Anti-Coercion Instrument is in the news again, this time as a potential tool to counter the new tariffs threat from the US. It was not used the last time, but all bets are off this time around.

This is all, at least from a policy and normative perspective, very unexpected, as the ACI was envisaged as a tool to counter coercion from China. For example; in 2021, China abruptly halted customs clearance for shipments from Lithuanian firms in pharmaceuticals, electronics, and food without prior notice. China threatened secondary sanctions if multinationals didn’t sever ties with Lithuania. This was a response to Lithuania’s invitation to Taiwan to establish a ‘representative office’ in Vilnius.  

The EU and its Member States are increasingly constrained by economic and other instruments to give up their policy choices. What changed is that this pressure is now emanating from its’ biggest NATO ally.

On 17 January, president Trump posted a Truth Social post where he declared that Denmark, Sweden, Norway, France, Germany, the UK, Netherlands and Finland – countries that recently sent a symbolic military presence to Greenland – will be charged a 10% tariff from 1 February, and a 25% tariff from 1 June. This will stay in force until the EU has been allowed to purchase Greenland from Denmark.

Since six of these countries are Member States of the EU, possible retaliatory measures are appearing in the press, which means that the ACI is again frequently mentioned. The ACI is described as a “trade bazooka“, due to its potential devastating effect on the receiving country. But a more apt description might be the ”trade trebuchet” – while still devastating, it’s much more slow firing.

This analogy will become more clear soon, as I’ll use this blogpost as a short thought exercise on the possibility of the application of the ACI in this situation.

1. What constitutes “coercion“?

According to Article 2(1) of the ACI, “economic coercion exists where a third country applies or threatens to apply a third-country measure affecting trade or investment in order to prevent or obtain the cessation, modification or adoption of a particular act by the Union or a Member State, thereby interfering in the legitimate sovereign choices of the Union or a Member State.“

If using tarriffs as a tool to force a Member State to sell/cede territory is not “economic coercion“, I don’t know what is.

2. Is the US a third country?

Third countries within the EU international trade and public procurement context are usually defined as nonmember countries without a Free Trade Agreement (FTA) in place with the EU. Under this definition, it would be hard to designate the US as a third country. But the definition used in the ACI is much broader, as Article 3(4) defines a third country as ”any State, separate customs territory or other subject of international law, other than the Union or a Member State.” Therefore – the US is a third country within the context of the ACI.

3. Investigation

Acts of economic coercion are often subtle and not self-evident. Therefore, the ACI tasks the Commission to conduct investigations to establish the presence of coercive measures. The deadline for the completion of such an investigation is 4 months (might be longer in certain situations).

It is questionable is a (lengthy) investigation necessary here, since the implementation and especially cessation of tariffs is clearly connected to the annexation of territory of a Member State. Coercion is self-evident and subtlety has left the building.

4. The role of the Council

If the Commission believes that a third country is applying economic coercion, it will it submit a proposal to the Council for an implementing act under Article 5(1) of the ACI. The implementing act is a prerequisite for applying response measures. The Council has 10 weeks max to come to a decision, and the decision is to be reached by a qualified majority.

A qualified majority is reached if two conditions are simultaneously met:

• 55% of member states vote in favour – in practice this means 15 out of 27,
• the proposal is supported by member states representing at least 65% of the total EU population.

Therefore, a decision cannot be blocked by a single Member State.

5. Making nice with the third country

If the Council adopts an implementing act, the Commission has to enter consultations in good faith with the third country in question, and try to reach an amicable solution and try to convince the third country to cease coercive practices (Article 6 of the ACI).

Taking into account the facts of the case at hand, I’m doubtful such an approach would be successful, but it would be time-consuming and further delay the potential implementation of response measures.

6. Applying the implementing act – response measures

The Commission will apply response measures if;

• talks with the third country in question were unsucessful,
• the adoption of response measures is necessary to protect the interests and rights of the EU and its Member States in the particular case, in light of the options available;
• the adoption of response measures is in the EU’s interest.

EU’s interest is determined according Article 9 – those interests include primarily the preservation of the ability of the EU and its Member States to make legitimate sovereign choices free from economic coercion, and all other interests of the EU or the Member States specific to the case, the interests of EU economic operators, including upstream and downstream industries, and the interests of EU final consumers affected or potentially affected by the economic coercion or by EU response measures.

While Article 9 implies striking a balance between EU and Member State sovereignty, interests of EU economic operators and consumers – this should always be evaluated according to the nature, scope and severity of the coercion measures in question and the end goal of those measures. If the end goal of the coercive measures is the acquisition of a Member State’s territory – the balance of those interest should tilt towards sovereignty.

Response measures may be general (applying to all economic operators, goods and services originating from the third country), economic operators tied to the third country government, or particular sectors regions or operators. This means that the EU may, for example, decide to target only the big US IT/Tech companies.

7. What response measures are available?

According to Article 11, response measures shall be proportionate to the injury caused and reflect the gravity and impact of the economic coercion. The Commission shall select measures that are effective in ending the coercion, minimise negative effects on EU actors, investment, employment and EU policies, avoid excessive administrative burdens, take account of international law and third-country responses, and give priority to the most effective and least harmful options.

These criteria will be applied when selecting from these available measures, as well as deciding on their severity;

• raising or introducing new import or export taxes (customs duties);
• limiting how much or what kind of goods can be imported or exported;
• placing new barriers on buying or selling goods across borders;
• restricting  companies from providing services (such as transport, IT, or consulting);
• limiting or blocking investment in the EU;
• restricting the use or commercial exploitation of intellectual property (such as patents, trademarks, or copyrights);
• limiting access to banking, insurance, EU capital markets, or other financial services;
• restricting the sale in the EU of certain chemical products;
• restricting the sale in the EU of certain food, agricultural, or animal products;
• excluding companies from EU public procurement or reducing their chances of winning contracts through score adjustments.

Taking into account the severity of the implied coercive measures here, it is hard to imagine a lenient interpretation of the criteria for the severity and choice of response measures. The list of potential response measures is extensive, and contains exceptionally strong economic deterrents – including blocking investments, limiting access to financial services, but also the restricting of commercial exploitation if intellectual property.

8. ACI is powerful, but slow to fire

ACI is a tool meant to protect the EU and the Member States from third country coercion. It is a very powerful tool with potentially significant ramifications of the relationship of the EU and the third country in question, which is probably one of the reasons why it still hasn’t been used. The other reason is the fact that coercion can be subtle and difficult to prove. This is why the ACI introduces relatively lengthy investigations. Because of the high political sensitivity of such measures, the ACI also gives the Council a long time for deliberation on the implementation act (but unanimity is not required), and it forces the Commission to reach out to the third country that is implementing coercive measures and try to remedy the situation through (lengthy) negotiations.

Therefore, if the Commission and the Council decide to implement the ACI – response measures will probably not be applied any time soon. But if the Commission and the Council decide not to apply the ACI here – the Parliament might as well repeal it, as it is hard to imagine a trade-based coercive measure with more serious objectives and more serious ramifications for the sovereignty of the EU and its Member States.

 

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