The EU Introduces Legislation Tackling Economic Coercion by Third Countries

On 8 December 2021 the European Commission (“Commission”) responded to the increasing third country interferences in the EU’s and/or EU Member States’ policy choices by presenting a legislative proposal for the Anti-Coercion Instrument (“ACI”). On 6 June 2023 the Council of the EU (“Council”) and the European Parliament reached a political agreement on the content of the ACI.

As a result, on 3 October 2023, the European Parliament adopted in the first reading the proposal for a regulation on the protection of the Union and its Member States from economic coercion by third countries, commonly referred to as the ACI.¹ In turn, the Council approved on 23 October 2023 the European Parliament’s position paving the way for the entry into force of the ACI.² The signing of the regulation is expected to take place on 22 November 2023 and it will enter into force 20 days after its publication in the Official Journal of the European Union (“OJEU”).

The ACI provides for a framework for the EU to react to specific situations of economic coercion by taking, as a last resort, countermeasures towards the third country exerting the pressure.

What Is Economic Coercion by Third Countries?

ACI will apply in cases of economic coercion by a third country, namely when the following two cumulative conditions are fulfilled: (i) a third country applies or threatens to apply a measure affecting trade or investment in order to prevent or obtain the cessation, modification or adoption of a particular act by the EU or an EU Member State, and (ii) such measure interferes in the legitimate sovereign choices of the EU or an EU Member State.³

The definition of economic coercion will cover explicit economic coercion, such as the imposition of import duties in an attempt to influence the EU's or an EU Member State's stance, as well as implicit economic coercion, such as boycotts or informal restrictions applied by private actors instructed to do so by a country's government or called upon to do so by state-controlled media. Finally, the ACI will also apply to disguised economic coercion through an abuse of otherwise legitimate tools, such as sanitary and phytosanitary (“SPS”) measures.

When determining the existence of economic coercion, the Commission and the Council will take into account the intensity, severity, frequency, duration, breadth and magnitude of the third country measure and the pressure it creates on the EU or an EU Member State.⁴ They will examine whether the third country is engaging in a pattern of interference seeking to prevent or obtain particular acts and the extent to which the measure encroaches upon an area of sovereignty.⁵ The Commission and the Council will also take into account whether the third country is acting on the basis of a legitimate concern that is internationally recognized and whether the third country, before the imposition or application of the third-country measure, made serious attempts, in good faith, to settle the matter through international coordination or adjudication, either bilaterally or through the relevant international forum.⁶

2.  Procedural Aspects of the ACI

(a) Examination of third-country measures

The Commission will establish the existence of economic coercion on its own initiative or based on a duly substantiated request.⁷ Such request or any information pertaining to a third-country measure can be submitted to the Commission by any reliable source, including an EU Member State, the European Parliament, economic operators or trade unions.⁸ For this purpose, the Commission will put in place a secure tool to facilitate the submission of relevant information.⁹

The Commission will have up to four months to examine a third-country measure. Where necessary, the Commission may publish a notice in the OJEU or use other suitable means of public communication to invite stakeholders to submit information in relation to a third-country measure within a specified time limit.¹⁰ The Commission may also request EU Member States to supply relevant information.¹¹

(b) Determination with regard to the third-country measure

If the third-country measure meets the conditions of economic coercion, the Commission will inform the European Parliament of the outcome of its examination.¹² The Commission will then submit a proposal to the Council for an implementing act determining that the third-country measure meets the conditions of economic coercion and will explain how they are met.¹³ Where appropriate, the Commission will also propose that the Council determines whether the third country should be requested to repair the injury to the Union.¹⁴

The proposal for an implementing act must include an indicative timeline for assessing whether the conditions for imposing of Union response measures are met, which shall be a maximum of six months, unless a duly justified longer period is necessary.¹⁵ From the submission of the Commission’s proposal for an implementing act, the Council will have to act within ten weeks.¹⁶ The Council will adopt or amend the Commission’s proposal for an implementing act acting by a qualified majority.¹⁷ The final implementing act will be published in the OJEU.¹⁸

(c) Engagement with the third country

Once the Council adopts the implementing act, the Commission will offer the third country concerned an opportunity for consultations with a view to obtaining the cessation of the economic coercion immediately and, where requested, a reparation of the injury to the Union.¹⁹ In the course of such consultations with the third country, the Commission may explore options including direct negotiations, submitting the matter to international adjudication, mediation, conciliation or good offices by a third party to assist the Union and the third country concerned in those efforts.²⁰

The Commission may cooperate with any third country affected by the same or similar economic coercion or with any other interested third country by sharing relevant information and experiences to facilitate a coherent response to such economic coercion or coordination in the response to the economic coercion.²¹

3.  Countermeasures

If the cooperative engagement is unsuccessful, as a last resort, the ACI provides for a possibility to adopt countermeasures referred to as “Union response measures”.

