Trade Defense Instruments: What to Expect From the Anti-coercion Instrument?

On October 3, 2023, the European Parliament adopted a report on a new trade defense instrument in the European Union (herein referred to as the “EU” and the “Union”): the so-called “anti-coercion instrument” (“ACI”). The ACI is expected to enter into force before the end of 2023 as a new addition in the EU’s trade defense toolkit.

First announced in the 2021 Trade Policy Review, the ACI is a novel legal framework aimed at preventing third countries from taking, or threatening to take, measures affecting trade or investment that would interfere in the legitimate sovereign choices of the Union or a Member State by seeking to prevent or obtain the cessation, modification or adoption of a particular act by the Union or a Member State. Economic coercion by third countries as a response to EU trade defense or other measures is undeniably an issue that increasingly occurs. EU complainants in trade defense cases are sometimes deterred from filing a trade action due to the risk of such coercion. If economic coercion however is confronted with EU counter-measures, through introduction of the ACI, it is likely to function as a deterrent for third countries from utilizing such coercion tactics.

Preparatory works, such as the European Council on Foreign Relations’ policy brief, highlight an “ever greater risk of economic coercion” for the EU, as well as increased coercion of private actors. A prime example of this issue is evident in the trade restrictions created in 2021 by the People’s Republic of China, targeting Lithuania in response to the opening by the Republic of China of a representative office in Vilnius under the name of “Taiwan.”

How will the EU respond to future economic coercion measures under the ACI?

1. Examination of the third country measures by the EU Commission
   
   This examination can be carried out either ex officio or upon request. The request must be substantiated by any reliable source including information from Member States, the European Parliament, economic operators or trade unions. During the examination phase, the EU Commission assesses whether there is a case of economic coercion and the impact of the relevant third country measures in coordination with Member States and stakeholders. This process takes 4 months.
   
   
2. Determination with regard to the third country measures by the Council of the EU
   
   Following its examination, the EU Commission may submit a proposal to the Council of the EU (the “Council”) to adopt an implementing act determining that the third country measures in question constitute economic coercion under the ACI. This proposal may include a request to the third country to repair any injury caused. The proposal is then adopted by the Council by a qualified majority. This process does not normally exceed 6 months.
   
   
3. Engagement with the concerned third country
   
   The third country can be involved early on in the procedure. Where useful for the purposes of the determination, the EU Commission must invite the third country concerned to submit its observations prior to submitting its proposal to the Council.
   
   Thereafter, if the implementing act is adopted, the EU Commission will consult with the third country and may enter into direct negotiations with it. It may also enter into mediation, conciliation or good offices with the involvement of a third party, or even submit the matter to international adjudication to seek the cessation of the economic coercion.
   
   
4. EU response measures
   
   If the previous phases do not lead to the cessation of the coercive measures by the third country and, when requested, to the reparation of the injury, the EU Commission may adopt response measures which can take the form of non-performance of applicable international and internal obligations. These measures can be of general application or specific to certain natural or legal persons, or to certain sectors or regions.
   
   This can lead to the introduction or increase of restrictions on the importation or exportation of goods, or the imposition or increase of customs duties among other possible measures.

How can businesses impact the decision-making process?

Businesses can intervene at two different stages of the procedure: during the examination phase and prior to the imposition of response measures.

1. File a request to the EU Commission
   
   In previous drafts of the ACI, only Member States were granted the right to request the Commission examine third country measures. This is no longer the case. Pursuant to the final legislative process negotiations, the current draft contains no restrictions on who can file a request to the EU Commission to examine third country measures provided that it is duly substantiated under the ACI. Thus, businesses can play a proactive role in the procedure, thereby providing potential for complaints to be raised by an entire industry. That being said, support from Member States remains paramount following completion of the investigation.
   
   
2. Provide information to the EU Commission
   
   The ACI Regulation designates economic operators and trade unions as “reliable sources” in the context of information collection. Businesses can therefore provide information to the EU Commission during its examination phase of third-country measures, no matter who initiated the procedure. To this end, an online portal will be created by the EU Commission. The information shared to the EU Commission can be treated confidentially upon the information provider’s request.
   
   
3. Take part in the stakeholders’ consultation prior to the imposition of measures
   
   Prior to the imposition of response measures, the EU Commission will consult stakeholders, most notably associations acting on behalf of Union economic operators and trade unions affected by the envisaged Union measures. The goal is to identify the impact of the Union response measures, how they will fit into the relevant Member State legislation and to understand the administrative burden occasioned by the measures.
   
   This is a key element in assessing the “Union interest” which is a main guiding principle for the response measures. Among the individual interests, which comprise of the “Union interest”, the ACI Regulation lists those of Union economic operators, including upstream and downstream industries, and of final Union consumers, affected, or potentially affected, by the economic coercion or by the Union response measures.
   
   Union interest is also prevalent in the amendment, suspension and termination of the Union response measures that were imposed.

The adoption of the ACI will enrich the EU's trade defense toolkit with the possibility of high-level government action against countries that apply unfair economic pressure upon the EU or threaten to do so. At present, economic coercion applied by third countries has remained unaddressed at government level due to the EU’s adherence with its international obligations and the lack of a legal basis to act. It will therefore be of significant interest to see how far the ACI will be effective. It is hopeful that in any event, it will be more so than prior to its adoption.