EU Develops Anti-Coercion-Instrument

Geoeconomics – the term pops up often recently. Four years of Donald Trump, a still very much assertive U.S. administration under President Biden and a China that brims over with confidence have signaled to Europeans that the continent will in the future face more geopolitical pressure. When in 2019 Commission President von der Leyen announced her plans for a geopolitical Commission, Europeans had already learned that their strict credence of a multilateral, rules-based global order was increasingly under pressure.

However looking at the state the Common Foreign and Security Policy (CFSP), the botched withdrawal from Afghanistan or its limited capability in reigning in an often belligerent Russia, the EU’s credentials to robustly project its interests abroad are slim. More than that, Europe often finds itself at a disadvantage when third countries use their economic weight to pursue geopolitical goals. With the weight of the common market at its disposal, the EU now develops a strategy to disincentivize other state actors from using economic coercion against European businesses.

To deter the projection of power by economic means, ACI should be capable to respond to a multidimensional set of issues, like – for instance – the leveraging of virtual monopolies in natural resources, secondary financial sanctions as well as other forms of extraterritoriality, and measures systematically disguised under the subterfuge of national security or national interest, particularly if they can be shown to violate the erga omnes principle.

A non-statist, economic definition of coercion

It is paramount that the EU conceives of economic coercion as an issue that, first and foremost, negatively affects economic operators and is to the detriment of fair and open trading principles. While foreign governments employ geo-economic measures to realize relative geopolitical gains at the ultimate expense of other states, it is businesses that bear the brunt of such measures.

BDI therefore stresses that the Commission’s understanding of coercion should be that economic coercion is geared towards businesses for the purpose of subsequently influencing state behavior. Otherwise assuming the purely statist premise of geo-economics, the EU would be accepting and adopting the tit-for-tat, relative-gains logic of geopolitics and not the absolute-gains approach of rules based global trade. An instrument in the service of the latter must make this distinction.

A vision of strategic interdependence beyond deterrence

Because of the conflicting challenge of economic interdependence on the one hand and the robust assertion of our economic interests on the other, BDI emphasizes strongly that ACI must be part of a larger strategic effort. Europe must match its anti-coercive efforts with measures to strengthen the interdependence Europe enjoys with the rest of the globe. This will require investment at home and a renewed commitment by Europeans to further integrate the common market.

Simply put, deterrence will not work if it fails to include a plan that incentivizes economic participation and, hence, raises the stakes in favor of global economic co-ownership. ACI makes sense only as part of a larger effort to strengthen Europe’s strategic interdependence. BDI stresses that European societies rely on economic growth inter alia for innovation, societal inclusion, and employment. Therefore, it should be the sole objective of ACI to deter economic coercion and, if necessary, reciprocate measures in the service of the EU’s long-term economic interests.

ACI - principled and robust for Europe’s economic interests

The Federation of German industries, therefore, urges policymakers to predicate an anti-coercion-instrument on the following principles:

• Europe should premise the use of ACI on the paradigmatic goal of arriving at and retaining open and fair trade relations. WTO-compliance is an integral part of that paradigm;
• ACI should be a reactive instrument that, first of all, deters forms of economic coercion as described above;
• Identification of economic coercion should be based on how coercion intentionally creates an unlevel playing-field for European economic operators in the pursuit changing European policies;
• A determination of economic coercion should not be followed by the EU breaking a butterfly on a wheel. EU member-states should instead pursue an incremental process, in which non-economic measures are deployed to gauge the potential for de-escalation.
• ACI should be deployed proportionally, in recognition of the Union’s interest, and clearly attributable to the effects of a foreign government pursuing geopolitical influence by means of economic harm;
• Coercive measures can only be deterred efficiently, if they are at once reciprocated in a timely manner and implemented with a minimum of up- and downstream externalities for economic operators;

The Transatlantic partnership is of the utmost importance to Europe’s interests. ACI should be part of a larger political effort to expand the EU’s role as Washington’s reliable and globally assertive partner. Europe, therefore, needs to commit to take on an enhanced international role across the full range of foreign policy-issues important to the Transatlantic Alliance.