Arming for a trade war: EU proposes unprecedented anti-coercion regulation
Key points to remember
- The proposed regulation would give the EU the ability to fight back if third countries take economic action against a member state.
- When a Member State is subject to economic interference from non-EU Member States which affects its legitimate sovereign choices.
- The European Commission to take all or part of the following measures against the disruptive State:
- Imposing tariffs;
- Set up quotas;
- Restrict access to EU financial markets; Where
- Reduce intellectual property protections
Scope of the draft regulation
The regulation would apply when a third country interferes in the legitimate sovereign choices of the Union or of a Member State, by applying or threatening to apply measures affecting trade or investment.
The definition of coercion is particularly broad, designed to cover all polymorphic aspects of trade or investment restrictions that may be imposed by formal or informal measures. The Commission would consider a number of factors to determine whether a country has engaged in economic coercion, including, but not limited to, the intensity, severity, frequency, duration, scope and scale of the third country’s measures, whether the third country has engaged in any type of interference, whether the third country is acting on the basis of an internationally recognized legitimate concern, and whether and how the third country, before imposing its measures, made serious and good faith attempts to resolve the issue through international coordination or arbitration, either bilaterally or in an international forum.
Immediate use case: Lithuania
In December 2021, China introduced restrictions that effectively blocked imports and exports to Lithuania. The action appears to be a response to Lithuania authorizing a de facto Taiwanese embassy in its capital, Vilnius, in 2021. Currently, the EU has referred the matter to the WTO, but it appears that this which is the exact type of economic coercion that the new regulations contemplate.
The Commission predicts that the mere existence of an anti-coercion instrument would be sufficient to deter third countries from adopting or threatening to adopt coercive measures against the EU. Based on the principle of proportionality, the regulation also provides that EU countermeasures only exist as a last resort. The Commission notes that it will be ready to engage on behalf of the EU with the third country to obtain the cessation of economic coercion. Such engagement may include direct negotiations, mediation or submission of the case to international jurisdiction.
The adoption of countermeasures
In cases where negotiations with the third country have not led to the cessation of economic coercion, the regulation would require measures to protect EU interests. The regulation requires countermeasures to be imposed in a proportionate manner and not to exceed the required level necessary to reflect the harm suffered by the EU or Member States by the third country. The Commission would select the response measures on the basis of the criteria in the regulation. The selection would take into account factors such as the effectiveness of the measures to induce the cessation of coercion, the avoidance of a negative impact on the EU of the response measures and the avoidance of disproportionate administrative complexity in the imposition of response measures.
If taken, countermeasures would allow the Commission to temporarily suspend applicable international obligations. Annex I of the regulations lists 12 potential countermeasures, such as:
- New or increased customs duties and quantitative restrictions on the export and import of goods;
- Quantitative restrictions on the import or export of goods through quotas, non-automatic import or export licensing or other measures;
- Exclusion from public procurement of suppliers of goods or services established and operating from a third country concerned or any other restriction of access to public procurement;
- Blocking of exports of products subject to export control measures (i.e. those which would otherwise be permitted).
- Restrictions on foreign direct investment; Where
- Imposition of restrictions for banking, insurance and access to EU capital markets.
These countermeasures can apply to any natural or legal person, either through the implementing act that imposes the restrictions or through a separate implementing act issued by the EU. The Commission may designate a natural or legal person as the subject of the response measures when this person is linked or linked to the government of the third country concerned. The regulation does not give further guidance on what qualifies a natural or legal person as ‘linked’ or ‘linked’ to the government of the third country, but we await either separate guidance or further clarification in the regulation itself. as it comes into force. Close.
The proposal will go through the ordinary legislative procedure, under which the European Parliament and the Council of the EU will have to adopt it for this new regime to become law. During this process, amendments may be proposed by the European Parliament and the Council of the EU. Some states such as Sweden and Estonia are expressing concern about the current version of the text, arguing that the regulation could lead to greater economic protectionism and trade wars, which would lead to violations of WTO rules. On the other hand, France, which now holds the EU presidency, expressed its support for the draft regulation and identified it as a priority.
Over the next two months, stakeholders as well as EU citizens are invited to provide further feedback, on which the Commission will report to the Council and Parliament.