The Anti-Coercion Instrument – The Practical Repercussions of the ACI’s Entry into Force (Part II)

By Anh Nguyen, University of Amsterdam

This is the second post in a two-part blog post providing an international law deep dive on practical repercussions of the ACI’s entry into force. This post will discuss international trade law perspectives on the ACI’s unilateral invocation of countermeasures. The previous post focused on general international law perspectives on the ACI’s notion of (unlawful) economic coercion (for Part I see here).

ACI countermeasures and their relation to the EU’s and its member states’ substantive WTO obligations

The ACI Preamble states that the countermeasures undertaken shall adhere to Arts. 49 – 53 ARSIWA, which set out states’ obligations in taking countermeasures (para. 13). The Preamble also affirms that the ACI shall be consistent with the WTO’s legal framework (para. 12). The next two sections will accordingly discuss whether the countermeasures allowed for by the ACI are consistent with the EU and its member states’ obligations under the WTO legal framework.

Art. 8 allows the Commission to adopt ‘Union response measures’ set out in Annex I. The Annex includes a list of ten economic measures the EU may decide to undertake as countermeasures under the ACI. Each proposed countermeasure can be seen to have a corollary substantive WTO law obligation. For instance imposition or increase in custom duties (Point 1) relates to MFN obligations under Art. I GATT; import and export restrictions through quotas or licenses, (Point 2) concerns obligations relating to the general elimination of quantitative restrictions in Art. XI GATT; restrictions affecting trade in services ,(Point 5) relates to obligations under the GATS; restrictions relating to intellectual property rights, (Point 7) relates to obligations under the Agreement on Trade-Related Aspects of Intellectual Property Rights (TRIPS Agreement).

According to Art. 49 (2) ARSIWA countermeasures are limited to the ‘non-performance for the time being of international obligations of the State taking the measures towards the responsible State.’ As such, the active introduction or imposition of new economic measures will fall outside of the scope of lawful countermeasures under the ARSIWA. Indeed, to qualify these Union response measures as ‘non-performance,’ Annex I includes the wording ‘which may amount, as necessary, to the non-performance of applicable international obligations’ to every measure listed. Consequently, a prudent way forward is for the EU to regard ‘Union response measures’ as the non-performance of any WTO obligations relating to the measures listed in Annex I, otherwise the active imposition or introduction of new measures would be inconsistent with Art. 49 (2) ARSIWA.

Countermeasures fall under the circumstances precluding wrongfulness (Art. 22 ARSIWA). This means countermeasures are presumed to be internationally wrongful acts. However, they are not unlawful, if taken in response to a prior internationally wrongful act. Thus, by choosing the framework of ‘countermeasures’ and expressly referencing rules laid out in the ARSIWA, the ACI’s ‘Union response measures’ in Annex I are by default cast as or at the very least conceded as internationally wrongful acts. If the ACI is designed as such that these ‘Union response measures’ are taken as countermeasures, this can only hold if the EU and its member states can show that an unlawful act of economic coercion has taken place. In the simplest sense, ACI countermeasures are by design intended to contravene (‘not perform’) its substantive WTO or related trade obligations. Consequently, efforts to make countermeasures legally watertight should ensure a solid legal case for compliance with non-performance requirements in Art. 49 (2) ARSIWA and the existence of unlawful economic coercion as an internationally wrongful act, to which the countermeasure responds.

As shown in Part I of this blog post, this is a thorny international law issue to tackle. Unlawful economic coercion is defined de jure narrowly as unlawful interference in the domaine réservé and is de facto inoperable following the ICJ’s reasoning against the existence of unlawful economic coercion in Nicaragua. Given the current ICJ case-law, the coercing state may be successful in challenging the unlawfulness of countermeasures taken under the ACI by arguing that there was no unlawful economic coercion, i.e. no internationally wrongful act, to begin with. Since the ICJ negated the existence of unlawful economic coercion in face of a full-scale embargo, the coercing state will likely argue for a strict adherence to the current international law case-law. Unless, however, the EU can argue how and why the principle of non-intervention should, in light of, for instance ‘weaponized interdependence’ dynamics in international relations, be applied differently than the ICJ did in Nicaragua.

