COMMISSION STAFF WORKING DOCUMENT IMPACT ASSESSMENT REPORT Accompanying the document Proposal for a Regulation of the European Parliament and of the Council on the protection of the Union and its Member States from economic coercion by third countries

EN EN
EUROPEAN
COMMISSION
Brussels, 8.12.2021
SWD(2021) 371 final
COMMISSION STAFF WORKING DOCUMENT
IMPACT ASSESSMENT REPORT
Accompanying the document
Proposal for a Regulation of the European Parliament and of the Council
on the protection of the Union and its Member States from economic coercion by third
countries
{COM(2021) 775 final} - {SEC(2021) 418 final} - {SWD(2021) 372 final}
Offentligt
KOM (2021) 0775 - SWD-dokument
Europaudvalget 2021
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Table of contents
1. INTRODUCTION: POLITICAL AND LEGAL CONTEXT............................................................... 5
2. ILLUSTRATIVE EXAMPLE............................................................................................................... 6
3. PROBLEM DEFINITION .................................................................................................................... 7
3.1. What is the problem?.........................................................................................7
3.2. What are the problem drivers? ........................................................................17
3.3. How will the problem evolve? ........................................................................18
4. WHY SHOULD THE EU ACT? ........................................................................................................ 19
4.1. Legal basis.......................................................................................................19
4.2. Article 207(2) TFEU is expected to be a sufficient legal basis for the
purposes of a policy intervention in the situations of economic
coercion, as described below. Subsidiarity: Necessity of EU action ..............19
4.3. Subsidiarity: Added value of EU action..........................................................20
5. OBJECTIVES: WHAT IS TO BE ACHIEVED? ............................................................................... 20
5.1. General objectives ...........................................................................................20
5.2. Specific objectives...........................................................................................20
6. WHAT ARE THE AVAILABLE POLICY OPTIONS? .................................................................... 22
6.1. Options discarded at an early stage – Option 1: No policy change (also
the baseline from which other options are assessed) and Option 3: A
“Resilience Office”..........................................................................................22
6.1.1. No policy change (also the baseline from which other options are assessed) –
discarded at an early stage.................................................................................................... 22
6.1.2. Option 3: A “Resilience Office” – discarded at an early stage .............................. 26
6.2. Options retained for further analysis – Option 2: A legal instrument
and design parameters .....................................................................................27
7. IMPACT OF THE POLICY OPTIONS.............................................................................................. 38
7.1. General remarks...............................................................................................38
7.2. Economic impact.............................................................................................40
7.2.1. Non-EU countries that use or contemplate coercion towards the EU or Member
States 40
7.2.2. International relations........................................................................................... 42
7.2.3. UN Sustainable development goals ...................................................................... 43
7.2.4. EU economic operators and consumers ............................................................... 43
7.2.5. SMEs...................................................................................................................... 48
7.2.6. Trade and investment flows.................................................................................. 49
7.2.7. Public authorities (EU, national, regional or local administrations) ..................... 49
7.2.8. EU citizens and society as a whole ........................................................................ 50
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7.3. Social impact ...................................................................................................50
7.4. Environmental impact .....................................................................................50
7.5. Fundamental rights ..........................................................................................51
8. HOW DO THE OPTIONS COMPARE?............................................................................................ 51
8.1. Configuration of policy packages....................................................................51
8.2. Policy packages ...............................................................................................52
8.3. Comparison......................................................................................................54
8.3.1. Effectiveness or the extent to which the policy packages would achieve the
objectives (deter, de-escalate, discontinue, counteract)...................................................... 54
8.3.2. Efficiency ............................................................................................................... 56
8.3.3. Coherence with other EU policy objectives, including the Charter for fundamental
rights, and with other policy initiatives and instruments ..................................................... 57
9. PREFERRED OPTION ...................................................................................................................... 58
10. HOW WILL THE ACTUAL IMPACTS BE MONITORED AND EVALUATED?......................... 61
ANNEX 1: PROCEDURAL INFORMATION............................................................................................ 62
1. LEAD DG, DECIDE PLANNING/CWP REFERENCES.................................................................. 62
2. ORGANISATION AND TIMING...................................................................................................... 62
3. CONSULTATION OF THE RSB....................................................................................................... 62
4. EVIDENCE, SOURCES AND QUALITY......................................................................................... 63
ANNEX 2: STAKEHOLDER CONSULTATION – SYNOPSIS REPORT................................................ 67
ANNEX 3: WHO IS AFFECTED AND HOW? .......................................................................................... 72
1. PRACTICAL IMPLICATIONS OF THE INITIATIVE..................................................................... 72
2. SUMMARY OF COSTS AND BENEFITS ....................................................................................... 72
ANNEX 4: ANALYTICAL METHODS ..................................................................................................... 74
ANNEX 5: OVERVIEW OF CERTAIN EXISTING INSTRUMENTS AND THEIR RELATION
TO COERCION.................................................................................................................................. 76
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Glossary
Term or acronym Meaning or definition
Blocking Statute Council Regulation (EC) No 2271/96 of 22 November
1996 protecting against the effects of the extra-territorial
application of legislation adopted by a third country, and
actions based thereon or resulting therefrom, OJ L 309,
29.11.1996, p. 1–6; as last amended, OJ L 199I , 7.8.2018,
p. 1–6; consolidated text.
