G-20 leaders try to avoid trade war

SEOUL, South Korea (AP) - Leaders of the world's 20 biggest economies scrambled to reach a last-minute compromise early Friday to resolve a U.S.-China currency dispute that has raised the specter of a global trade war.

A draft of the joint statement to be issued at the end of the Group of 20 summit - obtained by The Associated Press - indicated that huge differences remain. The main sticking point is how to deal with U.S. accusations that China deliberately undervalues its currency to gain a trade advantage while similar charges are being leveled against Washington.

After overnight negotiations by aides that lasted until daybreak, President Barack Obama, China's Hu Jintao and the other 18 leaders filed somberly into closed-door talks being held in a conference center in Seoul.

The leaders are still trying to make a "last-minute compromise" on the joint statement, the South Korean president's press secretary, Hong Sang-pyo, told reporters.

The situation will remain "fluid until the last minute because many countries have gathered here and are trying to resolve their differences," Hong said.

The dispute over whether China and the United States are manipulating their currencies is threatening to resurrect destructive protectionist policies like those that worsened the Great Depression in the 1930s. The biggest fear is that trade barriers will send the global economy back into recession. A law the United States passed in 1930 that raised tariffs on imports is widely thought to have deepened the Great Depression by stifling trade.

The dim prospect for a substantive agreement "is very dangerous for the world economy," said Richard Portes, president of the Center for Economic Policy Research in London.

Hopes that the G-20, which includes wealthy nations like Germany and the U.S. and rising giants like China, could be a forum to forge a lasting global economic recovery have taken a knock. After three days of negotiations, the G-20 countries have been unable to reach a consensus on some of the wording in their final statement.

A senior Obama administration official said leaders had agreed on a basic framework that aims to rebalance the world economy by establishing a set of indicators of future risk. If these indicators sound the alarm, countries would commit to take action to address the concerns.

According to the draft statement obtained by the AP, the leaders agreed to "move towards more market determined exchange rate systems and enhance exchange rate flexibility to reflect underlying economic fundamentals."

But a sticking point is the statement's next line which would have the countries pledge not to undertake "competitive undervaluation" of currencies. The wording is a reference to China, which is accused by the United States of deliberately keeping its currency, the yuan, undervalued so that its exports remain cheap.