The EU’s “Trade Bazooka”: Key Considerations on the Anti-Coercion Instrument

The Anti-Coercion Instrument (ACI) is set out in Regulation (EU) 2023/2675. In force since 2023 and so far never used, the ACI enables the EU to adopt countermeasures in response to economic coercion by non-EU countries, with the aim of deterring or obtaining the cessation of such economic coercion and thus protecting the interests and sovereign choices of the EU and its Member States. The range of possible countermeasures under ACI is wide, with potential significant implications for companies doing business in the EU.

1. What is the economic coercion that the ACI intends to counter?

Under the ACI, economic coercion exists where a third country applies or threatens to apply a measure affecting trade or investment in order to prevent or obtain the cessation, modification, or adoption of a particular act by the EU or a Member State, thereby interfering in the legitimate sovereign choices of the EU or a Member State.

Economic coercion may affect any policy field and may take the form of legislation or other formal or informal action or inaction. Its existence should be assessed case-by-case considering all relevant circumstances, including factors like the intensity, severity, frequency, duration, breadth, and magnitude of the third-country measure, whether the third-country measure responds to a legitimate concern that is internationally recognized and whether and to what extent the third-country measure interferes with an area of EU sovereignty.

2. What countermeasures may the EU adopt under the ACI?

The ACI allows the EU to adopt a wide range of countermeasures. A list of possible countermeasures is set out in Annex I to the ACI and includes, among others, the following:

1. customs duties, including new or increased tariffs or additional charges on imports/exports relating to the coercing country
2. import/export restrictions, including quotas, licensing requirements, export controls, transit controls, or other limits on shipments of certain goods relating to the coercing country
3. services and investment restrictions, including limitations on the provision of services or on investments by businesses from the coercing country
4. intellectual property (IP) restrictions, including limiting IP protections or the commercial exploitation for rights-holders linked to the coercing third country, including the possible revocation of IP rights previously guaranteed
5. public procurement measures, including exclusion of suppliers from the coercing country from EU public contracts or adjusting tender scoring to disadvantage them
6. financial services restrictions, including measures affecting banking, insurance, or access to EU capital markets for financial actors linked to the coercing country

The ACI provides for specific rules (Annex II) to determine the origin and nationality of targeted services, suppliers, investments, or IP right holders. For instance, legal persons are deemed nationals of the third country where they are incorporated, have their registered office or principal place of business, or are subject to control by persons of that third country.

The EU should select countermeasures that are appropriate for deterring or inducing the cessation of the alleged economic coercion, are proportionate to the severity of the alleged economic coercion, and do not exceed the level of injury suffered by the EU. The EU is expected to also take into account — and avoid or at least mitigate — any potential negative impact on EU businesses.

3. How can the ACI be deployed?

Although action under the ACI may be initiated quickly, the adoption of countermeasures under the ACI must follow a multistep procedure:

1. Examination by the European Commission (Commission) whether a third-country measure amounts to economic coercion. The Commission may take this step on its own initiative or upon request of an EU Member State. It may last up to four months.
2. Adoption of an implementing act with the determination of whether the examined third-country measure constitutes economic coercion. The implementing act must be adopted by the Council of the EU by qualified majority (supported by at least 15 EU Member States together representing 65% of the EU population). No strict time limit applies, and the Council would be able to move more or less quickly depending on political alignment.
3. Formal consultations with the third country exercising the alleged economic coercion, with a view to reaching a negotiated solution that stops the coercion and, if applicable, allows for reparation of injury suffered by the EU. The consultations are led by the Commission. The ACI does not provide for a specific timeframe for conducting the consultations; the Commission retains discretion but should act expeditiously and provide adequate opportunity to the third country to engage in consultations.
4. Adoption of countermeasures if no solution is reached during the consultations. The Commission has up to six months from adoption of the initial implementing act to decide on possible countermeasures and should do so after consultation with relevant stakeholders (including trade unions and associations). The countermeasures should be proposed by the Commission and adopted with the support of a qualified majority of EU Member States. The countermeasures may start applying immediately or no later than three months from the date of their adoption.

4. Must all EU Member States back the use of the ACI?

No. EU Member State approval is not required to initiate the ACI process. Once the ACI process is initiated, a qualified majority (at least 15 EU Member States together representing 65% of the EU population) of EU Member States must support both the determination of any third-country measure as economic coercion and, if the ACI process fails to cease the economic coercion, the countermeasures proposed by the Commission — not unanimity.

5. What does “formal consultations” mean?

If the EU determines that a third-country measure amounts to economic coercion, the Commission must provide adequate opportunity for consultations with the third country with a view to obtaining cessation of the economic coercion. Consultations may take the form of direct negotiations, international adjudication, mediation, or even good offices by a third party other than the EU and the coercing country at issue.

The ACI does not provide for a specific timeframe for conducting the consultations. In general, these should be conducted prior to adoption of the countermeasures. But they may continue also following their adoption with a view of reaching a satisfactory solution. The EU retains powers to suspend and even terminate adopted countermeasures in case the situation of alleged economic coercions is resolved at a later stage.

6. How can businesses anticipate or influence potential measures?

The ACI is often described as the EU’s “Trade Bazooka” to emphasize the significance of the countermeasures that the EU may adopt and the discretion the EU retains in selecting the type of countermeasures. While it may be challenging to anticipate the countermeasures of choice, countermeasures may be adopted only following a multistep procedure that involves both formal consultations with the alleged coercing country and consultations with industry stakeholders. These consultations should provide businesses with an opportunity to monitor developments and provide input.