EBRD European Bank for Reconstruction and Development
ECFR European Council for Foreign Relations
EESC European Economic and Social Committee
EEAS European External Action Service
EIB European Investment Bank
EU Trade Enforcement
Regulation
Regulation (EU) No 654/2014 of the European Parliament
and of the Council of 15 May 2014 concerning the exercise
of the Union's rights for the application and enforcement of
international trade rules, OJ L 189, 27.6.2014, p. 50–58; as
amended, OJ L 49, 12.2.2021, p. 1–5; consolidated text.
EU or Union European Union
HS Harmonized System
DG TRADE Directorate General for Trade
GDP Gross Domestic Product
INTA Committee on International Trade of the European
Parliament
ISG Interservice (steering) group
MFF The Multiannual Financial Framework of the European
Union
Member States The Member States of the European Union
NGOs Non-government organisations
SMEs Small- and medium-size enterprises
TEU Treaty of the European Union
TFEU Treaty on the Functioning of the European Union
REACH Regulation Regulation (EC) No 1907/2006 of the European Parliament
and of the Council on the Registration, Evaluation,
Authorisation and Restriction of Chemicals, OJ L 396
30.12.2006, p. 1, as amended; consolidated text.
4
CTEO The Chief Trade Enforcement Officer at the Directorate-
General for Trade
UN The United Nations
US The Unites States of America
WTO World Trade Organization
WTO Agreement Marrakech Agreement Establishing the World Trade
Organization
GATT 1994 WTO General Agreement on Tariffs and Trade 1994
GATS WTO General Agreement on Trade in Services
TRIPS Agreement WTO Agreement on Trade-Related Intellectual Property
Rights
5
1. INTRODUCTION: POLITICAL AND LEGAL CONTEXT
The initiative for the creation of an anti-coercion instrument originates in the legislative
process during 2020 to amend the EU Trade Enforcement Regulation, where the European
Parliament and a number of Member States raised concerns about the issue of coercion.
This led to a political agreement on a Joint Declaration of the Commission, the Council and
the European Parliament,1
to create a new legislative instrument to deter and counteract
coercion. The Joint Declaration contains the Commission’s commitment to make a
legislative proposal by the end of 2021 at the latest. In particular, the Commission stated its
intention to examine further 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, in a manner consistent
with international law. The Commission shared the view that the practices to seek to coerce
the EU and/or its Member States to take or withdraw particular policy measures were of a
concern. The European Parliament and the Council committed to consider the proposal in a
timely manner.
These concerns surfaced in the light of the possible imposition of trade-restrictive measures
by the US pursuant to Section 301 of the US Trade Act of 1974 following an investigation
into the digital services tax adopted by France, a taxation policy which the US viewed and
continues to view unfavourably. Such tariffs could have affected French exports to the US
of cosmetics and handbags of an estimated trade value of approximately $1.3 billion in
2019.2
The US did not proceed with measures at the time but this possible action has
contributed to increased uncertainty for economic operators and pressure on policy
makers.3
Other examples of coercion, for example involving EU economic operators active
in China, are also relevant. Consequently, the issue of economic coercion is of broad
concern, as the analysis undertaken in the context of this impact assessment confirms.
The Commission President henceforth announced the initiative in her Letter of Intent to the
President of the Parliament and President in office of the Council of 16 September 2020
under the heading “An economy that works for people”. The Commission Work
Programme 2021 identifies the initiative as a key one for the referenced period.
The issue of economic coercion features in the EU’s future trade policy. The Trade Policy
Review Communication of February 20214
aims at shaping a new consensus for an open,
sustainable and assertive trade policy in a challenging economic and geopolitical context.
The Communication mentions the need to navigate rising global tensions with trade
increasingly weaponised in a geo-economic context. The Communication specifically refers
to a future Commission proposal for an anti-coercion instrument.
1
OJ C 49 of 12.2.2021, p.1.
2
Office of the United States Trade representative, Notice of Action in the Section 301 Investigation of
France’s Digital Services Tax.
3
Subsequently, the investigation continued and, on 2 June 2021, the new US Administration announced
tariffs but decided to suspend them for 180 days and, subsequently, for an indefinite period of time. This is
discussed in more detail in section 3.1.
4
Communication from the Commission of February 2021 on the Trade Policy Review - An Open,
Sustainable and Assertive Trade Policy, COM(2021) 66 final.
6
As set out in the Communication, the current geopolitical environment is characterised by
uncertainty, rising tensions between major players and a resort to unilateral measures. The
Covid-19 pandemic accelerated these trends while highlighting the interconnected nature of
the EU’s economy with third country economies and the need for global cooperation.
The present initiative is complementary to other, more structural initiatives to enhance the
resilience of the EU economy against external pressures. The update of the EU Industrial
Strategy of May 2021 aims at strengthening the single market’s resilience.5
This strategy
now plays a key role in the recovery supported by robust competition and trade policies.6
Furthermore, in January 2021, the Commission announced in its communication "The
European economic and financial system: fostering openness, strength and resilience" a
strategy to promote the EU’s resilience in economic and financial matters.7
This includes
inter alia considering additional policy options to further deter and counteract the unlawful
extra-territorial application of third-country sanctions to EU operators, notably by
amending the EU Blocking Statute. The amendment to the Blocking Statute would (i)
include additional deterrence mechanisms and (ii) streamline its application, including by
reducing compliance costs for EU persons and businesses. A legislative proposal is
foreseen for the second quarter 2022.8
That initiative is distinct but also related to the
present initiative. There could be a potential partial overlap between problems identified by
the two initiatives, if there were a situation where unlawful extra-territorial third-country
sanctions are applied with coercive effect on the EU or the Member States.
