Anti-Coercion Instrument

On 28 March 2023, negotiators of the European Parliament (hereafter “the Parliament”), the Council of the European Union (hereafter “Council”) and the European Commission (hereafter “the Commission”) reached a provisional political agreement on the Proposal for a Regulation on the protection of the Union and its Member States from economic coercion by third countries, the so-called Anti-Coercion Instrument (hereafter “ACI”). A landmark project of the von der Leyen Commission, intended to complement the Commission’s existing trade policy toolbox, providing it with an additional legal instrument to deal with economic coercion by powerful foreign states such as China and Russia but also the United States, is thus steadily approaching final adoption.

Background

The Proposal was presented by the Commission on 8 December 2021, at the request of the Council and the Parliament, following a significant increase in coercive practices by third countries trying to influence the decisions of the EU and its Member States. The intention of the Commission was to provide the EU with an instrument that could deter economic coercion against the Union and its Member States while preserving the European trade agenda. See our previous News Alert on the Commission’s Proposal and its implications for the EU trade agenda here.

Key Features of the ACI

The ACI lays down a framework for the Union to respond to economic coercion by third countries. The provisional agreement is largely in line with the Proposal, according to which economic coercion refers to a third country seeking to pressure the Union or a Member State into making, refraining from or modifying a legitimate sovereign policy choice by applying measures affecting trade or investment against the Union or Member State. The ACI aims to ensure effective protection of the interests of the Union and its Member States by providing for deterrence and desistence measures such as dialogue with the third country, but legitimising counteracting measures as a last resort.

The Proposal stipulates the criteria to be taken into account when determining whether economic coercion is being exerted, the procedure to be followed pursuant to the determination, the possibility of engagement and cooperation, and, in a final step, response measures, including criteria for selecting a suitable response measure.

Moreover, the Proposal lays down deadlines for the EU action. Negotiators decided on a precise timeframe for the different phases in order to ensure prompt reaction: not more than a year can elapse from the initiation of the investigation to the adoption of the decision.

A possible countermeasure must be adopted by way of an Implementing Act, subject to the so-called comitology procedure, meaning the Commission would be entitled to adopt the measure if approved by a qualified majority by a Committee composed of representatives of EU Member States. Annex I to the Regulation lists the different measures the EU may adopt, including: restrictions to trade, increased customs duties, import or export licences, restrictions in the field of services or public procurement, imposition of retaliatory tariffs and quotas, restrictions to EU funded research programs, tighter controls on export of dual-use items, restrictions to foreign direct investment, market restrictions on certain products (for example chemicals), measures related to intellectual property, et al.

Although the text of the political agreement has not yet been published and it may take several weeks before it is, it is understood that the political agreement provides for a strengthening of the Council’s role in the determination of economic coercion. The agreement also ensures increased involvement of Member States in selecting countermeasures.

A prominent recent coercion case involves China’s adoption of coercive trade sanctions against Lithuania after the EU country opened a diplomatic representation of Taiwan in its capital. Mr Bernd Lange, negotiator for the Parliament, did not hesitate to name China and the US (the latter pursuant to threats of punitive tariffs in case the EU were to implement a digital tax against big US corporations) during negotiations of the political agreement. The Commission President, Ursula von der Leyen, in a recent speech on EU-China relations, also stressed that the Union should rebalance its relationship with China, by making more and better use of its trade instruments.

Next Steps

Technical discussions concerning the Proposal will continue in the coming weeks. The agreed text must then be endorsed by the negotiators at a final meeting and formally adopted by the two co-legislators, Council and the Parliament, most likely before the third quarter of 2023. Once the legislative procedure is completed, the Regulation will be published in the EU Official Journal and it will enter into force 20 days afterwards.