ACI countermeasures and their resulting tensions with the EU and its member states’ procedural obligations under the DSU

Whilst the ACI countermeasures are by design accounted for as a violation of substantive WTO obligations, whose wrongfulness are meant to be precluded under Art. 22 ARSIWA, a more critical concern for the ACI’s application is its compatibility with the EU and its member states’ procedural obligations under the Dispute Settlement Understanding (DSU). Given that Art. 2(1) defines economic coercion as encompassing ‘measure affecting trade or investment’, countermeasures in response to supposedly unlawful trade measures may signal the existence of a dispute arising between the EU and its member states, and the ‘coercing’ third state, i.e. between WTO member states. If the dispute in fact concerns a WTO-matter (given the nature of economic coercion, this is likelier than not), dispute settlement before the Dispute Settlement Body (DSB) is compulsory, and the DSB maintains exclusive jurisdiction over the settlement of such disputes [Arts. 1(1) and 23 DSU].

Art. 6 ACI mandates ‘engagement’ with the third state to obtain the cessation of economic coercion, which could be considered as adhering to consultation obligations under Art. 4(3) DSU. However, Art. 4(1) sets out that the Commission may examine (upon member states’ request or its own initiative) whether unlawful economic coercion has taken place. Art. 5 (1) then sets out that the Commission shall submit a proposal to the Council to determine the existence of economic coercion in accordance with the requirements of Art. 2(1). If the EU were to proceed according to Arts. 4 and 5 ACI, it may be in contravention with Art. 23 (2)(a) DSU, under which WTO member states shall not make unilateral determinations on violations of ‘covered agreements’ [Art. 1(1) DSU and Appendix 1 DSU includes all the agreements, such as the GATT, GATS, TRIPS, GPA, implicated by the ACI’s Annex I measures] or non-violation nullification or impairment (NVNI) in relation to benefits accorded under the GATT. Additionally, Art. 5(10) ACI would also allow the EU to seek reparations for injury from economic coercion. Were the EU to claim such reparations in practice, this could also be seen a proscribed unilateral response measure to seek redress for a violation of covered agreements under Art. 23(1) DSU (see also US – Certain EC Products, para. 6.21; EC – Commercial Vessels, para. 7.196)

By virtue of the unilateralism allowed for by the ACI, countermeasures taken under the ACI could be viewed as a circumvention of procedural obligations under Art. 23 DSU, which not only excludes unilateral action against WTO violations or NVNI, but also precludes the use of other fora for the resolution of a WTO-related dispute. Whether the taking of countermeasures under the ACI is compatible with Art. 23 DSU depends on whether the EU’s use of countermeasures and contestation of the existence of economic coercion by a third state is in fact a WTO-dispute, and whether the determination of unlawful economic coercion amounts to a unilateral determination of a violation of WTO covered agreements or NVNI.

Art. 23 DSU provides for exclusive and compulsory jurisdiction of the DSB to settle WTO-disputes. As such, the EU could argue that action under the ACI concerns unlawful economic coercion, i.e. a dispute on the violation of the principle of non-intervention, meaning that their claim is based on violations of customary international law – not violations of ‘covered agreements’ under Art. 1(1) DSU. Consequently, the EU and its member states are neither seeking redress for violations of WTO obligations nor are they making unilateral determinations of violations or NVNI within the WTO framework.

However, there are two weighty counterarguments to this position to contend with. First is the argument that the WTO legal framework, should be considered lex specialis in relation to and thus displacing general public international law rules. This goes to the point that the ACI cannot function as an ‘alternative’ self-help mechanism to circumvent compulsory WTO dispute settlement under Art. 23 DSU. In this case the EU could still consider arguing that matters of economic coercion go even beyond WTO violations. Unlawful economic coercion can be WTO violations, but specifically carry the additional coercive intent to interfere with the EU and its member states’ legitimate sovereign choices. ‘Regular’ WTO violations need not necessarily be ‘coercive.’

Second, the coercing third state, as the complaining party, could argue that the dispute indeed concerns a WTO-matter by contesting that the ACI countermeasures are in fact WTO violations because their wrongfulness has not been precluded under Art. 22 ARSIWA, as there is in fact no unlawful economic coercion. Crucially, whilst the ACI as a piece of legislation as such may not violate Art. 23 DSU (as discussed on the IELP Blog here), once the EU undertakes specific Union response measures, it sets into motion the default assumption that these countermeasures are inherently internationally wrongful acts. As shown in the previous section, all of the Annex I measures implicate WTO obligations. It is more than likely that the third state will argue the ACI ‘Union response measures’ taken under Annex I are inconsistent with the EU or its member states’ WTO obligations. The third state will also likely argue that for establishing the DSB’s jurisdiction under Art. 23 DSU, it is irrelevant if public international law is implicated, when the EU or its member states intends to raise the countermeasures defence to preclude the wrongfulness of its Union response measures.