(a) Adoption of Union response measures

The EU will adopt countermeasures through an implementing act, in accordance with the examination procedure, when three cumulative conditions are met: (i) previous action did not result in obtaining the cessation of economic coercion and, when requested, reparation of the injury to the Union, (ii) action is necessary to protect the interests and rights of the Union and its Member States in a particular case, and (iii) such action is in the Union’s interest.²²

Under the ACI, the determination of the Union’s interest covers the preservation of the ability of the Union and its Member States to make legitimate sovereign choices free from economic coercion, as well as all other interests of the Union or the Member States specific to the particular case at stake, interests of Union economic operators, including upstream and downstream industries, and of final Union consumers, affected, or potentially affected, by the economic coercion or by Union response measures.²³

The Union response measure must apply no later than three months from the adoption of the implementing act²⁴ and the Commission must notify the third country concerned of the implementing act.²⁵ The Commission must also call on the third country concerned to immediately cease the economic coercion and, where requested, to repair the injury caused, and offer to negotiate a solution.²⁶

When necessary to preserve effectiveness of Union response measures or protect the rights and interests of the EU or an EU Member State, the implementing act may provide that Union response measures will apply without the Commission first calling again on the third country concerned to cease the economic coercion  or,  where  appropriate,  repair  the  injury  caused,  or  without  the Commission  first notifying the third country concerned that Union response measure will apply.²⁷

Before the adoption or amendment of Union response measures, the Commission must seek "information and views" regarding the economic impact on EU economic operators through a notice published in the OJEU and, where appropriate, through other suitable public communication means.²⁸ The Commission may start the information gathering at any time it deems appropriate.

In conducting the information gathering, the Commission must inform and consult stakeholders, in particular associations acting on behalf of EU economic operators, and trade unions, affected by  possible Union response measures, and Member States' authorities involved in the preparation or implementation of legislation regulating the possibly affected sectors.²⁹ In the exceptional situation of imperative grounds of urgency, when information seeking are not possible or not needed for objective reasons, the Commission can adopt an implementing act without prior consultations with stakeholders.³⁰

(b) Nature of Union response measures

Union response measures may be adopted as:³¹

• Measures of general application designed in such a way that they affect particular sectors, regions or operators of the third country concerned in accordance with the rules of origin and nationality set out in Annex II of ACI Regulation.

   

• Measures which apply to certain natural or legal persons, which (i) are connected or linked to the government of the third country concerned, and (ii) engage or may engage in activities covered by EU trade policy.³² A natural or legal person may be considered as connected or linked to the government of the third country concerned where:
  
  
  • that government beneficially owns more than 50% of the equity interest in such legal person, exercises directly or indirectly more than 50% of the voting rights in it, or has the power to appoint a majority of its directors or otherwise to legally direct its actions; or
  • such person benefits from exclusive or special rights or privileges granted in law or in fact by the government of the third country concerned, where it operates in a sector where that government limits the number of suppliers or buyers to one or more, or it is allowed directly or indirectly by that government to exercise practices which prevent, restrict or distort competition; or
  • such person effectively acts on behalf of, or under the direction or instigation of, the government of the third country concerned.³³

Therefore, Union response measures can equally target the third country as a whole, but also specific entities provided that the conditions to do so are met. Where the Commission intends to adopt Union response measures with regard to a natural or legal person, it will inform that person of its reasons, the contemplated Union response measures and afford to that person the possibility to submit observations.

ACI provides for a series of objective criteria for selection and design of the Union's response measures. The leading criteria concern the effectiveness of the measures in obtaining the cessation of the coercion and, where requested, the reparation of the injury, and the potential negative impact on EU actors or on the investment environment in the EU.³⁴ Other secondary criteria include the potential negative impact on the protection of intellectual property rights; the potential to provide relief to Union economic operators affected by the economic coercion; effects of the Union response measures on EU policies or objectives; administrative burden and costs in the application of the Union response measures; existence and nature of response measures enacted by third countries affected by the same or similar economic coercion; any relevant criteria established in international law.³⁵

Measures which may be adopted include: (i) tariff measures; (ii) import or export restrictions including on goods subject to export control (e.g., quotas, import or export licences, restrictions on the payment for goods); (iii) restrictions on trade in goods, including on transit or internal measures applying to goods; (iv) restrictions on participations to tender procedures in the area of public procurement, including exclusions therefrom or application of price penalty; (v) restrictions on services; (vi) restrictions on foreign direct investments; (vii) restrictions on intellectual property rights; (viii) restrictions on for banking, insurance, access to EU capital markets or other financial service activities; (ix) restrictions on the possibility to place on the EU market of chemical goods; (x) restrictions on the possibility to place on the EU market of sanitary and phytosanitary goods.