The EU Anti-Coercion Instrument: Anti-What, Exactly?
By Johannes Schäffer, Berlin School of Economics and Law*
In February 2021, the Commission acknowledged the concerns of the Parliament and Member States regarding coercive practices by “certain third countries”. Having identified a regulatory gap, it committed to “examine a possible instrument, which could be adopted in order to dissuade or offset coercive actions by third countries and which would allow the expeditious adoption of countermeasures triggered by such actions” no later than the end of 2021 (see the Joint Declaration). The Commission fulfilled its promise by adopting the proposal for an Anti-Coercion Instrument (ACI) in December. The divergent negotiating positions of the Parliament (here) and the Council (here) did not prove to be “show stoppers”. On 27 December 2023, the ACI – i.e. Regulation (EU) 2023/2675 “on the protection of the Union and its Member States from economic coercion by third countries” – entered into force.
Scholarly and practice-oriented debates on this new trade instrument have continued to gain momentum, including on the CELIS Blog. After the adoption of the ACI, Thomas Verellen examined the ACI from the perspective of democratic accountability and the lack of democratic control mechanisms (here), given that the Council decides on the existence of economic coercion by qualified majority (the initial proposal granted the Commission such power). Anh Nguyen drew attention to general international law perspectives on the ACI’s notion of economic coercion (here) and on WTO law perspectives on the ACI’s unilateral invocation of countermeasures (here). Alexia Crivoi focused on the ACI’s nature as a politicized instrument and the decision-making process (here). This blog post revisits the term “economic coercion”, which is crucial to understanding the ACI, and touches upon the ACI’s potential to shed some light on rather murky areas of international law.
Open Strategic Autonomy and Economic Security
The weaponization of trade and the shift towards the use of economic means for political ends appear to be ubiquitous these days. Such trends are widespread. Take China’s growing assertiveness in the application of economic restrictions as an example (see Iryna Bogdanova here). The ACI is well aware of these developments. Recital (6) soberly observes: “The modern interconnected world economy increases the risk of economic coercion, as it provides countries with enhanced means for such coercion, including hybrid means.”
This modern era of economic unpeace has left deep traces in EU trade policy and has evolved into the concept of an “open strategic autonomy”. Admittedly, the term is “open” to various interpretations, which is probably why it seems to work well on a policy level. However, it is no deus ex machina either and steadily gaining legal contours. In brief, it can be described as a four-phase development (see here). (i) From 2013 to 2016, “strategic autonomy” had security and defence implications. (ii) With Brexit and Trump, it resembled a political journey of self-discovery and became an expression of defending EU interests within an increasingly hostile geopolitical order. (iii) The pandemic, in 2020, subsequently shifted the focus to supply chain risks. (iv) Since 2021, notably already in its trade policy review (here), the EU has frequently referred to an open strategic autonomy (and/or “strategic sovereignty”, “capacity to act”, “resilience”), including a myriad of policy areas balancing EU values, dependencies, free trade, and security. Today, the ACI plays a key role in the European Economic Security Strategy as published in June 2023, and the Commission’s most recent Security Package.
Economic Coercion May Take Many Forms
The term “economic coercion” is, although rather commonly referred to by the UN General Assembly, not a term of art in international law. In fact, it may have “only served to muddy the waters of an already obscure area of international law.”[1] Nonetheless, the ACI is, in its own words, supposed to be “an appropriate instrument to deter and counteract economic coercion by third countries”, as Recital (7) puts it. So, what does the ACI actually mean by “economic coercion”?
During the legislative process, the Parliament explained (here) that the ACI triggers “need to be broadly defined and country-neutral” since economic coercion may “take many different forms”.[2] It gave various examples, such as Washington’s threat to retaliate on the digital tax of several EU Member States, which triggered the ACI in the first place. China’s blockade of imports from Lithuania after Taiwan opened a de facto Embassy in Vilnius was a case in point, fuelling the ongoing debate. The Parliament further mentioned the “spontaneous” boycotts of Western brands and bans on Members of the European Parliament critical of China, as well as the Russian import ban on agricultural goods from EU Member States back in 2014. In the Parliament’s ACI briefing (here), it differentiated three different types of economic coercion. First, there is explicit coercion based on the use of formal measures. Second, coercion may show up in disguise when a State abuses a legitimate instrument (e.g., excessive or discriminatory use/abuse of sanitary and phytosanitary measures). Third, economic coercion may take the form of silent coercion. The Parliament hints at private players who are instructed by a country’s government to apply informal restrictions or are called upon to do so by state-controlled media (reference is made to “popular boycotts” in China).
