G20 Warned of 'Dark Clouds' of Protectionism

Source: Reuters, Jonathan Lynn (11/5/10)

"Pressures driven by unemployment, macroeconomic imbalances, currency tensions."

The global economy is threatened by "dark clouds" of intensifying protectionist pressures, the heads of three international organizations 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), Organization 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 Wednesday.

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 organizations to monitor trade and investment policy for protectionism.

Previous reports from the three had concluded that protectionism was 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% 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.

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