EU puts trade weapon on the table. Will it shoot?

EU puts trade weapon on the table. Will it shoot?
Опубликовано: Friday, 31 March 2023 09:50

Conceived to resist US pressure, the EU’s anti-coercion instrument is now more likely to be used against China.

It’s the opening scene of a geopolitical drama and Europe, under pressure from an increasingly dominant China, is putting a trade weapon on the table. The question is: Will it ever shoot?

Time will tell, but as of this week, when the European Commission, governments and Parliament agreed on a range of countermeasures to retaliate against economic bullies, the chances of the trade defense mechanism being triggered have just become more real.

Alarmed by China’s blockade of Lithuania over the Baltic member country’s deepening ties with Taiwan, Brussels wants to get tougher with Beijing over an economic and trading relationship that it says has become increasingly unbalanced.

It’s a message that Commission President Ursula von der Leyen will deliver when she visits China next week, together with French President Emmanuel Macron.

Namechecking this week’s political agreement to create a so-called anti-coercion instrument in a speech in Brussels on Thursday, von der Leyen said: "We now need the unity at EU level for a bolder and faster use of those instruments when they are required and a more assertive approach to enforcement."

The new rules will empower the Commission to investigate whether coercion has happened and to propose countermeasures — handing the executive greater competence in the making of foreign policy, an area where EU countries have traditionally called the shots.

The instrument is “not a teeth-less tiger; it’s a tiger with teeth. It’s not a water pistol; it’s a gun,” said Bernd Lange, the lead lawmaker on the file.

Countermeasures that the Commission could deploy include increased customs duties, intellectual property restrictions or export controls, under a time-bound procedure lasting no more than a year.

Details are still to be worked out but a final deal is expected before the summer break, with the anti-coercion instrument likely to enter force in the second half of the year.

Power grab

The anti-coercion tool was originally inspired by former U.S. President Donald Trump’s imposition in 2018 of steel tariffs against the EU on national security grounds, which pushed Brussels to raise its game and seek to strengthen its own trade defenses.

As European leaders debated their response, France and others pushed to go beyond empowering the EU to impose retaliatory tariffs, paving the way for the anti-coercion instrument.

The Commission’s initial proposal in 2021 sparked fears of a "power grab" | Kenzo Tribouillard/AFP via Getty Images

This first led to an upgrade of the EU’s so-called enforcement regulation, making it possible to retaliate with tariffs when a member of the World Trade Organization (WTO) is uncooperative when a case is brought against them.

But, in the end, it was China that delivered the political impetus to get a deal over the line. When Beijing flexed its massive trade heft by stopping imports of Lithuanian goods in retaliation over Taiwan, which it considers to be a renegade province, Brussels was powerless to defend itself.

The Commission’s initial proposal in 2021 sparked fears of a "power grab," in which its powerful trade department would circumvent the current requirement for unanimity on foreign policy in the Council.

“This instrument is a kind of monster resulting from trying to reconcile two very opposite decision-making processes: one for foreign policy and security, and the other one for trade,” said Philippe De Baere, managing partner at law firm Van Bael & Bellis.

“If we would have a really effective common foreign policy, we wouldn’t need the instrument,” he added.

The power grab didn’t go down well with EU capitals, which eventually clawed back some authority over deciding when to pull the trigger. They can only block Commission action by a qualified majority vote, however.

“The problem is that everyone has their own idea of how this could be used and when it should be used,” said an EU diplomat, granted anonymity due to the sensitivity of the ongoing negotiations. “That is a foreign policy decision, actually.”

Credible deterrence

The Netherlands has already emerged as a potential test case.

The Dutch government bowed recently under U.S. pressure to impose export controls on high-end equipment used to manufacture microchips. ASML, a Dutch company, is the global market leader and its most advanced lithography tools are a missing piece of the puzzle in China’s chip ecosystem.

Following the announcement, China’s ambassador to the Netherlands warned this would not stay “without consequences.” This in turn, sparked questions from lawmakers to the government on whether it will seek support from other EU member states in case China turns to sanctions.

“Europe has an anti-coercion instrument. Are we gonna use that?” Dutch lawmaker Mustafa Amhaouch asked Prime Minister Mark Rutte. Rutte declined to comment.

Powers "are no longer thinking in WTO time, they are thinking geopolitical time," said Geraldo Vidal | Robert Hradil/Getty Images

Legal experts say, however, that this question can just as well be turned on its head. China could argue that it is the coerced party, since both the EU and the Netherlands have committed not to impose export restrictions on other members of the WTO.

Powers "are no longer thinking in WTO time, they are thinking geopolitical time. And therefore in geopolitical time, what they’re doing is each of them is protecting their own interests by adopting measures that it seems they see as fit," said Geraldo Vidigal, a former WTO lawyer and an international trade law lecturer at the University of Amsterdam.

The crux of the matter is that the anti-coercion instrument should be credible enough never to have to be used. Its greatest power is its deterrent effect.

And, as of now, there is no clear-cut scenario to activate it, EU diplomats said.

“The instrument is meant to deter and deescalate when there’s specific coercive action,” said Miriam García Ferrer, a European Commission spokesperson. “It will only be deployed as a last resort, it’s not something that we will immediately put in place.”

Pieter Haeck contributed reporting.

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