2. ILLUSTRATIVE EXAMPLE
To facilitate the reading of this document, the following is a fictitious example which
illustrates the problem and the preferred option – as will be elaborated throughout the
remainder of this report:
Hypothetical example of economic coercion targeting the EU and of possible EU
reaction under an anti-coercion instrument:
The Commission makes a proposal to the European Parliament and Council to adopt a
new regulation to protect the environment in some important respect. This new policy
is fully compliant with international law. Country X, however, dislikes it because it
harms some of its commercial interests. It therefore imposes an import ban on all
widgets from the EU. The explicit motivation of Country X is to force the EU not to
adopt or to abandon the new policy. The EU widget industry is a significant source of
employment and GDP in the EU and Country X an important export market. The
import ban therefore makes it difficult for the EU legislator to adopt or maintain the
new policy despite there being a clear political majority in its favour.
The EU intends to defend its right and ability to adopt and maintain the new policy. It
5
Communication from the Commission "Updating the 2020 New Industrial Strategy: Building a stronger
Single Market for Europe’s recovery” of May 2021, COM(2021) 350 final.
6
In this context, the Commission has identified a list of 137 possible strategic dependencies (out of 5200
products). For 34 of these products, risk are higher because it is not possible to produce internally and there
are few suppliers at global level
7
COM/2021/32 final.
8
The inception impact assessment and the public consultation were published subsequently to submission of
this report to the Regulatory Scrutiny Board, in August and September 2021, respectively.
7
notifies X that it objects to this interference. It first offers (without success) talks on
resolving the matter amicably, then sets a deadline for the removal of the coercive
import ban, combined with the warning that the EU will otherwise resort to the
adoption of countermeasures (given there is a violation of international law). After
expiry, the EU implements prohibitive import duties on certain products originating in
Country X, selected after stakeholder consultation and to minimise detrimental
economic effects in the EU, at a nearly equivalent value as the widget trade loss,
demanding that Country X stop its actions. Country X after few weeks enters into talks
with the EU. Both sides first agree to suspend both measures for six months while the
talks are ongoing; then agree on the definitive lifting of both measures.
3. PROBLEM DEFINITION
3.1. What is the problem?
The above-referenced Joint Declaration of the Commission, the Council and the European
Parliament on this initiative expressly referred to “practices of certain third countries to
seek to coerce the Union and/or its Member States to take or withdraw particular policy
measures”. The initiative therefore aims to address this problem and those concerns.
Definition
The initiative is concerned with economic coercion defined as follows:
pressure which foreign countries exercise towards the EU and/or its Member States
through most often a trade or investment restriction with the objective of attaining a
specific outcome falling within the legitimate policymaking space of the EU or a
Member State.
It is defined as economic because of the use of economic means for the coercion.9
The
definition is a reformulation of the provisional definition, which stakeholders commented
on in the public consultation. Substantively, the meaning is unchanged.10
Coercion, so defined, can be observed in current international relations in various forms on
a broad spectrum of intensity, formality and nature, as also confirmed in the consultation
process. At one end of this spectrum regarding formality, the foreign government’s
involvement may be very informal, unofficial or implicit, not always easily discernible, but
unquestionably existing because it is the impulse giving rise to the coercive measure that
aims to put pressure on a foreign actors and hence their home governments.11
At the other
9
Coercion through the use of force or the threat of its use is not part of this dimension.
10
That provisional definition was: “Coercive practices by non-EU countries are measures which seek to
coerce public authorities in the EU to take, not take, or withdraw, particular policy measures. These
practices may include the use or threat of coercion, often in the form of trade or investment restrictions.
The coercion may or may not be based on existing legislation, and can affect any field in which the EU or
its Member State are active.” Participating stakeholders across the groups largely agreed with the
definition. Those who partly agreed argued that in most cases the definition should extend to coercion
against private actors and in general should be broader than narrower for the instrument to work.
11
Cf. Darren Lim and Victor Ferguson, 'Informal economic sanctions: the political economy of Chinese
coercion during the THAAD dispute', Review of International Political Economy, advanced publication.
8
end of this spectrum, the government may be acting openly, officially and through formal
measures, such as legislation.
Coercive measures by third countries targeting the EU or Member States can be considered
a breach of customary international law, which prohibits certain forms of interference in the
affairs of another subject of international law when there is no basis in international law for
doing so.12
Whether specific coercive measures constitute a breach would depend on the
concrete circumstance in individual cases and will be a matter of case-specific analysis.
In such an event, the EU and the Member States have the right to respond to the measures
in question with the means which international law allows. These means include the right
under customary international law, as codified in Articles 49 et seq. of the International
Law Commission’s Articles on State Responsibility,13
to take countermeasures if the
coercive act breaches international law. If this is not the case, the EU (or its Member States)
is always entitled to resort to a retorsion,14
i.e. an act per se not inconsistent with
international law. In all instances, the EU (or its Member States) can resort to standard
diplomatic means, i.e. make representations to the foreign government in question.
However, the principle of conferred powers means that the EU and its institutions can
deploy the means existing under international law only when empowered to do so.
