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EU Commission Proposes New Regulation to Combat “Economic Coercion”

EU-flag-1324832819-300x200On December 8, 2021 the EU Commission published its proposal for a new “Anti-Coercion Instrument.” The regulation is being proposed in response to targeted deliberate economic pressures applied to the EU and its Member States in recent years and seeks to deter countries from restricting or threatening to restrict trade or investment to force the EU (or individual Member States) to change their policies in areas such as climate change, taxation and food safety.

If passed, the regulation would apply where a country “interferes 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 by applying or threatening to apply measures affecting trade or investment” (“economic coercion”). The new regulation includes factors that will be considered to determine whether the actions of a country meet these criteria and empowers the Commission to take reactionary steps where they do.

The Annex to the proposed regulation includes 12 response measures that the EU may take where economic coercion is established. Such measures include the imposition of tariffs and restrictions on imports from the country in question, restrictions on services or investment to the country, and measures aimed at limiting the offending country’s access to the EU’s internal market. These measures will be applied by way of implementing acts adopted under the proposed regulations. These implementing acts may also designate specific legal or natural persons that shall be subject to Union response measures (persons connected or linked to the government of the relevant third country) as well as persons from whom affected parties can recover damages suffered as a result of the economic coercion measures.

The EU Commission notes that the primary function of the proposed regulation is deterrence and that “the instrument would be most successful if there is no need to use it.” Reactionary measures will only be adopted if the third country fails to disapply the coercive measures (and repair the injury suffered to the Union or its Member States). Acts adopting response measures will be accompanied by a notification to the relevant country including a call on them to promptly cease the coercion and negotiate a solution (unless an immediate response is necessary for the preservation of the rights and interests of the Union or Member States).

Notably, the Commission has asserted that economic coercion sits within the sphere of the EU’s trade policy. If accepted, this means that measures could be implemented without the unanimous decision required for comparable foreign policy measures. The proposed regulation will be discussed between the European Parliament and the Council of the EU which will negotiate whether it should be adopted and whether any amendments should be made. The European Parliament is likely to support the regulation (having itself called for similar measures in the past) but the proposal is likely to be more controversial in the Council of the EU (which is made up representatives from each EU Member States). Early reports indicate that a number of Member States have already voiced concerns on the proposals impact on foreign policy and trade. National governments may oppose the proposal on the grounds that it impinges national sovereignty.

There are also valid concerns that, if passed, the regulation could have the opposite of its intended effect, instead escalating trade wars between conflicting regimes. Retaliatory measures imposed by the EU may simply lead to further measures imposed by the third country and an all-out trade war between the EU and the country concerned.