20 October 2023

Erika Szyszczak is a Professor Emerita and a Fellow of the UKTPO. She was the Special Adviser to the House of Lords Internal Market Sub-Committee in respect of its inquiry into Brexit: competition and state aid, and has previously acted as a consultant to the European Commission. She specialises in EU economic law. She is currently working with the European Judicial Training Network on developing training courses for national judges in EU competition law.

On 3 October 2023 the Council and the European Parliament reached provisional political agreement on an Anti-Coercion Instrument (ACI).[1] It is the latest legal trade measure contributing to the developing economic statecraft of the EU as part of the Open Strategic Autonomy. The tipping point for the EU to consider an extra method to address trade distortion occurred when China imposed trade restrictions on Lithuania after Lithuania improved trade relations with Taiwan. Lithuanian companies found that they could not renew or conclude contracts with Chinese firms, shipments were not being cleared and customs paperwork was held up. The ACI is portrayed as a deterrent device, discouraging third states from targeting the EU and its Member States with economic coercion through measures affecting trade or investment. It is another example of how the EU is forging a leadership role in developing new economic trade rules in a fragmented global trading world, by stealing a lead in the narrative on what is, and what is not, acceptable trade policy.

Legislative Process

The European Commission proposed the ACI in the form of a Regulation on 8 December 2021 at the request of the Council and the European Parliament. The European Parliament Committee on International Trade adopted amendments to the proposal on 10 October 2022, and in the plenary session confirmed the Parliament’s negotiating mandate on 19 October 2022. The Council agreed its negotiating position on 16 November 2022.

The tipping point for the EU to consider an extra method to address trade distortion occurred when China imposed trade restrictions on Lithuania after Lithuania improved trade relations with Taiwan. Lithuanian companies found that they could not renew or conclude contracts with Chinese firms, shipments were not being cleared and customs paperwork was held up.

The Legal Base for the ACI is Article 207(2) TFEU:

“The European Parliament and the Council, acting by means of regulations in accordance with the ordinary legislative procedure, shall adopt the measures defining the framework for implementing the common commercial policy.”

This is trade legal base for a measure designed to enhance EU economic and political resilience. The European Parliament Committee on International Trade adopted amendments to the proposal on 10 October 2022, and in the plenary session confirmed the Parliament’s negotiating mandate on 19 October 2022. The Council agreed its negotiating position on 16 November 2022.

Definition of economic coercion

The ACI defines economic coercion as when a non-EU country attempts to pressure the EU or a Member State into making a specific choice by applying, or threatening to apply, trade or investment measures. In the European Parliament Briefing ‘Proposed anti-coercion instrument’ different types of economic coercion are identified:

• Explicit Coercion: based on the use of formal measures. The US Trade Act of 1974 (Sect. 301) has been used or threatened to launch trade-restrictive actions with the aim to influence a foreign country to cease applying a measure that the US perceived as unreasonable and unfairly harmful to its commercial interests.
• Disguised coercion: when an instrument set up with a legitimate purpose is abused, for e.g. excessive or discriminatory use of sanitary and phytosanitary measures.
• Silent coercion or boycott: informal restrictions applied by private players who are unofficially instructed to do so by a country’s government or are called upon to do so by state-controlled media.

Once notified of an alleged act of economic coercion the European Commission must investigate within 4 months. The European Commission report will be sent to the Council which then has between 8 to 10 weeks to decide, by a qualified majority vote, whether the complaint of economic coercion exists. The first response will be to engage in dialogue to persuade the authorities of the non-EU country to stop the acts of economic coercion. If diplomacy fails, the EU has a range of countermeasures it can apply with the consent of its Member States. These include restrictions in trade of goods and services, intellectual property rights and foreign direct investment, imposing constraints on access to the EU public procurement market, capital market, and authorisation of products under chemical and sanitary rules. The European Commission has 6 months to set out the appropriate responses, whilst keeping the European Parliament and the Council informed at all stages.

Comment

The ACI is a new legal development in international trade law. It has been developed in response to activities deployed by China and the US which threaten EU security. The ACI is another example of how the UK, post-Brexit, may be the target of EU trade defence instruments.

Why does the EU need the ACI? The European Commission justifies the measure by arguing that new forms of economic coercion are not addressed by the existing conventional trade defence measures of the EU (for e.g. anti-dumping).

The concept of economic coercion set out in the ACI is not caught by current WTO rules. Even if the threatening behaviour could be brought within the existing WTO agreement, the stymied appellate process makes enforcement difficult.

However, the ACI is not a rapid defence trade mechanism. In fact, an EU firm or sector could suffer irreparable damage in the time it takes to activate and use the ACI. It may also encourage third countries to develop their own trade defence tools which are more effective than the ACI in responding to escalating situations.

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Footnotes

[1] The European Commission proposed the ACI in the form of a Regulation on 8 December 2021 at the request of the Council and the European Parliament. EUR-Lex – 52021PC0775 – EN – EUR-Lex (europa.eu). The European Parliament Committee on International Trade adopted amendments to the proposal on 10 October 2022, and in the plenary session confirmed the Parliament’s negotiating mandate on 19 October 2022. Procedure File: 2021/0406(COD) | Legislative Observatory | European Parliament (europa.eu). The Council agreed its negotiating position on 16 November 2022. pdf (europa.eu). The Legal Base for the ACI is Article 207(2) TFEU: The European Parliament and the Council, acting by means of regulations in accordance with the ordinary legislative procedure, shall adopt the measures defining the framework for implementing the common commercial policy.

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