Presently, there is no legal framework in any of the existing instruments to permit EU
action against a third country to respond specifically to coercive measures of third
countries. Existing instruments do not address situations of coercion as identified and
defined above and thus are neither suitable, nor capable as a response to coercion. It follows
that the EU is unable to respond to coercion in a timely and effective manner, should a need
arise, even less so to provide any deterrence effect or legal predictability. The EU has so far
not adopted any instruments against coercion. Section 6.1.2 (the baseline) presents the
analysis of any other possibilities for a response.
Individual elements
Deconstructing coercion as defined above leads to the following key elements:
Coercive intention – the third country’s objective of attaining a specific outcome lying
within the legitimate policymaking space of the EU or Member State; it may affect any area
of competence of the EU or a Member States;
Target – pressure on private actors as a conduit to public authorities of the EU or Member
States (also as subjects of international law);
Author of the coercive measure – this can be any government agent or other agent whose
conduct is attributable to the country in question. It includes state-owned and state-
controlled enterprises.
Type of coercive measure – these may be explicit, disguised or silent.
12
Mohamed S. Helal, On Coercion in International Law, 52 N.Y.U. J. Int'l L. & Pol. (2019); Maziar
Jamnejad & Michael Wood, The Principle of Non-Intervention, 22 Leiden J. Int'l L. 345 (2009).
13
Articles on Responsibility of States for Internationally Wrongful Acts adopted by the International Law
Commission at its fifty-third session, in 2001, and submitted to the General Assembly.
14
“Retorsion” is the accepted term in international law scholarship to designate a state’s response to another
state’s action when the response is not in departure from international obligations which the responding
state has.
9
Manifestation – predominantly trade or investment restrictions, including also restrictions
on financial flows.15
Explicit coercion would be the use of formal measures for coercion. A well-known example
is parts of Section 301 of the US Trade Act of 1974, on the basis of which the US takes or
threatens to take trade-restrictive actions because a third country maintains a measure
which the US regards as unreasonable and unfairly harming commercial interests of US
companies without it being in breach of international obligations.
Disguised coercion is the abuse of an instrument which per se could have a legitimate
purpose. An observed example is the abusive resort by China to trade defence instruments
or the selective stepping up of border checks against goods from a particular country or
region.16
Another example is excessive or discriminatory sanitary and phytosanitary (SPS)
measures that are introduced with a coercive intention, rather than being introduced on
health protection grounds.17
The internationally illegal coercion in these cases is unrelated
to the question of the possible WTO-illegality of the trade-restrictive measures chosen.18
Silent coercion and boycotts do not come in the form of legislative or regulatory actions but
result from informal restrictions applied by private actors under the unofficial direction of
the foreign government (e.g. a boycott of goods or services from certain origins, fomented
for example via government-controlled media or through informal instructions) in order to
influence a foreign government’s policy. This was for instance the case in Turkey which
saw the boycott of French products,19
or China in respect of a number of European,20
American,21
Korean22
and Japanese23
companies.
Extra-territorial sanctions are formal measures imposed to foreclose commercial activities
of foreign operators in another third country. Extra-territorial sanctions are directed at EU
(and other) operators with the intention to avoid that these operators might undermine the
foreign policy of a third country by continuing to engage in business activities there and by
even replacing economic operators of that third country in an environment sanctioned by
that third country (“backfilling”). They have the purpose of maximising the effectiveness of
the sanctions imposed by the third country. An example is the US sanctions on economic
operators active in/with Cuba and Iran.24
However, they also frequently have the effect of
coercing the EU or the Member State in the sense that they create pressure for the EU or the
15
There also can be other restrictions, for example, restrictions imposed on individuals, notably EU decision-
makers. This initiative however focuses on trade and investment restrictions, therefore such other measures
will not be referred to in the remainder of the document.
16
Al Jazeera, China ‘blocks’ Mongolian border after Dalai Lama visit, 10 December 2016; Reuters, China
slaps new fees on Mongolian exporters amid Dalai Lama row, 1 December 2016; see also below footnotes
52-54 and accompanying text.
17
E.g. Kesha West, Banana crisis blamed on Philippines-China dispute, ABC News, 29 June 2012.
18
Accordingly, any anti-coercion action would not rely on any potential WTO-incompatibility of the action.
19
BBC, Turkey's Erdogan urges French goods boycott amid Islam row, 26 October 2020.
20
Stuart Lau, China’s new bogeyman: Europe, Beijing turns to invective and boycotts to dissuade Europe
from closer coordination with Washington, Politico, 29 March 2021.
21
Consumer boycotts against US and Japanese (cf. footnote 23) companies clearly existed; less evident was
the role of the state in fomenting these.
22
Darren Lim and Victor Ferguson, footnote 11 above.
23
Yoko Kubota, Japan carmakers face $250 million in lost China output, new risk, Reuters, 12 September
2012; Chester Dawson And Yoshio Takahashi, Japanese Car Sales Plunge Amid China Rage, The Wall
Street Journal, 9 October 2012.
24
Study: extraterritorial Sanctions on trade and investment and European responses, requested by the INTA
committee of the European Parliament, November 2020.
10
Member State to align its policy vis-à-vis the sanctioned third country with the country
imposing the sanctions. Where such extra-territorial sanctions simultaneously coerce the
home government of the economic operators they fall under the definition of this initiative.
