China-U.S. row at centre of WTO currency forum

GENEVA, March 28 (Reuters) - A sharp exchange between the head of a Chinese state-owned bank and a U.S. Treasury official was the highlight of a closed-door currency debate at the World Trade Organization on Tuesday and Wednesday, diplomats said.  

Brazil had organised the so-called "symposium" to draw attention to the difficulties that can arise when big currency movements affect a country's trade competitiveness.             

But the theoretical discussion got heated in the first session when one of the speakers, Li Ruogu, president of Exim Bank of China, faced opposition from Mark Sobel, the U.S.

Treasury's deputy assistant secretary for international monetary and financial policy.    

Several diplomats emerged from the closed-door session grinning at the spectacle. "Let's just say the cracks were really evident," one said after witnessing Sobel and Li debating on Tuesday. "There were a couple of heated exchanges and nothing more than that," said another participant at the end of the two-day session on Wednesday. "It's no secret that the U.S. is concerned with China's policies and the impact that they have had."          

"There was an exchange between China and the U.S. on people living beyond their means and needing to save more and spend and consume less," he said. "The question of unfair trade practices was raised against China."Sobel had responded "quite vigorously," another said.              

Support for China came from Venezuela's delegate, who argued that less developed countries with needy populations should be entitled to run different currency policies from that of the United States, several participants said.

The chairman of the meeting, Hong Kong's permanent representative to the WTO Martin Glass, told reporters that the meeting had been "held in a constructive spirit."       

TROJAN HORSE             

The discussion is expected to continue in future at the WTO but there was little sign of any agreement on what the problem is, let alone what to do about it.

Once Brazil had got agreement to hold the symposium -- having watered down an initial proposal for new trade rules -- diplomats had been eagerly anticipating the debate while publicly dismissing it as a largely academic exercise.

While some saw it as an opportunity to let off steam on a controversial and sensitive topic, others saw it as a Trojan horse -- either a Brazilian ploy to bring currency imbalances under WTO jurisdiction or a new way for the United States to needle China over the cheapness of its exports.           

"They are letting others do the dirty job for them," one trade diplomat said earlier this month, when asked why the United States was not more vocal in its support for the Brazilian initiative.         

But Brazil's ambassador to the WTO Roberto Azevedo has denied there was any hidden agenda and said he wanted a dispassionate conversation about how the system works.

Azevedo said the aim was not to debate the causes of currency "misalignments" or to apportion blame for them, but to examine whether the WTO system could have a mechanism for dealing with the trade impact of such misalignments. 

But many other speakers at the symposium were keen to focus on the causes. "Some felt that the exchange rate misalignments were due to more direct intervention on the exchange rate markets and others felt that the main source of the problem was by means of fiscal and monetary policy that provoked very large flows of capital across borders," Azevedo told reporters.     

But the causes of currency misalignments are not the WTO's problem, WTO chief Pascal Lamy said in the opening speech of the symposium.              

It is up to the international community, not the WTO, to reform the monetary system and address global imbalances, he said, adding that the International Monetary Fund was the right forum for that discussion.   

"Trade cannot become the scapegoat for the pitfalls and drawbacks of the international monetary system, or current non-system," Lamy said.

March 28, 2012

Source: Reuters