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EU plan to tackle ‘coercion’ against member states faces resistance

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A proposed EU law that would allow swift retaliation against countries such as China and Russia over economic sanctions faces resistance from some member states.

The anti-coercion instrument would give the European Commission sweeping powers to impose tariffs and quotas, restrict intellectual property protection and even lock countries out of EU financial markets.

But some countries fear the regulation could breach World Trade Organization rules, increase protectionism and damage a fragile trading system.

The plan must be backed by a majority of EU member states as well as by the European Parliament before it can come into force.

A draft proposal seen by the Financial Times, to be endorsed by the commission on Wednesday, says the instrument would deter countries from targeting member states.

Officials said it could be used in the dispute between China and Lithuania, which says Beijing has blocked all imports because of its policy on Taiwan. Lithuania allowed a Taiwanese Representative Office to open in November; China considers Taiwan as part of its territory.

Under the new law, the commission would be able to respond swiftly. If talks with the other country did not solve the issue, it could, with member state approval, take 12 possible countermeasures.

These include levying tariffs; banning chemical imports; suspending science co-operation; and “the imposition of restrictions for banking, insurance, access to Union capital markets and other financial services activities”. The measures could be taken against companies or individuals.

The commission’s proposal defines economic coercion as “seeking to pressure the union or a member state into making a particular policy choice by applying, or threatening to apply, measures affecting trade and investment”.

“There is an ongoing and significant use of economic coercion by third countries that threatens to undermine the rights and interests of the union and member states,” it adds.

Using trade policy rather than foreign policy gives the commission more leeway. The regulation and any action taken under it only requires a qualified majority among member states to become law, rather than unanimity, which is necessary for foreign policy tools.

Possible triggers would have included Russia’s boycott of EU produce in 2014 after the bloc first imposed sanctions over the downing of a Malaysia Airlines flight over Ukraine.

The commission also cited as a trigger an effective ban by Indonesia on EU spirit imports in 2019, in response to action the EU had taken to tackle palm oil production causing deforestation.

However, several member states believe the WTO is more effective than unilateral action. Sweden, the Czech Republic and Estonia have all questioned the need for the plan, while Finland and Italy are sceptical, according to diplomats.

Several others, such as Germany, Denmark and Ireland, are waiting till they have seen the proposal before they endorse it.

Japan has made a public objection, saying the instrument could break WTO rules, a concern shared by some EU capitals.

Estonia, in response to a consultation, demanded that “the proposed instrument must be fully in line with WTO rules”. The commission should also assess “the possibility of exacerbating trade disputes, of inviting retaliation on the part of our trading partners, and of harmful effects on the rules-based multilateral trading system, in addition to the cumulative negative effect on the EU’s openness in terms of trade”.

Sweden and the Czech Republic, in a joint submission to the commission, said any retaliation should be “a last resort”. They also warned that such moves could cause the EU more harm than good by hitting its own businesses. “It is crucial that member states are fully engaged in the decision-making,” they said.

The US also had concerns, diplomats said. Washington declined to comment.



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