If extra-territorial sanctions do not also coerce the home government of the economic
operators in question, they do not fit within the definition of coercion with which this
initiative has been launched. However, irrespective of this, businesses and other
stakeholders voiced strong concerns about coercion of this type. As noted, extra-territorial
sanctions are covered under the EU’s Blocking Statute, which is in the process of being
amended so as to deter such practices and better protect EU operators.
What falls outside the definition?
Extra-territorial sanctions will fall outside the definition where they do not have coercive
effects towards the EU or Member States. The definition also does not cover coercion
against private actors where the conduct which the third country government desires to
obtain from private actors is purely related to these operators’ activities in that third country
and unrelated to the public policy of the EU or a Member State. Examples would be
attempts to pressure a foreign company into surrendering its assets, to transfer technology
or to support certain domestic or international policies of that government, abusive anti-
trust or anti-corruption investigations, the arbitrary withholding of licences, or the targeting
of specific companies for the positions they or their employees are taking or not taking on
any matter of legitimate public interest (e.g. on Hong Kong25
or Taiwan26
).
A number of business associations suggested that the provisional definition for coercion in
the public consultation be broadened in these respects. A recurring argument has been that
foreign governments can at times achieve their goal directly by pressuring private operators
only, rather than going through and pressuring the economic operators’ home government.
Other arguments have been that the coercion against private operators nevertheless amounts
to coercion against a government, or that one should not, and sometimes cannot, separate
and distinguish the two types of coercion precisely.
Private actors can in such cases feel coerced in much a similar way as far as their position
and interests are concerned. Legally, however, there is a decisive difference compared with
situations of coercion falling under the definition above. In the case of coercion against
private actors related to these operators’ activities in the third country in question, this does
not amount to prohibited interference in the affairs of another state, on the one hand, but is
government conduct that is arbitrary, discriminatory, at odds with the rule of law and,
internationally, infringing on human rights, the law of aliens or relevant treaties, e.g. those
protecting foreign investors.27
In the case of extra-territorial sanctions that do not also
coerce EU public authorities, the difference is precisely the latter absence of a threat to
those authorities’ decision-making autonomy, even if both cases amount to a transgression
of the limits imposed by international law on the exercise of territorial sovereignty. This
25
Sumeet Chatterjee & Engen Tham, How Beijing humbled Britain’s mighty HSBC, Reuters, 28 June 2021;
Ben Cohen & James T. Areddy, One Year After China Banned the NBA, Basketball Returns to Chinese
TV, The Wall Street Journal, 9 October 2020.
26
Ed Bryan, Taiwan: How airlines are being dragged into China’s bitter dispute over the island’s
sovereignty, The Conversation, 6 August 2018.
27
Where these inconsistencies exist, there may on that basis be means of redress available to the private actor
in question or to the EU or Member State. These means of redress include local remedies and diplomatic
protection and may include investment protection and may or may not be effective in a given instance.
11
might not be easy to distinguish in all cases, and this would require a determination on a
case-by-case by basis.
Who is affected and what is the impact of the coercion?
Coercion affects the addressees of the coercion, i.e. the public authorities of the EU and/or
Member States, by exerting pressure on them to change policy. That can undermine the
EU’s open strategic autonomy and the freedom of action for the EU and/or its Member
States to regulate within their own jurisdictions. The great majority of the participating
stakeholders recognised these effects.
At the same time, there is an economic and social impact. The non-EU country channels its
pressure through EU private actors. Those businesses engaged in trade or investment in the
non-EU country in question are affected directly. In line with what stakeholders report in
the consultation, depending on the concrete coercive measure, most often there could be
direct economic costs such as loss of jobs and business (opportunities) or investment
(opportunities) in the non-EU country in question. That may lead to long-term effects as
regards businesses growth and development. Ultimately, economic costs may distort
competition and have a spill over effect on the markets. Some stakeholders reported that
coercion through trade-restrictive measures contributes to the rise of illicit trade.
Additionally, stakeholders reported that even temporary coercive acts influence the
purchasing behaviour of local consumers substantially. Stakeholders also report that mere
threats of coercion give rise to serious concerns and uncertainties among exporters,
destabilising their business strategy even before coercive practices actually occur, and that
threats are sufficient to disrupt and jeopardise commercial contractual relations. They add
that uncertainty associated with the coercion has a negative impact on innovation and
economic development as a whole. Moreover, instances of coercion and their impact
remain unreported for fear of retaliation or further coercive measures. Similarly, many
companies and even sectors reported experience of coercive conduct by third country
governments but would not speak openly about specific experiences.
Coercion may affect any area or sector as it has been observed. Stakeholders stated that
there are a variety of areas and sectors that the non-EU country may decide to use for its
coercion. They reported a large number of such examples with potentially significant
negative impact, among which energy, (new) technology, ICT area, raw materials, financial
sector and (critical) infrastructure, R&D, transport, equipment, seeds, ceramics, tiles,
furniture, IT/digital industries, textile, footwear, agricultural production, manufacturing,
aerospace and defence, chemical, health, retail, product registration, public tenders, public
procurement, technical regulations and cooperation with authorities in third countries,
services in general, and so on (see results of the public consultation and replies to question
9, in particular, here).
Furthermore, stakeholders observed that a non-EU country may have the means to apply
coercive measures instantly or in a very short timeframe, depending on the legal base and
domestic system of governance. The speed the coercion may take reinforces the potential
negative consequences for the EU public authorities and economic operators concerned as
the time for a possible advance reaction is reduced or inexistent.
