By Anh Nguyen, University of Amsterdam
Ever since its inception, the EU Anti-Coercion Instrument (ACI) has been trumpeted as a new shield against ‘economic bullying’ of the EU and its member states. Rather than being a legal instrument to be directly deployed against the EU’s trade partners, it was conceived as a deterrent instrument to signal to the EU’s partners that it will not tolerate ‘economic blackmail.’ Now that the ACI has entered into force on 27th December 2023, it will also become part of the EU’s and its member states’ economic security toolbox and policy conscience. Accordingly, we should anticipate the practical repercussions of the unsettled legal basis for the ACI’s reliance on the notion of purported unlawful ‘economic coercion’ and subsequent invocation of countermeasures.
This will be the first in a two-part blog post providing an international law deep dive on the practical repercussions of the ACI’s entry into force. This first post will discuss general international law perspectives on the ACI’s notion of (unlawful) economic coercion. The second post will focus on international trade law perspectives on the ACI’s unilateral invocation of countermeasures (for Part II see here). As a caveat this blog post does not touch upon issues of EU competency to implement ACI measures (for this see the recent post by Thomas Verellen or the analysis by the ECFR) or the ACI compensation regime (for this see the series of posts here and here from the Institute Montaigne).
Policy background: Deterring ‘economic bullying’ in the EU’s era of ‘strategic autonomy’
To understand the raison d’être of the ACI and the proposed deterrence through countermeasures, we need to understand how ‘anti-coercion’ efforts go hand-in-hand with the EU’s policy desire to chase down the ever-elusive notion of ‘strategic autonomy.’ The ACI came into being in the EU’s era of ‘strategic autonomy,’ which is defined as ‘the capacity of the EU to act autonomously – that is, without being dependent on other countries – in strategically important policy area.’ The ACI’s conceptualization as a deterrent instrument relates to the priority to prevent the weaponization of economic ties in the European Economic Security Strategy.
Whilst the current geopolitical winds have shifted the spotlight onto China’s economic coercion, the ACI emerged in reaction to the Trump administration’s economic assertiveness with respect to steel and aluminium tariffs, Iran secondary sanctions and Nord Stream 2 sanctions. Retrospectively, the scope of these US economic measures would seemingly even overshadow China’s slashing of Lithuanian imports by 90% and exclusion of Lithuania from the Chinese customs system in response to the opening of the Taiwanese representative office in Vilnius, which eventually became the cause célèbre for the ACI’s adoption.
The EU has been consistent in its position that the ACI is conceived as a deterrent instrument part of its economic security toolbox to maintain its ‘strategic autonomy.’ As such, an important question arising upon the ACI’s entry into force is whether the proposed countermeasures (see ACI Annex I) would be perceived as enough of a threat to have an economic effect on the coercing third state, and whether this is conducive to achieving the EU’s ‘strategic autonomy.’
In an increasingly networked but geoeconomically fragmented world EU policymakers are not unjustified in identifying that the risk of weaponized interdependence has become ever more pertinent in defining the limits of states’ coercive economic power. Thus, defining the limits of economic coercion runs in lockstep with the exercise to conceptualise a geostrategically unassailable ‘sphere’ of the EU and its member states to be protected from economic coercion.
The far from ‘settled’ nature of unlawful economic coercion under public international law – Consequences for interpreting Art. 2 ACI
The ACI rests on the presumption that the EU may undertake countermeasures (Preamble, para. 13) against economic coercion by a third state against the EU or its member states. The Preamble refers to the rules of state responsibility codified in the Articles on Responsibility of States for Internationally Wrongful Acts (ARSIWA). Under Art. 22 ARSIWA, countermeasures can only be taken in response to an internationally wrongful act. This is why it is vital for the EU to make a watertight international law argument that unlawful economic coercion has taken place. If this fails, the wrongfulness of the ACI’s countermeasures cannot be precluded under Art. 22 ARSIWA. Subsequently, the EU must most likely contend with its ACI countermeasures being challenged as a violation of its international (economic) law obligations. This section will discuss how the notion of ‘unlawful economic coercion’ as ‘unlawful intervention’ under international law is deceptively simple, and why the ACI’s faithful adoption of this notion poses many liabilities for the ACI’s use in practice.
