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Protectionist pressure tied to joblessness

As long as unemployment is high, there will be pressure to keep protectionist trade measures in place, the director-general of the World Trade Organization said.

When asked why there has been no big trade war, Pascal Lamy, who was speaking at the Council on Foreign Relations in New York, said it had to do with existing structures, such as “strong international disciplines.”

“For the moment ... we are not out of the woods. As long as unemployment remains extremely high by historical standards, which is still the case today, protectionist pressures will be there,” said Lamy.

“As long as unemployment will remain high -- and there are many reasons why probably it will remain high, let's say for the next 18 months or two years; that's a reasonably rosy scenario -- pressures will be there,” he added.

Lamy, who is scheduled to attend the Group of 20 meeting in Toronto from June 25-27, brushed aside a question asking if the stalled Doha round of trade talks are dead.

“No, international negotiations never die. Whether it is about disarmament, whaling, whether it is about trade, it never dies, it just takes a bit longer,” he said.

In Geneva on Thursday, the United States used unusually blunt language to accuse China of stalling the trade talks, saying the Doha round will remain stuck and a deal impossible until Beijing and other key emerging economies join in serious negotiations to open their markets.

While China may be stalling, there were signs that Brazil and India were willing to negotiate, said US WTO Ambassador Michael Punke.

China on June 19 said it would gradually allow more flexibility in its currency exchange rate, breaking a 23-month old peg to the US dollar.

But when asked if China's resumption of a more flexible currency might help restart the Doha round, Lamy demurred, saying only that the announcement was important.

“I think this sort of decision of unpegging was something which was politically significant for the Chinese leadership to announce,” he said.

What effect the currency movements have on trade flows is less clear, and considered marginal when taken in the context of the differences between savings and consumption.

“I am on the side of those who believe that balances such as the US trade deficit or the China trade surplus have much more to do with macroeconomic management, with savings, investment, consumption than they have with trade policies,” he said. (Reuters)