Finally, some coercive measures of the non-EU countries could affect consumers within the
EU indirectly if they would produce effects on the EU market.
Size and cost of coercion – illustrative examples
12
To illustrate the size and cost of coercion, the report relies on a few selected examples.
Those examples were also put forward by stakeholders and are in the public domain.28
They
are by no means exhaustive nor statistically representative.
 In 2020, following an earlier investigation into Australia’s trade practices and at the
time of Australia’s advocacy for an independent investigation into the origins and
early handling of the Covid-19 outbreak, China reacted in various ways.29
It levied
an 80% anti-dumping and countervailing duty on Australian barley. The Australian
national association of grain producers estimated that the tariffs stopped an annual
trade worth AUD 1.2 billion (around €750 million)30
and could cause total costs to
the industry of AUD 2.5 billion (€1.6 billion) over the initial five-year period of the
tariffs. Around the same time, China applied anti-dumping and countervailing
measures on wine from Australia31
(2019 value of trade of over €700 million).
Australian coal was said to disrespect environmental standards, while seafood, beef,
copper, cotton, sugar and timber also faced entry barriers.32
Collectively, these
targeted exports to China were worth roughly €15.5 billion in 2019, or 1.3% of
Australian GDP.33
Trade in services is also targeted. Chinese tourism and students
were big sources of income for Australia before the pandemic and were singled out
as targets.34
 In late December 2019, Indonesia “silently” blocked imports of spirits, wine and
dairy products from the EU in response to the EU’s regulatory treatment of palm oil
as fuel for transportation. With respect to alcohol, Indonesian authorities either
refused to grant import licences, or granted partial licences for non-EU products
only. The situation started to improve in quarter 4 of 2020, however, only 40% of
requested import amounts for 2020 were granted. As a result, EU exports of beer,
wine, vermouth and sprits fell by over 60% (€5.9 million) in 2019 and were still
30% less than the pre-ban value in 2020.35
 In 2015, Russian authorities threatened to impose a ban on flowers from The
Netherlands, which at that time was exporting up to 5% of its flower sales to Russia.
Russia alleged that Dutch flowers contained organisms that the EU had failed to
recognise as dangerous. This happened at the same time as the Netherlands pointed
at Moscow-backed separatists for shooting down Malaysia Airlines flight MH17
with a Russian-made missile and co-sponsored a resolution to set up a UN-backed
tribunal to prosecute the culprits. The value of affected Dutch exports was €162
million (HS 0603; in 2014) and they fell by one quarter in 2015 alone, to fully
recover only in 2019.
28
The examples reported by stakeholders are found in the factual report of the public consultation (here).
29
Victor Ferguson and Darren Lim, 'Economic Power and Vulnerability in Sino-Australian Relations', in
Linda Jaivin, Jane Golley, and Sharon Strange (eds), China Story Yearbook 2020: Crisis (Canberra: ANU
Press, 2021).
30
https://grdc.com.au/resources-and-publications/grdc-update-papers/tab-content/grdc-update-
papers/2021/02/in-the-wake-of-the-china-barley-tariffs
31
https://docs.wto.org/dol2fe/Pages/SS/directdoc.aspx?filename=q:/WT/DS/602-1.pdf&Open=True
32
https://www.reuters.com/article/us-australia-trade-china-commodities-tim-idUSKBN28L0D8
33
Estimated by Lowy Institute.
34
Levi Parsons, Chinese ambassador warns Australia's education and tourism industries could be next on the
chopping block after ban hammered wineries, Daily Mail Australia, 30 April 2021; Benedict Brook, China
tourism warning against Australia 'just the tip of the iceberg’, news.com.au, 8 June 2020.
35
Comext and the business association.
13
 US tariffs under Section 301 of the US Trade Act of 1974: on 2 June 2021, the US
concluded investigations initiated by the preceding US administration under Section
301 into the digital services taxes of Austria, Spain and Italy (and investigations of
India, Turkey and the UK),36
in addition to the previous investigation of France.37
It
opted to enact additional ad valorem import duties of 25% on $3.18 billion worth of
goods imported from these four EU Member States38
because the US considers that
each of those countries’ taxes regarding digital services providers is “unreasonable
or discriminatory and burdens or restricts U.S. commerce”.39
At the same time, the
application of the tariffs on products from Austria, Spain and Italy was postponed
for 180 days, until 29 November 2021,40
and those on products from France for an
indefinite period,41
with the objective to provide the time necessary to find a
multilateral solution at the Organisation for Economic Co-operation and
Development. Legally, however, the suspension may be ended at any moment, thus
exerting leverage in the tax discussions at the Organisation for Economic Co-
operation and Development, or intending to influence the three Member States’
current tax policies or the EU’s or other Member States’ plans for the development
of digital services levies.42
 As vaccines against the COVID-19 pandemic emerged, two vaccine-producing
countries, Russia and China, were described as engaging in “vaccine diplomacy”,
meaning that they accompanied vaccine supplies with soft power messages to
support their standing or positions.43
In June 2021, China reportedly succeeded in
demanding that Ukraine withdraw from a statement at the UN Human Rights
Council in Geneva calling for immediate access for independent observers to
Xinjiang, by blocking a large shipment of COVID vaccines until Ukraine do so.44
Why is this a general problem?
