On December 8, the European Commission (Commission) published a proposal for a new anti-coercion instrument (ACI) to deter and, if necessary, retaliate against third countries seeking to change the course of EU or EU Member State policy by exerting economic coercion against the EU or its Member States. Third country coercion is understood broadly and may range from using explicit coercion and trade defense tools, to selective border or food safety checks on goods from a given EU country, to boycotts of goods of a certain origin. Essentially, the draft Regulation’s aim is to preserve the EU and its Member States’ ability to make political decisions and policy choices without undue foreign interference.

The proposal builds on a Joint Declaration in favor of such an instrument, signed by the Commission, the Council of the EU and the European Parliament. Stakeholders have also recognized the problem of economic intimidation and coercion against EU interests in the Commission’s consultation, thereby supporting an EU-level instrument. As stated by MEP Bernd Lange (rapporteur on the new EU anti-coercion instrument, INTA Chair, S&D, Germany) the EU is operating in an “increasingly harsh geopolitical landscape”, and is increasingly the target of economic pressure.

Process and possible countermeasures

The ACI would establish the following phased process:

First step: The Commission would examine the third country’s measure in light of the conditions and criteria laid down in the ACI to assess whether it qualifies as an economic coercive measure. Such criteria include the intensity, severity, frequency, duration, breadth, and magnitude of the measure and the pressure arising from it, as well as whether there is a pattern of interference from the third country. The Commission would also consider the extent to which the measure encroaches upon an area of the Union’s or Member States’ sovereignty, whether it stems from a legitimate concern that is internationally recognized, and whether there have been attempts by the third country to engage in good faith to settle the issue through negotiations.

Second step: Should the Commission ascertain that the economic measure coerces the EU or a Member State, it would engage with the third country concerned. Such engagement could include direct negotiations, mediation, arbitration, or international adjudication, so as to resolve the issue.

Third step: Should dissuasion and engagement fail to result in the cessation of the economic coercion, the Commission would adopt measures to proportionally respond after consulting stakeholders in case it also determines that it is necessary to adopt such countermeasures to protect the interests of the EU and its Member States, and that it is in the EU interest to do so.

Possible countermeasures are set out in Annex I to the proposal and include:

  • new or increased customs duties and quantitative restrictions on export and import of goods;
  • additional charges on imported or exported goods;
  • restrictions on the transit of goods;
  • quantitative restrictions on imports or exports of goods through quotas, nonautomatic import or export licenses or through other measures;
  • new or increased restrictions on trade in services;
  • restrictions on investments, in particular new investments;
  • restrictions on the protection of intellectual property rights or their commercial exploitation, in relation to right-holders who are nationals of a third country concerned;
  • the exclusion from public procurement of suppliers of goods or services established in and operating from a third country concerned;
  • a mandatory price penalty on tenders of suppliers of goods or services established in and operating from a third country concerned and/or on that part of the tender consisting of goods or services originating in a third country concerned;
  • any other restrictions of access to public procurement;
  • blocking exports of products subject to export control measures (i.e. those that would otherwise be permitted).

Any countermeasure would be limited to a level that corresponds to the injury suffered by the EU or its Member States as a result of the economic coercion, and should induce the cessation thereof.

Of note, such countermeasures could also be taken against specific natural or legal persons.

As the ACI is primarily designed to deter against third countries’ coercive measures, the EU would only adopt retaliatory measures as a means of last resort. The wide range of potential measures the EU could adopt is meant to enable the EU to respond as effectively as possible whilst also ensuring as small a cost as possible to EU operators. The proposed ACI also envisages the possibility to raise the issue of economic coercion in any relevant international fora, and to coordinate with allies who are also affected.

The Commission acknowledges that EU businesses, including those operating abroad, may be affected. In its Q&A accompanying the proposal, the Commission notes that stakeholder involvement “is crucial for the selection and design of the Union response measures” and that affected, or potentially affected, businesses may be given the opportunity to make their views known.

The ACI could also be used to counter extraterritorial third country sanctions – such as the extraterritorial sanctions adopted by the US – but only where their objective or effect is to force the EU or its Member States to align their policies with the coercing country’s policy. The ACI would not address instances of extraterritorial sanctions used to pressure EU private economic operators. These are exclusively addressed by the Blocking Statute, which is currently being amended and for which a legislative proposal is foreseen for Q2 2022.

Conclusion and outlook

The proposal will go through the ordinary legislative procedure, whereby both the European Parliament and the Council of the EU would have to adopt it for the ACI to become law. During this process, amendments can be proposed by the European Parliament and the Council of the EU.

Despite being a politically sensitive proposal as it sits between trade policy and foreign policy – and de facto seeks to circumvent the challenging CFSP sanctions decision-making procedure requiring unanimity – the draft proposal appears to be broadly supported by MEPs and EU Member States, although some Member States have warned against the instrument leading to protectionism, and diplomatic escalation. The French government, holding the Council Presidency from January to June 2022, has already welcomed the proposal and has identified the instrument as a priority.