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Brussels is vowing to fight back against economic coercion. But how far will it go?

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By Jorge Liboreiro
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Vice-President Dombrovskis said the EU will not accept intimidation tactics from foreign governments.
Vice-President Dombrovskis said the EU will not accept intimidation tactics from foreign governments.   -   Copyright  European Union 2021.

The European Union is arming itself against economic coercion with a new trade weapon that will punish countries that meddle with the bloc's internal politics.

"We will not hesitate to push back when we're under threat," declared Valdis Dombrovskis, the European Commission's Vice President. "We will not accept intimidation tactics".

Under a new instrument unveiled on Wednesday, Brussels will be able to slap sanctions on foreign governments, companies and individuals who abuse trade and financial ties with the aim of forcing a change in EU policy.

Potential reprisals can include extra duties, exports restrictions, exclusion from public tenders, limits to foreign investment and the cancellation of EU contracts.

The move from Brussels comes as geopolitical tensions around the world continue to spill over into cross-border commerce, creating an ever-closer link between trade and politics that often turns toxic and unpredictable.

Just days before the announcement, China blocked certain Lithuanian goods from entering its ports, claiming the Baltic country had been deleted from the customs declarations systems.

Lithuania denounced the ban as retaliation for allowing Taiwan -- the self-governing island that Beijing considers a wayward providence -- to open a representative office in Vilnius.

Dombrovskis, who handles the EU trade portfolio, said the ongoing dispute could warrant the new instrument's application but stressed the proposal was not designed against any specific country.

The Chinese case is far from being an isolated episode and comes in the heels of other controversial cases that have put the EU, a long-time advocate of open markets and free trade, in an increasingly uncomfortable position.

Last year, Turkish President Recep Erdogan tried to stir an international boycott on French products after President Emmanuel Macron unveiled measures to defend secularism against radical Islam. In 2018, US President Donald Trump slapped the EU with tariffs on steel and aluminium, invoking an obscure provision to allege the imports threatened America’s national security.

The Trump tariffs, now resolved, left Europeans reeling and fuelled calls for self-reliance and political autonomy. The bloc is now trying to learn the hard lessons from the past and wants to be better prepared against similar attacks in the future.

What’s the purpose of the trade weapon?

The anti-coercion instrument – presented by the European Commission at the request of member states – will allow the bloc to collectively respond to countries who resort to economic pressure, intimidation and threats in a bid to influence EU affairs and domestic politics.

The principle of non-interference in the internal affairs of a sovereign state – or, in this case, a union of states – is a cornerstone of international law.

The tool's main purpose, however, is not punishment but rather deterrence: Brussels hopes the spectre of sanctions will alone be enough to dissuade countries from engaging in commercial blackmail.

The mechanism will apply only to coercive practices from non-EU countries, Dombrovskis underlined. In other words, it will target state-sponsored efforts that exploit economic links, such as trade and investment, to push for political change in a national government or the whole EU.

Coercion from private companies and individuals will also be penalised if the conduct is part of an underhand campaign led by a state actor.

This connection could be hard to prove: earlier this year, Chinese social media users, including the Communist Youth League, organised a boycott against H&M after the Swedish fashion brand said it would no longer source cotton from the Xinjiang Region due to forced labour concerns.

Conventional trade disputes related to protectionist measures, anti-dumping, subsidies, taxes and other similar cases will be handled bilaterally or brought to the World Trade Organization (WTO), whose appellate body has been in a dysfunctional state since the Trump Administration.

How will it work in practice?

The trade weapon foresees a relatively straightforward activation to make it easier for the bloc to react, although the usually complex back-and-forth between Brussels and the capitals is poised to slow the process down.

Any EU country, company or entity will be entitled to bring forward a complaint to the European Commission. The executive will investigate the situation and gather the necessary evidence to see if the dispute amounts to economic coercion or relates to the WTO’s jurisdiction.

If the Commission determines the situation is, in fact, a case of economic coercion, it will reach out to the accused country and begin negotiations to find a solution. If the mediation fails and the coercion persists, the Commission can move things up a notch and recommend countermeasures, which will have to be debated and approved by member states.

Importantly, the green light from capitals will be achieved with just a qualified majority. This will circumvent the unanimity requirement that frequently bogs down the EU’s foreign policy.

The measures will be proportionate, balanced and designed according to the damage caused by the coercive behaviour, the European Commission said. Possible restrictions can target goods, services, public procurement, foreign direct investment, intellectual property rights and access to EU-funded programmes.

Once approved, all 27 member states will have to enforce the sanctions against the third country, even if they are not direct victims of the coercion campaign.

"Unity and solidarity remain key to uphold our values and interests," said Dombrovskis.

Will this weapon ever be triggered?

First, the anti-coercion instrument needs to be discussed and approved by member states and the European Parliament.

Once the final version of the regulation is in place, any EU country will be allowed to ask the European Commission to trigger the mechanism.

There are no apparent limits on how far the retaliation can go, although the proportionality rule will serve as an important constraint. The deterrence principle suggests sanctions will be a last resort after all forms of international engagement are exhausted.

"The instrument would be most successful if there is no need to use it," the executive said.

The European Commission will be forceful in its response but also careful and pragmatic to ensure the countermeasures don’t backfire and bring further damage to the bloc’s economy, EU officials noted.

The presentation of the anti-coercion instrument coincides with the arrival of the new German government, headed by Olaf Scholz. The three-party coalition has already promised a more assertive foreign policy after 16 years of appeasement under Angela Merkel.

"A values-driven foreign policy is always an interplay of dialogue and toughness," Annalena Baerbock, the new foreign affairs minister, told the TAZ newspaper in an interview, adding the EU should use its economic leverage as a single market more strongly.

The bloc comprises more than 470 million people, making it one of the largest and wealthiest consumer markets in the world.

What has been the reaction to the announcement?

Members of the European Parliament have reacted positively to the European Commission's proposal, which they had previously requested.

"The instrument is a departure from business as usual in Brussels," wrote Bernd Lange, a German MEP who chairs the Parliament's committee on international trade. "The European Union must recognise the reality of an increasingly harsh geopolitical landscape."

His colleagues Hilde Vautmans, from Renew Europe, and Reinhard Bütikofer, from the Greens, also welcomed the new tool and argued it was necessary to counter China's aggressive behaviour.

"Beijing is warned," Vautmans wrote on Twitter. "Chinese divide and rule tactics won't be as effective as they used to be."

France and Germany are expected to throw their support behind the proposal, bringing along the way other member states equally concerned about the growing trend of economic coercion.

By contrast, Sweden and the Czech Republic have voiced concerns about the instrument's scope and insisted sanctions should always be "exceptional", comply with international law and "minimalize any negative effects" on the bloc's overall economy.

"We believe it would be extremely difficult (especially in a short time) to quantify economic and political damage and find appropriate countermeasures," the two countries wrote in a joint statement seen by Euronews.

Given the many – and sometimes divergent– economic interests that each member state has at stake, the draft law risks being "heavily watered down" during the legislative cycle, predicts professor John O’Brennan, from the National University of Ireland, Maynooth.

"Whatever the EU is doing by way of sanctions or retaliatory instruments, they're completely undermined when the member states themselves are doing things that are at odds with the objectives of the collective policies," O’Brennan told Euronews in a video interview.

"The problem, as ever, remains that the member states zealously guard their prerogatives in foreign policy."

Nevertheless, the professor admitted that, if the essence of the unified framework is preserved, it will be a "game-changer".