Importantly, Recital (15) acknowledges that economic coercion is not tantamount to an internationally wrongful act, and Recital (14), among others, supports the ACI’s objective to fight internationally wrongful acts only. Hence, in the case of clearly unfriendly but perfectly lawful foreign coercion (retorsion), the ACI does not preclude the EU or its Member States from resorting to retorsion themselves. Antonios Tzanakopoulos convincingly argued that “economic freedom” is a relative concept, without an irreducible core, and that there is no fundamental right of States to be free from economic coercion per se.[3] Instead, as Anh Nguyen conclusively pointed out, unlawful economic coercion should be interpreted narrowly to mean a violation of the principle of non-intervention (here). Although the ongoing debate will remain controversial in detail, the concept of retorsion might cover a large portion of non-ACI responses given by the EU/Member States to end foreign coercive practices. In other words, the unlawfulness of a foreign measure plays a key role in the application of the ACI “response measure” system but does not make all the difference between anti-coercion and total speechlessness.
Unlawful Economic Coercion and Countermeasures
To the extent economic coercion amounts to unlawfulness, and a certain State is responsible for it, countermeasures (or ACI “response measures”) that would otherwise be unlawful may be legally appropriate. This is a matter of the law on State responsibility, which has long overcome both forcible and non-forcible reprisals in the 19th-century style of power politics and gunboat diplomacy. The incremental curtailment of the use of force, two World Wars, the UN Charter and its transformative influence on international law raised fundamentally novel questions. In 1963, the International Law Commission (ILC) decided to carefully review “the possible repercussions which new developments […] may have had on responsibility” (here, p. 228). Its arduous work under various Special Rapporteurs took until 2001 before the ILC adopted the Articles on Responsibility of States for Internationally Wrongful Acts (ARSIWA, here with commentaries), followed in 2011 by the ILC Draft Articles on the Responsibility of International Organizations. These regimes are both widely regarded as customary law. A crucial distinction, however, must be drawn.
On the one hand, Articles 22 and 49 to 53 ARSIWA incorporate a rather thought-through and detailed concept of countermeasures taken by an injured State (bilateral countermeasures). It includes a broad definition of the “injured State” and procedural aspects. The ACI can be, and needs to be, interpreted in line with the said provisions, for obvious reasons. Recital (5) ACI expressly refers to “rules of customary international law on State responsibility” as reflected in the ARSIWA. Recital (13) specifies that the said Articles 22 and 49 to 53 ARSIWA allow countermeasures under certain conditions. Finally, Article 1(3) ACI unequivocally states in more general terms that any action taken “shall be consistent with international law”. Meanwhile, Article 2(1) ACI empowers the EU to respond to measures that interfere in the legitimate sovereign choices of the Union “or” a Member State; i.e., the internal market and the Union as a whole are not necessarily affected, as Recital (10) suggests. In other words: It depends on the concrete case at hand whether the EU qualifies as injured or simply is a non-injured third party.
Countermeasures taken by such non-injured parties on the other hand – most frequently labelled third-party countermeasures – have been, and still are, somewhat puzzling. Reviewing the state of law, the ILC was of the opinion that, in this respect, State practice was “limited and rather embryonic” and, thus, the “state of international law on countermeasures taken in the general or collective interest […] uncertain” (here, pp. 137, 139). Eventually, the matter was deliberately left open “to the further development of international law” (here, p. 139). Article 54 ARSIWA, therefore, is just a saving clause, while Article 48 sets forth basic premises for the invocation of responsibility by third parties. The International Court of Justice (ICJ) for its part played a major role in affirming erga omnes obligations (Barcelona Traction in 1970[4]), thereby widening the potential of third-party engagement, but remained “at the rearguard of the debate ever since”[5]. Its case law contains no positive indication that non-injured States may take countermeasures.[6] If anything, it seems to be the contrary in Nicaragua.[7] This, however, would be misleading and overstate the ICJ’s importance in this context. Martin Dawidowicz found that, contrary to the ILC’s assertions, an abundance of widespread State practice – ranging from the 1960s to present days – clearly supports the conclusion that third-party countermeasures are, in principle, permissible under international law.[8]
Defining Economic Coercion
This being said, what is the legal definition? According to Article 2(1) ACI, economic coercion “exists 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”.
