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With a new superpower comes great responsibility.
Few people doubt that the EU needs a new trade weapon — known as the anti-coercion instrument — to tackle threats from global rivals like China and the U.S. This device is intended to allow retaliation against what the EU views as the increasing menace of economic blackmail. It is meant to help in cases such as Beijing holding the EU hostage with a trade embargo on Lithuania, and could even hit back against American sanctions that stop EU companies from dealing with Iran.
For now, the EU does not have any ammunition to fire back these sort of trade conflicts. “At a time of rising geopolitical tensions, trade is increasingly being weaponized and the EU and its member states becoming targets of economic intimidation,” the EU’s trade chief Valdis Dombrovskis said in December when he unveiled the anti-coercion instrument as the latest addition to Brussels’ trade defense toolbox.
But the EU’s more free trading countries like Sweden and the Czech Republic fear that it would not just be used in extreme cases when the EU is under attack but also be rolled out as a broader protectionist tool. The danger, as they see it, is that once you have a hammer, you start to see nails everywhere.
The EU’s former trade commissioner, the Swedish liberal Cecilia Malmström, told POLITICO the EU should be careful building its trade defense arsenal. “If you add all the tools that we see now … looking at them one by one, you feel that they could be useful, but if you add them and abuse them or use them rather frivolously, they can really lead to something we don’t want,” she said.
The free traders fear the new weapon will further undermine the multilateral trading system, despite the EU’s firm support of the World Trade Organization.
In theory, a trade conflict such as the tensions between China and Lithuania should be handled via the dispute settlement system at the WTO. But countries increasingly feel this takes too long or is insufficient. In that sense, it’s a vicious circle: The search for alternatives risks undermining the authority of the global trade organization even more.
“We understand the current gap in the regulation. But will this instrument make things better or worse?” said one trade diplomat.
“The EU needs instruments to react, but the instrument creates a risk of being used and overused,” said Holger Hestermeyer, a trade law expert at King’s College London. “The system is slowly returning to a more brutal state of nature and that’s not in anyone’s interest.”
The EU’s shift toward greater trade defense didn’t happen overnight. Safeguards and anti-dumping instruments, for example, have long been in place.
But the current European Commission has brought trade defense more to the center of its trade policy, in line with its ambition to be a geopolitical Commission and in response to global trade tensions. President Emmanuel Macron of France, the current holder of the rotating presidency of the Council of the EU, has long called for a “Europe that protects.”
In the East, Lithuania’s troubles with Beijing are only the latest example of China flexing its massive trade muscles.
In the West, former U.S. President Donald Trump was one of the main triggers for increased unilateralism in trade. When Trump hit the EU and others with tariffs on national security grounds, Brussels retaliated without waiting for a verdict from the WTO in Geneva.
“In the end, that was what trade law was meant to prevent,” said Hestermeyer, referring to the immediate retaliation. “The risk of a politicized spiral is enormous.”
Since U.S. President Joe Biden took office, Brussels and Washington have paused their trade wars over steel tariffs and aerospace subsidies. But the steel quota which Washington forced on Brussels in exchange for that truce is an example of managed trade, something Brussels has always objected to. Biden is also in no rush to revive the World Trade Organization from the deep freeze that Trump pushed it into by blocking its highest court.
With Trump’s assault on the WTO, the EU lost its main ally for trade liberalization and is now undermined in its defense of the multilateral trading system in Geneva.
In response to these global tensions, the EU has boosted its trade defense arsenal. Following a push from France, the European Commission has appointed its first-ever chief trade enforcement officer to ensure EU trade partners face sanctions if climate and human rights stipulations in trade deals aren’t met. A wide range of new trade defense instruments are also being built to counter foreign subsidies or screen foreign direct investment.
Now, the upcoming anti-coercion instrument will take the EU’s trade defense to a new level.
The proposed legislation could sanction foreign individuals, companies and even countries through its all-powerful trade department — circumventing the usual unanimity requirement for the EU’s foreign policy decisions.
“Via this latest addition to its toolbox, the Commission is using the changing world order to increase its own influence,” said Dutch MEP Michiel Hoogeveen from the conservative ECR group.
The Dutch MEP said the proposal has “elements of a power grab,” thereby reflecting concerns of some EU countries like Sweden and the Czech Republic over the trade department’s reach, especially because the triggers and the countermeasures defined in the proposal are fairly broad. It risks becoming an instrument for protectionism, some warn.
According to the Commission, a broad definition of triggers is necessary to avoid moral hazard — that countries would use measures that are specifically not included in the instrument. Chief trade enforcement officer Denis Redonnet told trade MEPs on Tuesday the first goal of the instrument is deterrence, that it has nothing to do with protectionism and that the countermeasures are a “last resort response.”
The long-term goal of the EU remains a return to multilateral, rules-based order, as epitomized by consensus at the WTO.
“The only way to ensure predictability and stability in the long run is to find a new consensus for co-exsistence with different countries having different economic systems around the world,” the EU’s top trade civil servant Sabine Weyand told trade MEPs in November, stressing that the WTO is key for this goal.
But as long as the global trade world is based more on might-is-right power dynamics rather than on rules, the proponents of the anti-coercion instrument argue the EU has to bring a gun to the negotiating table.
The EU’s Internal Market Commission Thierry Breton said last month that the EU’s export control mechanism for vaccines, for example, was adopted to react to the U.S. blocking transatlantic flows of vaccine components. “We issued this text … and then in the discussions that followed [with the U.S.] I had this text on the table and, as if by chance, discussions began to become more fluid. It’s called the logic of power relations; I’ve applied it all my life,” Breton said.
Referring to the anti-coercion instrument, French trade minister Franck Riester said last month that it was important to be “be respected” in the global world order.
This logic of hard power can even bring others back to the multilateral path, said Jonathan Hackenbroich from the European Council on Foreign Relations.
“If you’re arguing for dialogue from a position of weakness, with the other side knowing you’re vulnerable, there’s not much incentive to go into dialogue. If you have something in the back of your hand as a last resort instrument, winning them over for a multilateral approach is likely to have more success.”
But the skeptics within and outside the EU warn of a slippery slope.
“This is risky territory for the EU,” a diplomat from a third country said. “A big power like the EU doing these kind of things is important.”
Another EU trade diplomat feared a tit-for-tat dynamic. “We keep saying that we believe in open trade, but meanwhile we keep building our trade defense arsenal, without concluding or ratifying any trade deals. What kind of message is this for the rest of the world?”
Sarah Anne Aarup and Giorgio Leali contributed reporting.
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