On December 8, 2021, the European Commission ("Commission") unveiled its much-teased proposal for an anti-coercion instrument, formally titled the "Proposal for a regulation on the protection of the Union and its Member States from economic coercion by third countries" ("Proposal").1

Already announced in the State of the Union 2020,2 the Proposal builds on a Joint Declaration of the Commission, the Council and the European Parliament of February 2, 2021,3 as well as extensive stakeholder consultations carried out in 2021.4 It is a direct response to what the Commission perceives as the rising weaponization of trade in a geo-economic context, where third countries unduly interfere with the policy choices and sovereignty of the European Union ("EU") or its member states.

If the Proposal is adopted, the Commission would possess far-reaching tools to dissuade or offset coercive actions by third countries, through deterrence, negotiation, threats of countermeasures and-as a last resort-actual countermeasures. The Proposal constitutes one of the most significant improvements to the EU's trade arsenal and reflects the Commission's ambitions for an EU open strategic autonomy and a more assertive role on the geopolitical scene.

1. Ensuring the sovereignty of the EU and its member states: What kind of economic coercion is targeted by the Proposal?

The Proposal seeks to tackle situations where a third country (i) interferes in the legitimate sovereign choices of the EU or a member state by seeking to prevent or obtain the cessation, modification or adoption of a particular act by the EU or a member state (ii) by applying or threatening to apply measures affecting trade or investment ("coercive measures").

The definition is intentionally broad to cover both formal and informal measures of economic coercion in the form of trade or investment restrictions. It is also not limited to any specific sector and could therefore apply to any field in which the EU or its member states are active. Finally, this definition should cover not only actions having effects within the territory of a third country but also actions taken by the third country, including those having effects through EU entities that it controls or directs.

Examples of coercive measures that have been provided include "extra, discriminatory import duties, intentional delays, or refusing authorisations needed to do business,"5 as well as the use of "explicit December 9, 2021 2 Mayer Brown | European Commission Unveils Its Anti-Coercion Instrument Proposal coercion and trade defence tools against the EU, to selective border or food safety checks on goods from a given EU country, to boycotts of goods of certain origin." 6

As a result, the Commission will have an important margin of discretion in identifying what constitutes a coercive measure. The Proposal, however, suggests several criteria to be assessed, namely:

  • The intensity, severity, frequency, duration, breadth and magnitude of the third country's measure and the pressure arising from it;
  • Whether the third country is engaging in a pattern of interference seeking to obtain from the EU or from member states or other countries particular acts;
  • The extent to which the third country measure encroaches on an area of the EU's or member states' sovereignty;
  • Whether the third country is acting based on a legitimate concern that is internationally recognized; and
  • Whether and in what manner the third country, before the imposition of its measures, has made serious attempts, in good faith, to settle the matter by way of international coordination or adjudication, either bilaterally or within an international forum.

2. Favoring the carrot over the stick: What are the processes under the Proposal to dissuade or offset economic coercion?

First and foremost, the Commission hopes that the simple existence of an anti-coercion instrument would dissuade third countries from adopting or threatening to adopt coercive measures, with the mere possibility of countermeasures acting as a credible deterrent against such measures.

Nonetheless, should dissuasion fail, the Proposal provides for the implementation of a four-step process to be triggered as soon as a third country adopts or threatens to adopt coercive measures. As summarized in the Commission's press release, "The anticoercion instrument is designed to de-escalate and induce discontinuation of specific coercive measures through dialogue as a first step. Any countermeasures taken by the EU would be applied only as a last resort when there is no other way to address economic intimidation."7

The four-step process can be summarized in four words, "assess, talk, warn, strike":

  • As a first step, the Commission would examine whether a particular third country measure qualifies as a coercive measure, either on its own or following information received from any source. As part of this examination, the Commission would be entitled-but not obliged-to request information from third parties, including by publishing a notice in the Official Journal of the EU or other means of public communication.8 Should the Commission consider that a coercive measure exists, it would be required to adopt a public decision.9
  • As a second step, the Commission would be "open" to enter into negotiations with the relevant third country, either through direct negotiations, mediation, good offices or international adjudication. The objective would be for the coercion to cease.
  • As a third step, if no amicable or adjudicated solution is found,10 and if action is deemed necessary and in the Union's interest, the Commission would be able to adopt an act detailing:
    • (i) the countermeasures to be adopted; and
    • (ii) a set deadline for their application.

    The third country would have to be notified of this act and of the option to cease coercion, negotiate or face the countermeasures. The effective implementation of the countermeasures may then be deferred, in case of indications that coercion ceased, or terminated, in case coercion ceased, before the deadline set by the Commission.

  • As a final step, if coercion has not ceased before the set deadline, countermeasures would start being applied. As an exception, the Proposal foresees that countermeasures may be immediately applied when this is necessary for the preservation of the rights and interests of the EU or member states, notably of the effectiveness of countermeasures.

The Proposal clearly favors de-escalation and agreed-on solutions. Even if countermeasures are adopted, the Commission would have to remain open to engage with the relevant third country in order to obtain the cessation of the coercion measure, with the option to suspend the countermeasures.

The Proposal also pushes for international cooperation and multilateralism, as the Commission would be required to (i) raise the issue of coercive measures in relevant international fora and (ii) consult or cooperate with other countries affected by coercive measures, like-minded partners and allies.11

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1 Proposal for a regulation of the European Parliament and of the Council on the protection of the Union and its Member States from economic coercion by third countries, COM(2021) 775 final, 8.12.2021, available at: https://trade.ec.europa.eu/doclib/docs/2021/december/tradoc_159958.pdf

2 State of the Union 2020, Letter of Intent to President David Maria Sassoli and to Chancellor Angela Merkel, 16.9.2020, available at: https://ec.europa.eu/info/sites/info/files/state_of_the_union_2020_letter_of_intent_en.pdf The Proposal was also part of the Commission Work Programme 2021, available at: https://ec.europa.eu/info/sites/info/files/2021_commission_work_programme_en.pdf

3 Joint Declaration of the Commission, the Council and the European Parliament on an instrument to deter and counteract coercive actions by third countries, OJ C 49, 12.2.2021, p. 1 ("Joint Declaration").

4 In particular, see the feedback on the inception impact assessment of February 17, 2021, and the summary factual report of the open public consultation and the summary, European Commission, Trade - mechanism to deter & counteract coercive action by non-EU countries, available at: https://ec.europa.eu/info/law/better-regulation/have-your-say/initiatives/12803-Trademechanism-to-deter-&-counteract-coercive-action-by-non-EU-countries_en

5 Inception Impact Assessment, Instrument to deter and counteract coercive actions by third countries, 17.2.2021, available at: https://ec.europa.eu/info/law/better-regulation/have-your-say/initiatives/12803-Trade-mechanism-to-deter-&-counteractcoercive-action-by-non-EU-countries_en

6 European Commission, EU strengthens protection against economic coercion, 8.12.2021, available at: https://trade.ec.europa.eu/doclib/press/index.cfm?id=2339

7 Ibid.

8 In that case, the third country targeted would have to be notified.

9 While the third country targeted may be invited to submit observations before the adoption of that decision, it would have to be notified in any case upon publication of the decision and invited to cease coercion and, where appropriate, repair the injury suffered by the EU or its member states.

10 With regard to not only the cessation of the economic coercion but also the reparation of the injury caused to the EU or a member state.

11 Including, where appropriate, coordination in relevant international fora and coordination in response to the coercion.

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