Coercive measures restrict policy space in the targeted countries or impose costs on the
legitimate use of that policy space. They may affect any area of competence of the EU or a
Member States and any sector of the economy, as observed and as reported by stakeholders.
36
See USTR, Section 301 – Digital Services Taxes.
37
See USTR, Section 301-France's Digital Services Tax.
38
Seafood, handbags, belts, footwear and some glassware from Spain; caviar, perfumes, suits, sweaters, ties,
jackets, footwear and lenses from Italy; ceramics, glassware, copper alloys, fridges, optical parts and
projection screens from Austria; handbags, make-up and cosmetics from France, see USTR, Notices of
Action in the Section 301 Investigation of Spain’s, Italy’s and Austria’s Digital Services Taxes, 7 June
2021 and France’s Digital Services Tax, 16 July 2020; USTR terminated its investigations into inter alia
the Czech Republic and the EU itself, because neither actually had digital services taxes.
39
USTR, ibidem.
40
This will be subject to developments before the publication of this report.
41
USTR, Notice of Modification of Section 301 Action: Investigation of France’s Digital Services Tax, 12
January 2021.
42
Stakeholders reported that only the threat of the US tariffs has caused supply chain disruptions and
cancellation of orders. For instance, the proposal specifies an increase of tariffs on 15 types of footwear
coming from Spain and the industry has already been affected. The Spanish footwear association estimates
that 3000 jobs could be lost immediately.
43
Michael Leigh, ‘Vaccine diplomacy: soft power lessons from China and Russia?’ Bruegel Blog, 27 April
2021.
44
Yevhen Solonyna and Reid Standish, China Used Vaccines, Trade To Get Ukraine To Drop Support For
Xinjiang Scrutiny, Radio Free Europe Radio Liberty, 28 July 2021; Jamey Keaten, Diplomats say China
puts squeeze on Ukraine, AP News, 25 June 2021.
14
They do not allow governments to exercise governmental authority in the interest of the
governed people and independently from the demands of the coercing government and
without incurring the cost imposed by the coercion. This also has to be seen in the context
of the weaponisation of trade, where large economies are taking coercive measures, which
have the effect of forcing other countries to act in one way or another trapping EU
companies between the two camps.45
There is large-scale scholarly work that identifies the use and threat of coercion in the
current era of global transformation and an increasingly globalized and interdependent
world.46
It has been noted that some actors such as China and Russia are using economic
coercion as a foreign policy tool more frequently than they used to,47
whilst other countries
have continued to resort to economic coercion.48
The ECFR policy brief “Measured response: How to design a European instrument against
economic coercion” of June 202149
argues that Europe is at ever greater risk of economic
coercion coming from several sources, that there is increased coercion of private actors, and
points to the use of extra-territoriality and of informal coercion. In illustrating the risk and
the problem, it refers to several incidents and types of coercion, such as China’s use of
economic punishment to EU businesses and other actors in March 2021 following EU (and
US) sanctions on Chinese officials for human rights violations; Russia’s use of public
health concerns to ban Polish imports of fruits and vegetables in 2014, following EU
sanctions over the war in Ukraine; Turkey’s boycott on French origin goods following
France’s announcement of policies to combat extremism; US sanctions on the Nord Stream
2 gas pipeline; US’ use of Section 301 trade restrictions in relation to certain EU Member
States’ digital taxation policies; and others.50
The paper puts forward that the problem lies
in the use of economic tools for geopolitical power and geopolitics for economic gain. It
argues that there is a gap in the EU’s defence that must be filled. It makes the case for a
new legal instrument as a priority.
45
Henry Farrell, Abraham L. Newman, Weaponized Interdependence: How Global Economic Networks
Shape State Coercion, 44 International Security 42–79 (2019), Daniel W Drezner, Henry Farrell, and
Abraham L. Newman (eds) The Uses and Abuses of Weaponized Interdependence, Brookings Institution
Press (2021), Anthea Roberts, Triple R (Risk, Reward, Resilience) Framework (publication pending)
(2021), Benjamin Herscovitch, Assessing Policy Responses to Economic Coercion: Balancing Risk and
Reward and Navigating Complexity (publication pending) (2021).
46
See i.a. Ketian Vivian Zhang, ‘Chinese non-military coercion—Tactics and rationale’, 22 January 2019;
Julian Gewirtz, ‘The Chinese Reassessment of Interdependence’, 1 June 2020, China Leadership Monitor,
(64); Elizabeth Rosenberg, Peter E. Harrell, and Ashley Feng, ‘A New Arsenal for Competition, Coercive
Economic Measures in the U.S.-China Relationship’, April 2020.
47
Bryan R. Early and Menevis Cilizoglu, ‘Economic Sanctions in Flux: Enduring Challenges, New Policies,
and Defining the Future Research Agenda’, 21 International Studies Perspectives 438–477 (2020).
48
Dawid, Walentek, ‘Economic Peace Revisited, Coercion in a Liberal Order’, APSA Preprints 2020.
49
The policy brief of June 2021 is based on the work of ECFR’s Task Force for Strengthening Europe
against Economic coercion that brings together high-level representatives from six Member State
governments the Czech Republic, France, Germany, the Netherlands, Spain, and Sweden) and private
sectors (although the report does not necessarily represent their views). ECFR has been very active on the
issue of economic coercion. An earlier report entitled “Defending Europe’s economic sovereignty: New
ways to resist economic coercion” of October 2020 presented eleven policy options for the EU to tackle
economic coercion; a type of an anti-coercion instrument is among these, but also a reform of the Blocking
Statute, creation of European export bank, building digital currency, creation of EU resilience office and
EU resilience fund, etc. An earlier policy brief “Redefining Europe’s economic sovereignty” also discusses
an agenda to strengthen the economic sovereignty.
