul next week.

"Protectionist pressures clearly have intensified because of currencies for one thing and current account imbalances," said a source familiar with the report, who asked not to be identified.

The report marks growing concern among senior policy-makers over the disputes over currencies.

Last month WTO Director-General Pascal Lamy, who has previously refrained from getting involved in arguments about exchange rates, said disputes about currencies could threaten trade and economic recovery.

The United States is calling on China to let its undervalued yuan currency appreciate, while China is complaining that easy U.S. monetary policy, likely to be reinforced by the Fed later on Wednesday, is destabilising other countries. Many other governments are also complaining about these and other countries' currency policies.

The comments also signal a significant change in the WTO's assessment of the environment for trade. In previous reports for earlier G20 summits it has argued that G20 countries had largely kept protectionism under control.

Lamy, OECD Secretary-General Angel Gurria and UNCTAD Secretary-General Supachai Panitchpakdi will argue that G20 countries have continued to resist protectionist pressures since the last summit, the source said.

But they will say that high unemployment in many G20 countries, macroeconomic imbalances between them and exchange rate tensions are fuelling protectionist pressures.

They will urge G20 leaders to address the threat to the stability of the global trading system from perceptions that currencies may be moving to pursue comparative advantage.

The three will also point out that the number of new restrictive measures in trade and investment has been increasing only slowly but this steady accumulation has not been matched by the removal of emergency measures since the crisis ebbed. They will call on G20 leaders to give priority to removing them.

UNCTAD and the OECD will publish a report on investment measures, and the WTO a report on trade measures, at 2 p.m. on Thursday, November 4. The reports will be accompanied by a joint letter from the three organisation heads to G20 leaders.