On Monday 23 July, the German Ifo Institute for economic research backed the idea of US Treasury Secretary Steven Mnuchin, that was raised on the sidelines of the G20 finance ministers' summit in Buenos Aires on 22 July, for a plurilateral free trade agreement between the G7 economies (the countries of the European Union, Canada, the USA and Japan).
"This is an offer that the EU definitely needs to accept. You cannot punish US protectionism with retaliatory tariffs in the name of saving global free trade and refuse to take the US up on such an initiative", Ifo states in a press release.
The economic arguments for an agreement on tariff liberalisation on agricultural and industrial goods, which the USA wants, but excluding services and investment (very controversial subjects during the TTIP negotiations), are as convincing as in the TTIP framework, Ifo states, estimating long-term positive GDP effects of around 2% in the EU and the USA.
"Europe must overcome its own protectionist leanings, especially in agriculture, and agree to the trade agreement proposal. The good news is that there would be no need to start from scratch. During the TTIP negotiations, the EU and the USA have already conducted talks over tariffs with some success", Ifo states.
The German institute also says that the USA had even completed negotiations with Japan (and ten other countries of the Asia-Pacific region) on a transpacific partnership agreement before Trump stopped its ratification. Ifo furthermore states that the EU has already signed agreements with Japan and Canada.
A successful plurilateral agreement between the G7 countries could even catalyse a modernisation of the World Trade Organisation (WTO) and put other countries – primarily China – under pressure to remove trade barriers, Ifo states.
An appealing side-effect of such an agreement would be that, in the case of a hard Brexit, the UK could be integrated into the new free trade as "an independent member", Ifo states.
In Ifo's view, the first step would be to initiate exploratory talks quickly. This should not depend on the US renouncing its steel and aluminium tariffs, as France has suggested. (Original version in French by Emmanuel Hagry)