The Anti-Coercion Instrument is about to enter into force
Today, the Regulation on the protection of the Union and its Member States from economic coercion by third countries has been published in the EU Official Journal and will enter into force on December 27th. The Regulation lays down the Anti-Coercion Instrument (“ACI”), aiming to discourage foreign states from targeting the EU and its Member States with coercive economic measures in trade and investment.
The European Commission (hereafter “the Commission”) published the proposal for the ACI in December 2021 (see our News Alert here) and the European Parliament, Council of the EU and the Commission reached a political agreement on the final shape of the law in March 2023 (see our News Alert here).
Objectives of the ACI
The ACI is a “vital tool to deter economic intimidation and defend EU interests in an increasingly volatile world”, said EU Trade Commissioner Valdis Dombrovskis.
The ACI is intended to complement the EU’s existing toolkit of trade defence instruments and specifically to allow the EU to dissuade or offset coercive actions by third countries, and as a last resort to expeditiously undertake countermeasures, taking into account the EU’s obligations under relevant international law. It is, thus, first and foremost a deterrent instrument, having as primary objective the de-escalation of situations of economic coercion through dialogue and engagement. The new tool represents a building block of the new EU trade agenda.
How does the ACI work?
The procedure envisaged in the ACI-Regulation consists of a series of steps aimed at determining whether there is economic coercion and inducing the third country concerned to comply with its international obligations, to cease the action and, where appropriate, providing reparation for the injury caused.
According to the ACI-Regulation, 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.
The Commission and Council together shall formally determine whether there is a case of economic coercion, although the Commission is largely in the lead as regards the conducting of an investigation and implementation of response measures. The Commission starts the examination of a third country measure ex officio or upon a request received from a Member State, the European Parliament, economic operators or trade unions. In its examination, the Commission must take into account the national and international context and certain aspects of the measure, such as the intensity, severity, frequency, duration and impact of the measure on trade or investment relations and on businesses. This process, to be conducted in coordination with Member States and stakeholders, and shall not exceed four months.
If the Commission concludes that the measure indeed constitutes economic coercion, it will submit a proposal to the Council for an implementing act. The proposal can include a request for the third country to repair the injury to the Union. The Council shall decide on the proposal by way of qualified majority within eight weeks.
It is important to underline that the third country concerned has the opportunity to be heard by the Commission during the examination and, following the adoption of the Council decision regarding the existence of the economic coercion, the Commission can explore alternative means such as direct negotiations, international adjudication, mediation, conciliation or good offices to cease the coercion and reach an early settlement of the matter.
If the previous phases do not lead to the cessation of the coercive measure and to the reparation of the injury, where requested, the Commission has the power to adopt Union response measures by means of implementing acts. Prior to the imposition of these measures, interested parties such as economic operators can take part in the consultation with the Commission to show possible impacts of any proposed measures on both upstream and downstream industries and consumers within the Union. The real novelty of the ACI lies in its voting system: in order for trade remedies to be imposed, the Commission only needs a qualified majority amongst Member States, instead of the unanimous consent needed to adopt measures in foreign policy issues. However, the Commission stressed that it will work towards solutions which ensure the widest possible support by the EU Member States.
Annex I of the ACI-Regulation lists a number of possible countermeasures related to goods and services such as customs duties, imposition of trade restrictions on the import/export of goods, restrictions in the field of services or public procurement but also regarding intellectual property rights and foreign direct investment. However, the Commission may also decide to adopt a measure not listed, provided it is proportionate and temporary. In designing the response measure, the Commission shall take into consideration a series of factors such as the Union interest, the negative implications of the measure for other European policies and any eventual administrative complexity and costs. These measures can be of general application or specific to certain natural or legal persons or to certain sectors or regions.
The Commission will monitor the economic coercion and the effectiveness of the Union response measure, which can be amended, suspended, and terminated according to the evolution of the situation.
The ACI was originally intended as a tool to address economic measures adopted by the then Trump administration, but its focus later shifted to China’s action against Lithuania upon deciding to open a “Taiwan representative office” in Vilnius in 2021.
Nevertheless, in general, the ACI is designed to protect the EU from all kinds of economic coercion from third countries. This is supported by the fact that the definition of economic coercion set out in the ACI-Regulation is kept broad and could allow the Commission to trigger the ACI in a wide range of circumstances.
The backdrop of the legislative process of the ACI indicated a common understanding amongst Member States of the need to strength the Union’s arsenal against unfair trade practices. In fact, the rationale behind different policy and legal instruments recently introduced is linked to the need to develop supply chain resilience, improve security of critical infrastructure, and intervene against the so-called weaponization of economic and trade policies. Even if the ACI is within the scope of the Union common commercial policy, it is conceivable that the instrument will also be used by the EU to pursue foreign and security policy objectives, aiming to strengthen the EU’s strategic autonomy. The significant shift in competence in favour of the Commission, which will have the power to undertake the investigations and, where needed, impose countermeasures without the need to have the unanimous consent of all EU Member States, could significantly enhance the Union’s response in difficult situations. For example, as regards the adoption of sanctions against Russia, EU Member States’ opinions have at times been divided. The ACI could play a role in the future in the EU’s response to the economic consequences of war situations or similar threats or crises. Nevertheless, the three institutions, the Commission, the Council and the Parliament, in a joint statement stated that the ACI-Regulation is strictly subject-specific and does not represent a precedent for other legislative files within the scope of the common commercial policy.
Lastly, the ACI is meant to protect the Union or Member States’ interests, but given that the broad range of possible countermeasures, it cannot be ruled out that third-country businesses trading or investing in the Union could be affected in their operations.