The European Commission has approved this Wednesday a draft regulation that will allow a forceful response to political and economic pressure from third countries that is considered illegitimate. Brussels has grown tired of supporting coercive measures by rivals such as China or Russia, but also by allies such as the US. The new mechanism will allow commercial retaliation when a foreign government explicitly or surreptitiously tries to stop a European initiative through measures of economic pressure. “The EU needs a suitable instrument to respond to these threats,” said Commission Vice President Valdis Dombrovskis after the project was approved.
The Commission regrets that trade or investment restrictions are increasingly being used to prevent the EU or its states from adopting certain policy initiatives or legislative projects. The trend could go further, both due to the conflictive international scenario and the European push for increasingly ambitious environmental and social proposals. The proposal raises reluctance in some EU countries, which fear exacerbating trade battles. But it has received immediate support from France, which intends to promote it during its presidency of the EU, which begins on January 1.
With the regulation in force, if it receives the approval of the Council and the European Parliament, Brussels will be able to adopt retaliation that includes from closing the European market to certain goods or services to preventing companies from a third country from competing in public tenders or participating in projects financed from the community budget.
The EU has several trade defense instruments, but none specifically dedicated to countering coercion measures. Brussels believes that without a precise and forceful response mechanism, the only way to try to contain the attack is diplomatic, “which is not always sufficiently effective nor does it have the necessary deterrent character.”
Examples of coercive measures have multiplied in recent years. Since the recent pressure from China on Lithuania for having allowed the opening of a Taiwanese trade office in Vilnius to the boycott by Turkey of products of French origin due to the tightening of the rules against Islamic radicalism or the ban in Russia of Polish horticultural exports in response to European sanctions for the war in Ukraine.
Brussels believes that the prevailing geopolitical instability and the tension over multilateral governance lead some countries to adopt measures of pressure against norms or policies that they consider harmful to their interests, even if they are perfectly compatible with international law. “Increasingly, trade is being instrumentalized and the EU and its Member States are becoming targets of economic intimidation,” laments Dombrovskis.
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The Commission insists that “the objective is dissuasive and the ideal would be not to have to use this new instrument”. But he assures that “in current international relations coercion can be observed in different ways.” In some cases, third country governments opt for unofficial and disguised pressure measures, but the objective of which is clear. In other cases, according to Brussels, the attack is direct and even committed through legislative acts.
If deterrence fails, the new mechanism provides for a consultation process with the alleged aggressor country, to seek a de-escalation in coercion. And if the negotiation is unsuccessful, the EU will reserve the right to use a wide range of retaliation, which can range from limiting access to the European internal market, the world’s largest, to blocking third-country companies. .
The battery of measures available includes the increase in tariffs and the imposition of export quotas; the restriction of the transit of goods through European territory; the limitation in the possibilities of investment and of operating in the service sector; the restriction of the exercise of intellectual protection rights by non-EU citizens; penalizing bids in public tenders or total exclusion in bidding processes; and the prohibition of certain European exports destined for the punished country.
The Commission notes that all these sanctions are already available in various rules of European trade policy. But they have never been specifically used in response to coercion by third countries. Brussels believes that the escalation of tension at the international level requires a new instrument that allows for expeditious retaliation. The draft regulation foresees that the punishment proposed by the Commission would enter into force unless the EU partners spoke against it by qualified majority, a voting threshold that is considered difficult to reach.
The impact study carried out by the Commission to design the new defense mechanism illustrates the escalating pressure faced not only by the EU countries, but also by other actors on the international scene.
Russia, recalls the document, threatened in 2015 to ban the import of flowers from the Netherlands in the middle of a dispute over the downing of a commercial flight, with hundreds of Dutch passengers, attributed to Ukrainian separatist forces supported by Moscow. The Russian market was the destination for 5% of Dutch floral exports, worth 162 million euros. Sales fell 25% and did not recover until 2019.
At the end of 2019, according to the Commission, Indonesia surreptitiously blocked the European export of wine, spirits and dairy as a measure of pressure against the European regulation of palm oil as a fuel. European sales of beer, wine and spirits in the Indonesian market fell by 60% and in 2020 they were still 30% below the usual level.
The US also threatened additional tariffs on France, Italy, Spain and Austria as a measure to prevent them from adopting the so-called digital tax to tax big tech. The rule hit European exports worth 3.18 billion dollars (about 2.806 million euros) in order to prevent the new tax from taking effect. Washington has granted a truce, pending a possible international agreement on the digital tax, but the tariff threat remains.
A recent study by the ECFR (European Council on Foreign Relations) analysis center also points to the sanctions used by the US to try to prevent the participation of European companies in the construction of the Nord Stream 2 gas pipeline that connects Russia with Germany through the Baltic Sea.
The Commission’s proposal, however, specifies that extraterritorial sanctions would be excluded from the application of the new regulation when they do not seek to have a coercive effect on the EU or its States. In the same way, the measures that a third country adopts to pressure a European company in relation to its activity in that country would be outside the rules, as long as the possible conflict is not related to any political initiative of the EU.
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