According to Art 1(3) the ACI shall be ‘consistent with international law.’ Thus, the definition of ‘economic coercion’ in Art. 2 (1) ACI must be understood as the definition of ‘unlawful’ economic coercion in violation of public international law (Preamble, para. 15). The ACI narrowly defines unlawful economic as existing where:
‘a third country applies or threatens to apply a third-country measure affecting trade or investment in order to prevent or obtain the cessation, modification or adoption of a particular act by the Union or a Member State, thereby interfering in the legitimate sovereign choices of the Union or a Member State.’ (emphasis added)
The ACI’s Preamble (para. 5) explicitly references the ‘principles of sovereign equality and non-intervention’ in the Friendly Relations Declaration. Thus, unlawful economic coercion under the ACI should be interpreted to mean a violation of the principle of non-intervention, in line with the International Court of Justice’s (ICJ) reasoning in Military and Paramilitary Activities in and against Nicaragua (para. 205). As such, the phrase ‘interfering in the legitimate sovereign choices’ in Art. 2(1) can be taken to mean an interference in the domaine réservé, i.e. in matters where states’ choices must remain free.
Art. 2(1) ACI reflects the elements of unlawful intervention through economic coercion: (i). an interference through ‘measures affecting trade or investment’; (ii). in a state’s ‘legitimate sovereign choices’ (domaine réservé); (iii) to compel or prevent a state against its sovereign will to/from a course of action. Whilst the act of coercion is economic in nature (‘measures affecting trade and investment’), the object of economic coercion is any matter within the targeted state’s ‘legitimate sovereign choices’ rather than just economic policy choices. The elements constituting ‘coercive measures’ are defined in Art. 2(2), which include intensity, frequency, magnitude (lit. a), pattern of interference (lit. b), and extent of encroachment on a member state’s sovereignty (lit. c).
It must be noted that under international law there is no ‘stand-alone’ prohibition of economic coercion independent of the principle of non-intervention (see also Tzanakopoulos). Indeed, the ACI’s definition of economic coercion does not attempt to suggest otherwise. Whilst the ACI’s definition may avoid any obvious incompatibility with public international law, the ACI has unwittingly chosen an unfortunate straitjacket in which to encase the notion of economic coercion. The public international law understanding of unlawful economic coercion as prohibited intervention not only results in a de jure narrow definition of unlawful economic coercion, but also one that is de facto inoperable.
When Nicaragua complained of US measures, which encompassed the cessation of economic aid, 90% reduction of sugar imports, a trade embargo, and blockage international loans, the ICJ held that such measures could not amount to a ‘systematic violation of the principle of non-intervention’ (para. 244). Nicaragua only succeeded with its claim that the US mining of its harbours was an unlawful use of force, and the US arming, training, and funding of the Contras was an unlawful intervention (para. 292). Effectively this means only forms of military and political coercion are in contravention with international law – as opposed to economic coercion. The Court concluded tersely that it was ‘unable to regard such action on the economic plane as […] a breach of the customary-law principle of non-intervention’ (para. 245, emphasis added). If this is the case then which other more severe forms of economic coercion could be deemed an unlawful intervention?
Since Nicaragua there has been no other case where economic coercive measures have been argued as a violation of the non-intervention principle. In effect this means that if we were to faithfully interpret and apply this test in a manner ‘consistent with international law’ as Art. 1(3) ACI sets out, we would have to make do with an international law definition of unlawful economic coercion, which is de jure narrow and de facto inoperable. We may ponder whether the Court would decide differently today. However, it is challenging to imagine on which substantive and procedural basis any EU member state could bring a matter of economic coercion before the ICJ such that a different outcome could be achieved.