The issue here turns on how the DSB should properly characterise such a dispute, if it ever came before the DSB. It has been noted that an ‘unresolved issue is whether WTO panels and the Appellate Body have jurisdiction to decide questions of public or private international law (or even Member State law) when such issues arise in connection with a controversy under a covered agreement.’ (see Matsushita, Schoenbaum and Mavroidis). If the EU were to argue that a dispute challenging ACI countermeasures were a dispute of customary international law (non-WTO law), it should bear in mind the third state will argue that customary international law issues in fact arise in connection with a dispute under a covered agreement, i.e. the countermeasure as ‘non-performance’ of WTO obligations.

Whilst such constellations have not appeared before the DSB, it could take note from the ICJ’s case law, in particular in the case of Appeal relating to the Jurisdiction of the ICAO Council (Bahrain, Egypt, Saudi Arabia and United Arab Emirates v. Qatar). This case concerned a dispute between the Applicant states (the ‘Quartet’), who severed economic and diplomatic ties with Qatar, arguing that these were lawful countermeasures taken against Qatar’s breach of its counter-terrorism obligations. Before the ICJ the parties’ dispute concerned the scope of jurisdiction of the ICAO Council to hear the dispute over imposition of aviation restrictions under the Chicago Convention. Thus, the legal question here was whether the Quartet could prevent Qatar from bringing claims against its potentially ‘unlawful’ aviation restrictions under the Chicago Convention, because such a dispute would involve the assessment of the Quartet’s aviation restrictions as (lawful) countermeasures under customary international law. This closely resembles the EU’s potential argument that the ACI countermeasures, being challenged by the third state (as a WTO violation), does not fall within the DSB’s scope of jurisdicti0n (over WTO violations) because of the general public international law nature of the ACI countermeasures. The ICJ’s reasoning in ICAO Council Appeal is worth quoting:

‘49. Nor can the Court accept the argument that, because the Appellants characterize their aviation restrictions imposed on Qatar-registered aircraft as lawful countermeasures, the Council has no jurisdiction to hear the claims of Qatar. […] The prospect that a respondent would raise a defence based on countermeasures in a proceeding on the merits before the ICAO Council does not, in and of itself, have any effect on the Council’s jurisdiction within the limits laid down in Article 84 of the Chicago Convention.’ (emphasis added)

Essentially if the EU were to adopt countermeasures under the ACI against a third state, the latter could initiate a DSB-complaint arguing that countermeasures (being the ‘non-performance’ of a WTO-obligation) violate a covered WTO agreement. The EU would be left to defend such accusation based on customary international law; that there is no such WTO-violation because the non-performance of WTO obligations is taken as countermeasures, which are circumstances precluding wrongfulness. Consequently, the argument that the ACI deals with customary international law violations, such that any dispute arising therefrom cannot be seen as a WTO-dispute, stands on shaky ground. It suffers from a crucial shortcoming that is baked into the ACI’s own reliance on the legal framework of countermeasures.

Doctrinally the argument on countermeasures presupposes that the underlying non-performance is a violation of an international obligation (in this case WTO obligations), whose wrongfulness can eventually be precluded. As such, the EU by adopting countermeasures, may actually invite the third state to claim that such countermeasures are a violation of existing WTO obligations. Following the reasoning of the ICJ in the ICAO Council Appeal case, there is no escaping of the fact that potentially a solid case can be made that there is a WTO-dispute within the DSB’s jurisdiction. The fact that this dispute will then eventually also take on general public international dimensions would not exempt the EU of its procedural WTO obligations under Art. 23 DSU.

Conclusion

The main challenge for implementing the ACI’s regime of countermeasures is that any potential action under the ACI has to account for the risk of DSB complaints by the third state addressed by the countermeasures. The EU and its member states cannot escape their procedural obligations under Art. 23 DSU. It may seem on the surface rather tactical that the ACI would allow the EU ‘free reins’ to impose any economic measures (even those violating WTO-rules) as countermeasures to ‘deter’ economic coercion. This blog post attempted to counter this assumption by taking a doctrinal approach to analyse the legal mechanics of countermeasures under international law. The critical liability lies in the ACI’s reliance on the legal framework of countermeasures, which by default places the EU’s anti-coercion policies – particularly from a legal-doctrinal perspective – in a position to have to concede inevitable wrongfulness in order for countermeasures to even be arguable. Even if the existence of the ACI in and of itself does not necessarily contravene the exclusive and compulsory jurisdiction of the DSB, once any action related to Annex I countermeasures is taken against economic coercion, a WTO-dispute could arise. Thus, the third state could in fact gain leverage by being able to credibly threaten action before the DSB. Consequently, the ACI with its goal of fending off unilateralism of economic coercion, may invite even more pushback, given that the ACI itself relies on a certain touch of unilateralism. And so it goes, the tit-for-tat continues.