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WTO Chief: U.S.-China Trade Friction Rising

BRADLEY S. KLAPPER   01/21/10 02:49 PM ET   AP

Pascal Lamy Us China Trade
Pascal Lamy, director-general of the World Trade Organization, says trade friction will rise between the United States and China.

GENEVA — Trade friction between the United States and China over everything from cars to chemicals will increase in the coming years as the world's biggest importer and exporter buy and sell more of each other's goods, the World Trade Organization's director general said Thursday.

Pascal Lamy said his institution was up to the task of ensuring that Washington and Beijing never get into an all-out trade war that could have devastating consequences for the global economy. The WTO will be challenged over the next two years as unemployment figures remain high and test the free trade credentials of world leaders, he predicted.

"There is no risk of slipping into a trade war," Lamy said in an interview with The Associated Press.

Placing the U.S.-China relationship in a historical context, Lamy compared it with the tensions that existed between Washington and Tokyo in the 1980s and between the U.S. and Europe over different periods in recent decades.

In these cases, disagreements increased as the value of their trade expanded, he said. But the international trade body with its negotiations and rules for settling legal disputes defused the tensions.

The United States and China are engaged now in a series of trade spats over issues such as steel, poultry, patents and Hollywood films. Google's threat to pull out of China over concerns about censorship and security also could sour relations between the two countries.

"The question is not whether there is friction, the question is whether it is handled the right way," Lamy said.

The 62-year-old Frenchman, a former European Union trade commissioner, is now in his second term as director general of an organization that resolves international commercial disputes and negotiates new rules for export of farm produce, manufactured goods and services.

In the 4 1/2 years since Lamy entered office, healthy economic growth has been replaced by a crippling global slowdown. Annual trade crashed by 10 percent after 16 years of uninterrupted growth. And the vision of a 150-nation deal to tear down trade barriers around the world has been partly replaced by the immediate challenge of preventing countries from erecting new obstacles to each other's goods.

Lamy credited the WTO's close monitoring of countries last year for preventing a slide into global protectionism where countries break the rules to shield domestic jobs from foreign competition – pressure that was only natural, he said, as financial markets collapsed and whole economies teetered on the edge.

"We are certainly not out of the woods on protectionism," Lamy said. "The fundamental reason there is a protectionist impulse has to do with the job market. We know that unemployment will remain high this year, maybe even next year."

He didn't elaborate, but some trade observers believe the danger could be even greater in 2010 as governments shift their focus to job creation plans from last year's stimulus packages and financial bailouts.

As governments try to make it easier on national companies to hire people, free-trade principles may be sacrificed along the way, with the ultimate risk being a worldwide descent into a trade war as happened during the Great Depression, the argument runs.

Lamy has been pushing governments to complete what he says is the final lap of the Doha global trade round, which could add billions of dollars to the world economy.

The negotiations launched in Qatar's capital in 2001 aim to reach a binding treaty that would slash subsidies and cut tariffs in agriculture and manufacturing, including for new economic powerhouses like China, India and Brazil.

But the talks are mired in disagreement. The round is already six years behind schedule, and even a completed accord would have to win parliamentary approval in most countries and Senate ratification in the United States.

With unemployment over 10 percent and President Barack Obama's Democratic Party showing weakness, it is unclear how committed the United States is to finishing the round.

Lamy said he believed Washington was committed to a pledge it made with other countries last year to wrap up an agreement by the end of 2010. Whether the Americans would take on such a challenge in the current environment, he declined to answer.

"That's more a question for them, than a question for me," Lamy said. "They tell me ... they want to conclude the Doha round by the end of this year."

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Filed by Adam J. Rose  |