Public international law notion of ‘sovereignty’ vs. EU ‘strategic autonomy’ – Consequences for interpreting Art. 2 (1) ACI
It is crucial for the EU to find a solid international legal basis in which to ground unlawful economic coercion, as the right to invoke countermeasures is contingent on the existence of an internationally wrongful act. Thus, it will be interesting to observe whether the EU and its member states by invoking and applying the ACI’s notion of unlawful economic coercion may be able to establish new state practice or opinio juris that breaks loose from the public international law definitional straitjacket of unlawful economic coercion. Thus, the question arises whether the EU’s invocation of ‘strategic autonomy’ and related geoeconomic understanding of ‘economic’ and ‘technological’ sovereignty changes the classic public international notion of ‘sovereignty’ to inform the interpretation of ‘legitimate sovereign choices’ in Art. 2 (1) ACI.
The Permanent Court of International Justice (PCIJ) held in its Nationality Decrees Advisory Opinion that, ‘[t]he question whether a certain matter is or is not solely within the jurisdiction of a State is an essentially relative question; it depends on the development of international relations.’ (para. 23, emphasis added). As such, what falls under domaine réservé is contingent on contemporaneous international relations between states, and how geopolitics alter opinio juris on what is regarded as being part of the domaine réservé, i.e. sovereignty. This would provide an opening for the EU and its member states to invoke and apply the ACI’s notion of ‘legitimate sovereign choices’ to be interpreted more broadly than the ICJ’s definition of domaine réservé in Nicaragua. Importantly, it would allow the EU to infuse its geoeconomic understanding of ‘sovereignty’ into the ACI, such that it could be interpreted teleologically to achieve ‘strategic autonomy’ in areas of supply chain resilience, security of critical infrastructure, technology security and prevention of weaponization of economic ties.
To make good on its policy goal of strategic autonomy the EU and its member states would have to make the case that in contemporary international relations, in which economic ties are prone to weaponization, the non-intervention principle, which traditionally encompasses military and political coercion, should be interpreted more broadly to account for economic coercion. In an ideal world, this could put the EU at the forefront of redefining the non-intervention principle, and its potential to limit excessive exercise of states’ economic coercive powers in this new era of Weaponized Interdependence. Accordingly, the EU’s strategic autonomy agenda could be advanced as new opinio juris on what constitutes sovereignty, i.e. matters with the domaine réservé in this new era of globalised networked economies and attendant risks of weaponized interdependence.
The notion of ‘Union economic operator’ in Art. 3 (3) ACI – Coercing private actors as an interference in ‘legitimate sovereign choices’?
A noteworthy feature of the ACI is its definition of who may be targets of economic coercion. Art. 1 ACI sets out that the EU may seek reparation for the injury to the Union, resulting from economic coercion by third states. Art. 3 (3) then further defines that ‘injury to the Union’ means ‘a negative impact, including economic damage, on the Union or a Member State, including on Union economic operators.’ Taking the ordinary meaning of the term, presumably the ACI wording refers to private actors. However, Art. 2 (1) defines unlawful economic coercion as trade or investment measures interfering the ‘legitimate sovereign choices’ of the EU or its member states. The question thus arises on whether economic coercion having a negative impact on private actors can be said to be an interference in ‘legitimate sovereign choices’?
In a scenario such as a third state imposing a blanket import ban on EU products from the ‘widget’ industry, this could be argued as a trade measure interfering in the targeted state’s (foreign) trade policy, i.e. ‘legitimate sovereign choices,’ It is conceivable that such a blanket export ban negatively impacts the targeted state’s economy. In this scenario economic coercion interfering with a state’s legitimate sovereign choices also negatively impacts private actors. This proposition is largely uncontroversial.