To begin with, the wording includes non-forcible coercion only (“affecting trade or investment”). The explicit reference to mere threats as well is clear enough (regardless of the assumption that threats to engage in economic coercion will rather seldom overstep the limitations of international law). The “legitimate sovereign choices” are both legal basis and boundary: It pertains to and protects, as already mentioned, the principle of non-intervention and a State’s domaine réservé (here),[9] rendering economic coercion unlawful in the event of a breach. But being no State, the EU’s ability to act may be restricted precisely because it concerns the sovereign choice of a Member State (in the light of EU competences, based on the principle of conferral). As regards economic coercion against private companies and individuals, it is not excluded that in rare instances such practice may amount to indirectly coercing a Member State or even the EU. It is noteworthy that the case of coercion against private actors was discussed in the legislative process, a broader definition suggested by stakeholders (see the Commission’s Impact Assessment here, p. 10) – but eventually rejected, making the case for a restrictive interpretation in this respect.
Article 3 ACI provides further clarification, at least to some extent. A “particular act”, according to Article 3(2), comprises in broad strokes “any legal or other act, including an expression of a position, by an institution, body, office or agency of, respectively, the Union or of a Member State, or of a third country”. Pursuant to Article 3(4), “third country” means “any State, separate customs territory or other subject of international law, other than the Union or a Member State. Considering this, “third-country measure” means “any action or omission attributable to a third country under international law”, see Article 3(1). Given the extensive definitions of third countries and third-country measures, the ACI remains open to current and future developments, e.g., debates on transnational companies as subjects of international law (at present widely denied). Discussions will certainly revolve around the difficult issue of attributing acts that are private in nature (from a purely formal point) but actually guided by States to the latter under the law on State responsibility, e.g., in the case of what the Parliament framed as “silent coercion”. The ILC was of the view that the activities of state-owned enterprises are in principle not attributable to the owning State. It recalled that “international law acknowledges the general separateness of corporate entities at the national level, except in those cases where the ‘corporate veil’ is a mere device or a vehicle for fraud or evasion” (here, p. 48). Article 4 et seq. ARSIWA are, in particular, testimony to this standpoint. However, Recital (16) ACI refers to the said Articles and stipulates that the conduct of a person or group of persons qualify as an act of the State if “acting on the instructions of, or under the direction or control of, that State in carrying out the conduct”, which could be seen as evasion. Union response measures may even apply directly to private actors, cf. Article 8(3), first subparagraph, point (b), and Article 10 ACI. In view of possible future practices and challenges, and considering parallel developments in international law,[10] the “general separateness of corporate entities” from the public sphere might erode rather sooner than later.
Meanwhile, the contribution of the ICJ to the debate is rather modest. In its often-cited Nicaragua judgement[11], the ICJ held (back in 1986) that none of the US trade embargo measures – not even them – systematically contravened the principle of non-intervention, without providing further reasoning (paras. 244-245). The Court also stated that “intervention is wrongful when it uses methods of coercion in regard to […] choices, which must remain free ones”, such as “the choice of a political, economic, social and cultural system, and the formulation of foreign policy” (para. 205). Further jurisprudence of the Court and, therefore, a coherent position on economic coercion is lacking. In general, it is fair to say that open strategic autonomy and economic security overlap only slightly with legitimate sovereign choices, and that the threshold for economic coercion to be unlawful will be rather high albeit unclear in detail – which does not necessarily detract from the ACI’s main objective of deterrence.
