UPDATE 2-G20 told trade, FDI vital to fight global slowdown

* Agencies say markets for goods, services must keep open

* World economy facing strong headwinds, joint report says

* Appeal aimed at G20 meeting in Mexico this week

GENEVA, Oct 31 (Reuters) - The world's leading economies must revitalise both global trade and investment in developing countries to counter a new slowdown in economic growth, three key international organisations said on Wednesday.

In a joint report for the G20 group of countries, the World Trade Organisation, the OECD and UNCTAD also called on them to work together more closely and ensure they keep their markets open for each others' goods and services.

``Over the past five months, the global economy has encountered increasingly strong headwinds,'' the three agencies said, declaring that the outlook was worse than when they issued their last report for the grouping in May.

``The world urgently needs a stronger and renewed commitment, in particular from the G20 economies, to revitalise the multilateral trading system which can restore economic certainty at a time when it is badly needed,'' they said.

Foreign Direct Investment (FDI), which nosedived after the 2008/9 financial crisis but had been slowly recovering, dropped again by 8 per cent in the first half of 2012 versus the first six months of 2011, the report said.

Emerging economies - like Brazil, India, Mexico and South Africa - depend heavily on steady foreign investment flows to underpin development plans aimed at making their peoples international consumers as well as producers.

``The slow pace of FDI recovery (from its 2008/9 levels), in spite of abundant liquidity in global markets, causes concern for future world economic growth,'' the agencies said.


The package report was issued in advance of a meeting of finance ministers and bankers from the G20 - which groups leading industrial powers and the major emerging economies - in Mexico City later this week.

The WTO is the world trade watchdog and the major global forum for trade negotiations. UNCTAD, also based in Geneva, is the United Nations agency for trade and development, and the 34-nation Paris-based OECD works to promote global growth.

One of the major fears on both trade and investment fronts over the past four years has been that countries rich and poor would seek to protect themselves from the crisis by closing off their markets to foreign suppliers.

On that score, the joint report had some good news, saying that G20 countries had slowed down the rate of introduction of trade-restrictive - or protectionist - measures over the past five months while FDI restrictions were being reduced.

But, it said, new trade barriers were accumulating and increasingly undermining the global trading system - already stymied by the failure among the WTO's 157 members to agree on a new global trade pact in 11 years of negotiations.

In September, as these measures began to bite, the WTO cut its growth forecast for world trade - a prime motor for the global economy - to 2.5 percent from 3.7 percent for 2012 and to 4.5 percent from 5.6 percent for next year.

``G20 governments need to redouble their efforts to keep their markets open and to advance trade-opening as a way to counter slowing global economic growth,'' the report declared. Protectionist pressures had to be faced down.

And on FDI, it said, although G20 countries had largely heeded earlier appeals to avoid imposing new restrictions and had removed some already in place, fears remained that continuing global turbulence would reverse that trend.

Under pressure of growing unemployment and weak economic recovery, it said, governments ``may resort to policies or practices that discriminate against foreign investors or discourage outward investment''.