However, the more salient scenario, which has most recently made headlines, is the case of economic measures with extraterritorial effects on (EU) private actors. Specifically of interest are the 17 October 2023 US semiconductor and semiconductor manufacturing equipment (SME) export controls with extraterritorial effects on Dutch ASML’s photolithography machines. ASML’s machines are critical SME, which help carve the billions of nano-scale circuits onto the most advanced microchips. The US imposed a so-called ‘0% de minimis’ rule, which effectively allows US authorities to extend their export control jurisdiction over foreign-made SME, such as ASML photolithography equipment. This is regardless of an actual nexus to US-made content.
What is relevant for the ACI context is whether the EU or the Netherlands could in theory claim that such negative impact on private actors such as ASML could trigger the use of the ACI. The emphasis on ‘in theory,’ as both ASML and the Dutch government have expressed their readiness to cooperate with US measures. On 3 January 2024 it was reported that the Dutch government had begun to revoke ASML export licenses to China. These cases of state economic measures targeting private actors go beyond just US extraterritorial legislative reach. Recent developments such as China banning US company Micron from selling their chips on the Chinese market could also be a preview for the EU as to the different economic measures employed that target private economic actors, and their home states. This is especially pertinent as EU policymakers are already concerned about potential Chinese retaliation following the EU’s anti-subsidy investigation into Chinese electric vehicles.
A 2021 Commission Staff Working Document on the ACI proposal highlighted exactly these concerns over EU economic operators doing business in both the US and China. Regarding extraterritorial measures, to fall under the ambit of the ACI, these must simultaneously coerce the economic operator and the home government of the economic operators. In the case of ASML it could be argued that the US extraterritorial export controls simultaneously coerced ASML and the Dutch government. The October 2023 extraterritorial export controls on ASML need to be viewed as a continuation of the US’ tightening grip on Dutch export policy. In early 2023 the Dutch government had already imposed its own national export controls on ASML at the US’ behest. Nonetheless the US did not perceive these measures to go far enough, thus proceeded with extraterritorial measures. As other commentators have already argued, US technology partnership in the semiconductor industry is too important for the EU or the Netherlands to pick ASML as a battle, where the ACI policy arsenal should be tested.
The Working Document further states that the ACI’s definition of economic coercion does not cover ‘coercion against private actors where the conduct which the third country government desires to obtain from private actors is purely related to these operators’ activities in that third country and unrelated to the public policy of the EU or a Member State.’ Examples of this form of coercion outside of the ACI’s scope is ‘[…] surrendering its assets, to transfer technology or to support certain domestic or international policies of that government, abusive anti-trust or anti-corruption investigations, the arbitrary withholding of licences.’ Indeed, the Working Document notes that business and industry associations have argued that the distinction between coercion of private actors operating in a foreign (coercing) state and coercion of those private actors’ home state is difficult to generalise and should be considered on a case-by-case basis.
The ACI’s reliance on the notion of purported unlawful ‘economic coercion’ and thus providing a legal basis for the invocation of countermeasures is a deceptively neat classic public international argument. However, pulling back the curtains we need to be aware of the thorny legal nature of economic coercion, its ambiguous relationship to the principle of non-intervention under international law, and the difficulties in determining what could constitute an interference in ‘legitimate sovereign choices’ (as for instance demonstrated in the specific case of coercion against ‘Union economic operators’). We should not lose sight of the fact that unlawful economic coercion as a form of prohibited intervention is premised on a de jure narrow definition of economic coercion as a sub-category of prohibited intervention, which is de facto inoperable. As the ICJ’s case-law in Nicaragua shows, non-intervention only encompasses military and political coercion but excludes economic coercion. If the EU is prepared to invoke and use the ACI these are key points to bear in mind. To nonetheless end on a more sanguine note, through its strategic autonomy rationale underlying the ACI, the EU has a unique opportunity to re-define how the principle of non-intervention and sovereignty should be interpreted to account for the prohibition of economic coercion in this new era of Weaponized Interdependence.