The European Union’s Anti-Coercion Instrument (ACI) regulation is a novel and significant development in international trade law which came into force on 27th December 2023. The new trade instrument will enable the European Union (EU) to deal with foreign countries’ efforts to influence or coerce the EU or a particular member state in pursuing a specific trade or investment policy in relation to a non-EU country.

Essentially, the policy instrument has been created in response to measures, prospectively launched by powerful geopolitical players such as China and the United States, which are designed to undermine the EU’s security and encroach upon its legitimate sovereign choices. It’s also possible that the ACI’s trade defence instruments may even target the UK, in the post-Brexit scenario.

New geopolitical challenges require new trade defences

The European Commission’s reasons for introducing the ACI are based on grounds that conventional trade measures do not adequately address the new challenges of economic coercion being increasingly implemented by non-EU governments. The EU’s conventional measures typically include anti-dumping policies allowing the EU to impose fines, such as duties or tariffs, on third countries exporting goods at below cost into the Single Market.

As a member of the World Trade Organization (WTO), the EU can also file complaints with the global trade body to resolve disputes between member states. In circumstances where economically coercive behaviour can be brought within the WTO’s remit, complexities at the appellate level can result in undue delays in resolutions and problematic enforcement.

An example of geopolitically-induced coercive influence arose in the trade restrictions imposed by China on EU member state, Lithuania, after it had announced plans to improve trade relations with Taiwan in June 2021. Following the Lithuanian government’s statements of intention, Lithuanian companies reported obstacles concluding or renewing contracts with Chinese organisations. They also experienced significant delays with shipments at Chinese customs neither being cleared nor being able to file customs paperwork.

The European Parliament had criticised China’s economic coercion of Lithuania in several resolutions but with no change of behaviour by Chinese authorities, hence the EU’s decision to press ahead with introducing the ACI.

It should be highlighted that the ACI is designed to act as a deterrent by seeking to resolve economic coercion through diplomacy and negotiations.  Only as a final deterrence, it can introduce countermeasures against a foreign country in a broad array of restrictions related to international trade, investment, and funding.  The ACI can also be deployed to achieve financial compensation for injury caused by a non-EU state’s coercive policies and operations.

How will the anti-coercion instrument work?

The Commission would take into account a range of factors in considering whether economic coercion has arisen.  These factors would include the frequency, severity and intensity of a non-EU state’s policy measures. It would also consider the extent to which a foreign power is carrying out a systematic interference in the EU’s or member states’ affairs.  Further investigation would look to ascertain the degree to which the foreign country is undertaking acts based on its legitimate concerns, which are recognized internationally, although the ACI contains no definition of what constitutes a legitimate concern.

The Commission is authorized to expeditiously investigate whether a non-EU country is engaging in coercive policies.  If so, the Commission would implement a determination that the foreign state is undertaking coercive trade or investment measures, and subsequently inform that country of its decision.

The ACI enables the Commission flexibility in engaging, on behalf of the EU, with the foreign government in ceasing the economic coercion. Such interactions could involve direct negotiations, mediation or international adjudication.

In the event an EU request for cessation of economic coercion does not materialize within a reasonable time frame, the Commission is required to launch countermeasures to terminate a third country’s coercion. A wide variety of response measures can be deployed in relation to international trade and investment policy, including:

  • new or higher customs duties and charges applicable to the import/export of goods;
  • non-performance of tariff concession obligations;
  • restrictions of import and exports including export controls, quotas, or export licenses or payments;
  • restrictions on trade in services;
  • exclusion of public procurement of goods, services or suppliers;
  • access of foreign direct investment to the Single Market; and
  • non-compliance with investment protection guarantees for existing investments such as under free trade and investment protection agreements.

Conclusion

The ACI is an indication of how the EU is carving out a leadership role in fostering new investment and trade rules in a fragmenting international trade environment, by taking charge of the narrative in determining global trade policy rules not being subject to external interference. It also forms a cornerstone of strengthening the EU’s strategic autonomy in mitigating against the use of weaponised interdependence being orchestrated by some of the world’s principal trading and geopolitical powers.

The extent to which the ACI is compatible with existing international law is an unanswered question, especially in respect of complying with WTO rules, and even in relation to the EU’s own laws.  It cannot be dismissed that the substance of its provisions heralds a shift towards unilateral and self-adjudicating measures, contrary to further harmonizing with the multilateral trading system.  As a result, UK and other international businesses will need to closely monitor its development in practice.