“Economic Coercion” – the new EU jargon for lobbying third countries: Can the regulation proposed by the European Commission to prevent economic coercion measures by foreign governments work in practice? | Dentons

On December 8, 2021, the European Commission adopted its proposal for a regulation aimed at deterring and thwarting economic coercion measures by third countries, such as Russia and China. The Commission pledged to present a legislative proposal by the end of 2021 at the latest in a joint declaration by the Council, the European Parliament and the Commission in February 2021 highlighting the gaps in the arsenal of instruments to protect the EU international trade.

It appears to be an attempt to use the EU’s exclusive legislative powers under the common commercial policy (Article 207 (2) TFEU) to allow the European Commission to adopt a new series of sanctions against foreign countries, companies and individuals beyond the current sanctions regime, which only applies where compatible with international law. By assigning the tool to the area of ​​trade policy instead of foreign policy, the regulation can be adopted by a qualified majority of governments, thereby bypassing the usual requirement of unanimity which frequently hampers EU foreign policy. .

The mechanism is designed to target actions by third countries aimed at compelling the EU or a Member State to take or withdraw specific policy measures – in other words, state-sponsored efforts that exploit economic links, such as trade and investment – to push for change in a national government or across the EU. However, coercion from private companies and individuals will also be punished if the behavior is part of a subversive campaign by a state actor.

The coercive measures which could trigger the application of this instrument are not linked to the form of the measures but to the level of their intention to force the EU or a Member State. The result is a very wide potential scope for the “coercive measures” covered by the proposal.

While the 12 categories of ‘Union response measures’ listed in Annex I will have to be implemented by the Member States, only the Commission has the power to open an investigation on its own initiative and to adopt “response measures”. These could include:

  • Suspension of tariff concessions and international trade obligations accompanied by new or increased customs duties,
  • Import or export restrictions (quotas, licenses) or payment restrictions,
  • Exclusion or application of weighting penalties from the evaluation of prices in
    • public calls for tenders,
    • measures affecting trade in services,
    • foreign direct investment,
    • commercial aspects of intellectual property rights,
    • restrictions for banks, insurance companies,
  • Limitation or restriction of access to Union capital markets and other financial services, to registrations and authorizations of EU chemical legislation, and in relation to EU sanitary and phytosanitary legislation , as well as access or exclusion restrictions from EU-funded research programs.

EU countermeasures can target individuals, businesses and / or third countries.

The main objective of the instrument is not to impose punitive measures; rather, it aims at deterrence in order to preserve the legitimate right of the EU and of the Member States to make political choices and decisions and to prevent serious interference in the sovereignty of the EU or of its Member States. This objective suggests that sanctions will be used as a last resort, after all forms of international engagement have been exhausted.

Any member state, company or entity can lodge a complaint with the Commission, which will then investigate the situation and gather the necessary evidence to see whether the dispute constitutes economic coercion or concerns measures falling within the competence of the WTO.

If the Commission establishes that economic coercion has been used, it will proceed by engaging directly with the country concerned and enter into negotiations to find a solution. However, if ultimately such mediation fails and coercion persists, the Commission can recommend countermeasures, which are then first discussed before they can be approved by Member States. In certain emergency situations, the Commission is empowered to act on its own to temporarily adopt measures, subject to subsequent scrutiny by the European Parliament and the Council.

Once approved, the 27 member states will have to apply the sanctions against the third country, even if they are not the direct victims of the coercion campaign. “Unity and solidarity remain essential to defend our values ​​and interests,” said Commissioner Valdis Dombrovskis, responsible for EU trade policy.

The European Parliament and the Council are committed to examining the proposal in due course. It has so far received broad feedback in response to previous Commission consultations. A new consultation has been opened for the next two months, until February 14, 2022, giving stakeholders and citizens the opportunity to submit additional comments, which the Commission will report to Council and Parliament.

In addition, the proposal must now be discussed and approved by the European Parliament and the Council of the European Union. It will be examined under the ordinary legislative procedure, whereby Parliament and Council will develop their positions internally before negotiating between them in trilogue discussions with the assistance of the Commission.

France and Germany appear to be supporting the proposal alongside other member states expressing concern over the growing trend of increasing economic coercion.

However, other countries such as Sweden and the Czech Republic, the Nordic countries and Ireland have expressed unease over the wide scope of the instrument and the risk that it will lead to further protectionism. They stressed that the sanctions should remain “exceptional”, comply with international law and that their harmful effects on the overall economy of the bloc should be minimized. In a joint statement, Sweden and the Czech Republic said “it would be extremely difficult (especially in a short period of time) to quantify the economic and political damage and find appropriate countermeasures”.

The main fear is that the economic coercion proposal will aggravate trade disputes, becoming a trade irritant instead of an effective deterrent against giants like Russia, China and the United States. An EU countermeasure could trigger a chain of retaliatory measures under the WTO Agreement, which can target completely different sectors. Such an escalation is exactly what worries some EU countries as well as like-minded bloc trading partners. It therefore remains to be seen whether the European capitals will succeed in diluting the instrument.

Additional questions have been raised by economic actors operating in the EU regarding the consequences of potential measures against coercive actions by third countries. For example, the instrument does not (so far) provide for the possibility of claiming compensation for damage suffered by economic operators as a result of reactive EU measures and other actions under the instrument.

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