China's decision to order its airlines not to join an EU carbon trading scheme, and the EU's refusal so far to back down on its plans, have wedged airlines between conflicting laws, the head of the International Air Transport Association said.

"This is an intolerable situation which clearly has to be resolved. It cannot go on like this," IATA Director General Tony Tyler told Reuters in an interview.

Airlines have called on the EU to abandon a recently launched scheme to charge for emissions and negotiate a global agreement at ICAO, the aviation arm of the United Nations.

"I very much hope of course that we are not seeing the beginning of a trade war on this issue and eventually wiser counsels will prevail," Tyler said.

He also said airlines faced a tough year in 2012 and warned of further airline bankruptcies in Europe or elsewhere if the region failed to resolve its sovereign debt crisis.

(Reporting by Tim Hepher, Harry Suhartono; Editing by Ron Popeski)

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