The ACI’s approach is indeed cautious. It establishes some guardrails for the determination of unlawful economic coercion. Recital (15) calls upon both “qualitative and quantitative criteria” in order to characterise “notably the form, the effects and the aim of the measures which the third country is deploying.” More specifically, Article 2(2) ACI obliges the Council and the Commission to take the following, inter alia, into account: “the intensity, severity, frequency, duration, breadth and magnitude of the third-country measure”, “whether the third country is engaging in a pattern of interference” and “whether the third country is acting on the basis of a legitimate concern that is internationally recognised”. Hard quantitative thresholds (e.g., a minimum amount of damages) are lacking on purpose given that, as the Commission stressed in its Impact Assessment, “a chosen number” may miss “the target and important cases of coercion” could be left out (here, p. 46). Looking at the flip side, one-time interferences that are highly intensive without pursuing a legitimate concern could still fit this scheme, and so do repeated interferences of medium intensity or maybe even a pattern of longer-lasting interferences regardless of its low intensity, each without pursuing a legitimate concern. The lines are admittedly blurred – but this is inherent in the system of economic coercion, its legal grounds, and limitations. It means, in effect, that the Commission and the Council enjoy wide discretionary powers when it comes to the examination and determination of third-country measures pursuant to Articles 4 and 5 ACI. The use of these powers must be in line with international law, but might over time redraw the lines and reshape the law.
The Future of Economic Coercion and Anti-Coercion
One needs to bear in mind that the ACI as anti-coercion framework is just that: a framework. The difficult implications of customary international law on State responsibility, the non-intervention principle as well as questions relating to the consistency with already existing (investment) treaties or WTO law do concern the case-by-case application of the ACI, not the ACI as such. Thus, it will be interesting to observe whether the EU uses its brand-new trade instrument any time soon, and if so, under what circumstances the EU considers itself injured with respect to its “legitimate sovereign choices” (e.g., based on a far-ranging reference to its internal market and/or economic security concept). At any rate, the EU could produce further practice and explicit opinio juris with regard to the legal grounds and limitations of countermeasures, even more so given that States are usually reluctant to indicate their reasoning and do not categorize measures taken. The case-by-case application of the ACI implies considerable potential to sharpen the blurred lines between retorsions and countermeasures in today’s geopolitical environment as well as between injured and non-injured parties, i.e., bilateral and third-party countermeasures. It might contribute to a modernized set of rules applicable to activities of state-owned enterprises, foster the understanding of sovereignty and intervention on the level of economic coercion, and lay down legal characteristics of what “exactly” the ACI is up against. At best, its use will help promote the rules-based international system. Recital (6) clearly conveys that hope: “It is desirable that the Union contribute to the creation, development and clarification of international frameworks for the prevention and elimination of situations of economic coercion.” At worst, the ACI will play its part in dragging the system deeper and deeper into a spiral of economic “lawfare” ping-pong until the lines between legal and illegal measures are even further blurred, leaving the stage to power politics.
* Dr Johannes Schäffer is professor of Public Economic Law at Berlin School of Economics and Law. His research interests cover various aspects of foreign trade law, EU sanctions and security-related aspects of international trade in particular. He worked, inter alia, for the German Foreign Ministry during his legal clerkship and many years, after that, as a foreign trade lawyer with an international law firm.
[1] Martin Dawidowicz, Third-Party Countermeasures in International Law, 2017, 30.
[2] See as well Johannes Schäffer, Zeitschrift für das Recht der Außenwirtschaft, Sanktionen und Auslandsinvestitionen (ZASA) 2023, 91.
[3] Antonios Tzanakopoulos, Cambridge Journal of International and Comparative Law, 4 (3), 2015, 616.
[4] Available at https://www.icj-cij.org/sites/default/files/case-related/50/050-19700205-JUD-01-00-EN.pdf.
[5] Martin Dawidowicz, Third-Party Countermeasures in International Law, 2017, 71.
[6] Tom Ruys, Sanctions, Retorsions and Countermeasures: Concepts and International Legal Framework in Larissa van den Herik (ed.), Research Handbook on UN Sanctions and International Law, 2017, 19, 46.
[7] Available at https://www.icj-cij.org/public/files/case-related/70/070-19860627-JUD-01-00-EN.pdf.
[8] Martin Dawidowicz, Third-Party Countermeasures in International Law, 2017, 111 et seq., 282 et seq.
[9] See as well Recital (5).
[10] Chistian Tietje, Zeitschrift für Europarechtliche Studien 2023, 654, 663 et seq.
[11] Available at https://www.icj-cij.org/public/files/case-related/70/070-19860627-JUD-01-00-EN.pdf.
