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New EU proposal to protect Member States from economic coercion from third countries

The proposal will become a new legislative instrument the EU will use to respond structured and uniformily to economic coercion or intimidation from third countries. 

Recent developments triggered the development of a legislative instrument to deal with economic coercion or intimidation of third countries. This is shaped by means of a two-step response. First, by means of dialogue. Second, as a last resort, by a broad range of countermeasures.

Introduction

Recently, increasing weaponized trade and investments weakened international cooperation and rising geopolitical tensions have triggered the development of the new EU proposal. There are concerns by the EU and its Member States on the economic coercion of third countries. At this moment, no instruments of the EU are in place that deal with economic coercion or intimidation. On 8 December 2021, the EU published a proposal to counter the use of economic coercion by third countries. The proposal follows the joint declaration from the European Parliament and Council of February 2021 for an instrument to deter and counteract economic coercion by third countries. Economic coercion means in this regard ‘a situation where a third country is seeking to pressure the Union or a member state in making a particular policy choice by applying or threatening to apply measures that affect trade or investment’, for example discriminatory import duties, intentional delays or refusing authorities needed to do business.

Proposal

A legislative instrument is the best way – according to the EU – to deter the economic coercion. The proposal for a regulation of the European Parliament and of the Council on the protection of the Union and its Member States from economic coercion by third countries, takes into account the subsidiarity and proportionality principles. The instrument and the measures should be proportionate. The subsidiarity principle applies for areas that do not fall withing the exclusive competence of the EU. By this proposal the EU can take action against economic coercion of third countries by - amongst others - implementing acts ex art. 291 TFEU and the EU can supplement the range of possible countermeasures and adapt applicable rules on origin via delegated acts ex art. 290 TFEU which are included in Annex I and II of the proposal.

A first consultation resulted in the following option to counter the use of economic coercion. This will be a two-step response by the EU, including:

  1. Deploying non-interventionist measures. An example of this is formally identifying that an act falls in the scope of the instrument and efforts to engage with the third country. The aim of these measures are to de-escalate the economic coercion and to encourage the third country to stop its measures by dialogue.
  2. Broad range of counter measures. This step is only available if the first step is unsuccessful and can be seen as a last resort. These measures can exist of imposing tariffs, restricting imports from the country in question, limiting access to the EU internal market or restricting services or investments. These measures can also apply to natural or legal persons designated.

By this approach the EU can, first of all, directly engage with the third country aiming to stop the economic intimidation and secondly, deploy tailor-made and proportionate measures to the situation.

Consequences

With this instrument the EU will be able to respond structured and uniform to economic coercion. It will preserve legitimate right of the EU and the Member States to make policy choices and prevent interference in their sovereignty.

What’s next?

The proposal first needs to be agreed by European Parliament and the Council. After developing their positions, the European Parliament and the Council will negotiate with each other in Trilogue discussions, whereby the Commission will have an assisting role. Other stakeholders, such as citizens, will provide the next two months feedback on the proposal.

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