Sharp movements in exchange rates are acting as an “obstacle” to trade, the head of the World Trade Organization said on Saturday as he warned of a “slow accumulation” of protectionist measures.
Governments need to decide whether to give the WTO powers to intervene over allegations of currency manipulation, Pascal Lamy told Emerging Markets.
“Currency volatility may be an obstacle to trade,” said Lamy, “but so far no WTO member made a proposal [to review the rules].”
He hinted that the organization’s rules on foreign exchange were obsolete, but stopped short of recommending a reform. This was the task of member countries to take action rather than the WTO director general.
Powers exist for countries to challenge currency arrangements under clause XV - that deals with exchange agreements - of the original post-war General Agreement on Trades and Tariffs (GATT) that predated the WTO.
The problem for trade lawyers and economists is that the rule was written at a time where countries had a fixed exchange rate, which is no longer the case.
Emerging market economies have become increasingly vocal in denouncing policies of quantitative easing which they consider as currency manipulation.
“The WTO should deal with this because exchange rate manipulation is a way to give subsidies in disguise,” said the Brazilian finance minister Guido Mantega. “There is not much hope that this will happen.
“These countries say that what they are doing is monetary policy. We will continue to debate the need the foreign exchange rate factor before the WTO, among all factors. But it is difficult to get things going ahead. This is a delicate issue. People are not really ready to deal with this when big countries are doing expansionary monetary policies,” he said.
In terms of the overall outlook, Lamy said that there was “a slow accumulation of measures” that may pose some risk to world trade.
“There is some concern that there are protectionist pressures everywhere,” he said. The close monitoring of trade by the WTO pointed to a “slow accumulation of measures that, if not scaled back, may pose a risk to world trade.” He said however that there was “nothing dramatic”.
Earlier this week Emerging Markets revealed the latest findings from Global Trade Alert, an independent monitor of protectionism that showed a rise in the number of non-tariff measures such as bailouts.
The WTO recently scaled back its global growth forecast for trade growth this year from 3.1% to 2.5%. Such a revision is “unprecedented”, said Lamy, who estimated the impact of protectionism at around 2% to 3% of world trade.
He dismissed the concern that rising unemployment in Europe would lead to more protectionism. “Europe has not yielded to such pressures. I don’t see the EU turning protectionist. The odds are in my view extremely low. Germany has been the anchor of trade in Europe,” Lamy said.
“The greatest concern is related to the global economy... But the serious concern about the global economy is inevitably reflected in the volumes of trade,” he said. “Our role is not to look at the big gears but if the transmission belts [of the economy] are oily.”