Merkel Said to Favor Trade Dispute Body as G-7 Summit Begins

(Bloomberg) -- German Chancellor Angela Merkel is proposing to create a forum to defuse escalating trade tensions with the U.S., as Group of Seven leaders seek to persuade President Donald Trump to step back from his tariffs action against allies.

European Union leaders met early Friday in La Malbaie, Quebec, ahead of the formal kickoff of the G-7 leaders’ summit. Merkel proposed a “shared evaluation mechanism” on U.S. trade, a notion backed in particular by French President Emmanuel Macron and European Commission President Jean-Claude Juncker, according to a French official who briefed reporters on the meeting.

Trade -- particularly U.S. tariffs on steel and aluminum imposed last week, which prompted retaliation from the EU, Canada and others -- is looming over the meeting, punctuated by Trump’s comments on Twitter on Friday that the U.S. is the one being treated unfairly over trade.

The sharp disagreements are making it difficult for nations to come up with a traditional concluding statement from the meeting, outlining the G-7 nations’ shared goals. Macron has said he’ll refuse to sign a final communique if there’s no progress on the tariffs and other sticking points.

May believes the U.S. decision to impose tariffs on some of its strongest allies is regrettable, and the fact that the justification is national security makes it harder to understand, a U.K. government official said on the condition of anonymity. May will tell the other leaders that rather than imposing tariffs on each other, the group should instead be increasing pressure on China to reduce its excess steel capacity, the official said.

Trump is scheduled to meet with Canadian Prime Minister Justin Trudeau and Macron on Friday evening and he’ll attend a dinner with the G-7 leaders.

The other six nations are pushing for the G-7 to affirm “collective trade rules” in the communique, the French official said. Trump brought his hawkish trade czar, U.S. Trade Representative Robert Lighthizer, along for the trip.

The tariff standoff is a complicated issue for the EU -- each country is exposed to different sectors, and could be impacted differently in the event of an escalation. Trump, for instance, is considering imposing tariffs on auto imports on national security grounds, a move that would hurt major foreign auto producers like Germany.

Merkel has repeatedly called for a strengthening of the World Trade Organization and for the establishment of mechanisms aimed at preventing future trade disputes. It wasn’t clear how her proposed trade forum at the G-7 would differ from the WTO’s dispute resolution functions.

“We need again a multilateral trade agreement,” Merkel said at a business summit last month. “As we all see right now, something has become unstable and the situation is quite difficult. It is therefore important to create a reliable common legal framework and mechanisms for settling trade disputes, which are accepted by everybody.”

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