The head of the World Trade Organization on Friday warned countries against keeping their currencies undervalued to create jobs, saying such policies could spark a return to 1930s-style protectionism.
Pascal Lamy, WTO director general, said the fight over currency values -- in a reference to the United States and China -- could upset global financial stability.
Generating employment "is at the heart of the strategy of some countries to keep their currencies undervalued," Lamy said in New Delhi. "Just as it is also at the heart of other countries' loose monetary policies."
Competitive devaluations, which have raised fears of a global currency war, could trigger "tit-for-tat protectionism", he told a business audience.
Lamy singled out "unsustainable and socially unacceptable unemployment" levels around the world as the most serious challenge facing the global economy.
But "uncoordinated 'beggar thy neighbor' policies will not result in increased employment," he said.
Washington has urged Beijing to allow its yuan to rise, saying the currency has been undervalued to create an unfair trade advantage and stoke China's economic boom.
The United States, where unemployment is nearly 10 percent, has been accused of doing the same with a $600-billion cash injection announced earlier this month as it seeks to jump start its sluggish economy.
Lamy also said he was aiming for a preliminary deal in the stalled Doha round of WTO trade talks by mid-2011.
Concluding "the end game"
The WTO director general said the Group of 20 advanced and emerging economies summit in Seoul last week "called for negotiations across the board to conclude the end game" of the global trade liberalization talks in 2011.
"This means a political version of the deal should be available by sometime around the middle of next year," Lamy said, adding that the lion's share of the work towards an agreement had already been done.
The Doha round of global trade talks began in 2001 with a focus on dismantling obstacles to trade for poor nations. But the negotiations have been dogged by disagreements.
They include how much the United States and the European Union should reduce farm aid and the extent to which developing countries such as India and China should lower tariffs on industrial products.
Successive deadlines to conclude the talks have been missed.
Failure to reach an agreement would weaken the only institution which governs the rules of world trade and could lead to "unilateralist, populist policies which discriminate against foreign workers and goods," Lamy warned.
For a sustainable global recovery, "economic evidence tells us that opening to international trade" is better for growth and jobs than being a closed economy, he said.
Lamy warned against efforts by nations to achieve a trading advantage similar to moves that worsened the Great Depression of the 1930s.
"The lessons of history are there -- showing that it is coordinated action through international cooperation that maximizes benefits for citizens of the world," Lamy said.