What Are the Trade Contours of the European Union’s Anti-coercion Instrument?
Economic coercion, or the use of economic policy to exact geopolitical outcomes, has accelerated in recent years. A recent example of economic coercion is the ongoing trade conflict between China and Lithuania, which is an EU member state. After Lithuania allowed Taiwan to open a de facto embassy in Vilnius, Beijing retaliated by downgrading trade relations with Lithuania, essentially halting the outflow of Lithuanian products to China and restricting the export of Chinese goods to the country. By December 2021, Lithuanian exports to China had decreased by 91 percent from the previous year, but China maintains that the retaliation amounts to an economic boycott. The European Union referred the case to the World Trade Organization (WTO). In response to this and other episodes, the European Union has developed a new tool to help it counter these bullying tactics.
Q1: What is the European Union’s anti-coercion instrument?
A1: In December 2021, the European Commission published a proposal for its anti-coercion instrument (ACI), a new trade tool developed to combat coercive economic practices. According to the commission :
Without a dedicated instrument, the Union and Member States will fall back on standard diplomatic means, which may not always be sufficiently effective, as they may not exert the necessary deterrent effect. More generally, it is necessary as a signal to international partners that the EU is not willing to accept economic coercion. It highlights the EU's resilience, and would contribute to the EU's open strategic autonomy.
The European Parliament and the European Council still need to approve the proposal, meaning countries will need to work out significant details and differences as the proposal makes its way through the legislative process in Brussels. In short, the ACI would combine an ambitious set of trade tools into a single mechanism that Brussels could use in the face of third-country economic coercion.
Q2: What specific trade tools are proposed within the ACI?
A2: The ACI is a comprehensive set of tools combined into a single instrument. It is designed as a last resort response to coercive trade and investment practices and primarily developed as a deterrent against economic bullying. According to the European Commission, the measure is intended to “de-escalate and induce discontinuation” of coercive economic measures. The annex to the proposal lays out potential measures that may be adopted pursuant to the legislation, including:
- The suspension of tariff concessions;
- Import and export restrictions, through quotas, licenses, or other measures;
- Restrictions on participation in tender for public procurement projects;
- Broadening the scope of export controls;
- Restrictions on foreign direct investment;
- Restrictions on intellectual property rights protections; and
- Restrictions on banking, insurance, and access to capital markets.
The commission aims for the ACI to be used proportionate to injury caused by third countries, although as proposed, it leaves room for the commission to exact punitive outcomes that exceed proportionality. Furthermore, as detailed in the annex, the proposal permits the “suspension of applicable international obligations” with respect to trade commitments, casting doubt on the compatibility of the proposal with WTO obligations.
Q3: How would the ACI work in practice?
A3: The decision to pursue use of the ACI follows the decision by the commission to investigate a third country for coercive economic behavior. During the investigation, the commission would be able to seek relevant information from stakeholders, although it is not required. Following a determination of coercive economic behavior, the decisionmaking process for implementation of the ACI will follow the standard procedure for delegated and implementing acts, meaning the commission would implement the ACI in consultation with EU member states. The directorate general for trade will manage the internal coordination of the ACI.
Q4: What is a similar remedy tool in the United States?
A4: In the United States, trade policy is a federal competency executed at the national level. The United States already possesses most of the capabilities included in the proposed ACI. Arguably the most similar U.S. equivalent of the ACI is Section 301 of the Trade Act of 1974. Section 301 grants the Office of the United States Trade Representative (USTR) a broad range of authority to investigate unfair foreign trade practices and pursue trade remedy action, including the application of punitive measures such as tariffs. Section 301 is designed to remedy violations under trade agreements, “unjustifiable” trade actions that restrain U.S. commerce, and “reasonable” or “discriminatory” trade actions. The United States has historically used Section 301 to build cases for dispute settlement within the WTO system. However, the Trump administration’s application of Section 301 was significantly more unilateralist than traditional applications of the statute.
The European Parliamentary Research Service (EPRS) report on the ACI from March 2022 notes that Section 301 can be used both to coerce others and to address measures taken against it and cites Section 301 as having “kindled the debate on a future ACI.” While Section 301 is similar to the ACI, the two instruments are not identical. In October 2021, Representative Ami Bera (D-CA) introduced the Countering China Economic Coercion Act, which would establish an interagency task force to respond to China primarily by enhancing the U.S. government’s information-sharing and reporting capabilities.
Q5: What would the tool mean for the United States?
A5: As the ACI makes its way through the legislative process in Brussels, the European Union will need to clarify its definition of coercive behavior and how the government will finalize a decision to invoke the ACI. Reaching a common definition of coercive economic behavior is likely to invite significant debate among member states, including probable skepticism from those that have accepted infrastructure investments from China as part of its Belt and Road Initiative (BRI). Furthermore, some legal and trade experts in the European Union regard Trump administration policy and U.S. tariffs against European products as inherently coercive. It thus cannot be ruled out that the European Union would invoke the instrument against the United States at some point in the future.
Q6: Where do member states stand on the ACI?
A6: In the European Union, certain policies are exclusive competencies of the European Commission. These policies include the creation of a customs union, competition rules, monetary policy, marine plants and animal regulation, and trade. The European Commission, not member states, negotiates trade agreements, although member states do retain competency over aspects of their domestic economies and also possess authority over matters of national security. Member states also determine national export control policies.
The defining feature of the ACI is that, as proposed, it represents a significant consolidation of power in Brussels. Most, if not all, of these tools exist in some form within the European Union, whether at the member state or European Commission level, but the ACI bundles existing tools into a single comprehensive instrument overseen by DG Trade. According to the commission, “The envisaged EU response falls under common commercial policy. . . . Action at the EU level results in benefits, e.g. deterrence and counteraction against coercion, which cannot be achieved sufficiently, if at all, at Member State level.”
As the legislative process proceeds, questions of competency are likely to invite fierce negotiations since member states are fearful about ceding too much power to Brussels and want to maintain authority over their own business and investment policies that have both domestic economic and geopolitical consequences. The commission argues “no significant costs” would arise from use of the instrument, although countries like Sweden and the Czech Republic tend to be a bit more skeptical and remain cautious about the potential implications of the tool, including the concern that it could lead to protectionism and result in a tit-for-tat trade war with China. Countries like France, on the other hand, are generally more supportive of the proposal and are pushing the proposal forward during the remaining months of its presidency.
Emily Benson is a fellow with the Scholl Chair in International Business at the Center for Strategic and International Studies in Washington, D.C.
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