50
An overview of the examples is contained in the policy brief.
15
Furthermore, the public consultation showed that economic coercion is a widespread
concern for the EU, across the Member States. All stakeholder groups clearly acknowledge
the issue and advocate for an appropriate solution.51
In support of their position, they refer
to a number of coercive practices, that affect a variety of sectors and areas (see the results
of the public consultation here, in particular replies to questions 1-14, and a summary
factual report here).
Other countries’ standpoint as regards the problem
As demonstrated by the stakeholder consultation and as can be observed in the public
domain, economic coercion is not a problem faced exclusively by the EU. It is of a wider
concern. The sources and subjects of coercion are multiple. In general, other countries’
standpoint as regards the issue of coercion varies. It may also depend on whether the
particular jurisdiction contains an available instrument for a specific anti-coercion action or
it does not need a specific legislation in order to act against coercion (see results of the
public consultation, in particular replies to question 4 on evidence of legislation or
unwritten measures that can be used for coercion, here). Some countries which have been
subjected to coercion chose to accept the coercion and sought to minimise the commercial
losses suffered. Others may have disguised their responses and kept them outside a rules-
based framework. In any event, contrary to other jurisdictions, which may take anti-
coercion measures rapidly and without the need for a framework legislation put in place
first, the principle of conferred powers requires the establishment of a legal basis in the EU
legal order for the EU to act in specific cases such as coercion.
Concrete examples of other countries’ actions are presented below.
 Australia has so far chosen to raise concerns about coercive practices in WTO
bodies52
and to bring WTO disputes against coercive measures when these allegedly
infringe WTO rules (barley, wine).53
Such WTO disputes can only deal with the
WTO-inconsistency of the measures in question, not the separate infringement of
general international law that lies in the coercive act and intention. The latter does
not fall in the remit of the WTO dispute settlement system. Australia does not
possess a dedicated anti-coercion instrument.
 Canada has similarly launched a WTO dispute against China in a case involving
import restrictions on canola.54
Canada does not possess a dedicated anti-coercion
instrument.
 The US has started to be active on the issue of economic coercion including by
seeking alliances. Secretary of State Blinken mentioned this in certain speeches.55
The US does not possess a dedicated anti-coercion instrument.
51
There are some differences within the groups, where a small share seems to suggest that existing
instrument could at least partly deal with the problem and another small share calls for caution with any
solution.
52
Most recently in the WTO Council for Trade in Goods meeting on 8-9 July 2021, see footnote 59 below.
53
China — Anti-Dumping and Countervailing Duty Measures on Wine from Australia, WT/DS602; China —
Anti-dumping and countervailing duty measures on barley from Australia, WT/DS598.
54
China — Measures Concerning the Importation of Canola Seed from Canada, WT/DS589.
55
See e.g. Antony J. Blinken, Reaffirming and Reimagining America’s Alliances, 24 March 2021: “We’ve
seen how Beijing and Moscow are increasingly using access to critical resources, markets, and
technologies to pressure our allies and drive wedges between us. Of course, each state’s decision is its own,
but we must not separate economic coercion from other forms of pressure. When one of us is coerced, we
16
 China: In June 2021, China adopted a law on countering foreign sanctions. It largely
codifies already existing practices but it is expected to give the Chinese government
clearer authority to penalise compliance with foreign government's sanctions on
Chinese entities and individuals. Accordingly, the law provides legal support and
guarantees for Chinese companies against the measures imposed in third countries’
jurisdictions. Additionally, however, it provides for possible countermeasures
applicable to a broad pool of targets: any individual and organization directly or
indirectly involved in the formulation, adoption and implementation of the foreign
sanctions. This could include the foreign legislators, government officials, law
enforcement officers, or even banks, or companies that formulate or implement
foreign sanctions. It goes even further, by covering the spouses and immediate
family members for individuals, and the management or related companies of
sanctioned entities or individuals. The possible countermeasures are of a very broad
range that includes the denial/revocation of visa, the denial of entry, deportation, the
freezing of assets, and the prohibition or restriction on transactions with listed
persons, among others.
The law complements the existing legislation on related subjects, such as the Export
Control Law,56
the Rules on Counteracting Unjustified Extra-Territorial Application
of Foreign Legislation and Other Measures57
(modelled after the EU Blocking
Statute) and the Unreliable Entity List Regulations.58
This is not a tool, however, to
respond to coercion.
International forums
In May 2021, the G7 Foreign and Development Ministers’ Meeting Statement concluded
that the G7 members would work collectively to foster global economic resilience against
arbitrary, coercive economic policies and practices. In June 2021, the EU-US Summit
concluded with a Statement towards a renewed Transatlantic partnership on, among other
things, plans to increase cooperation and information and expertise exchange to enhance
resilience against, and counter all forms of, coercion including economic pressure.
In July 2021, at a regular meeting of the WTO Council for Trade in Goods, the EU made a
statement as regards a point raised by Australia concerning Chinese trade measures.59
Noting and respecting Australia’s preference to treat the long list of Chinese measures
raised on their individual technical merits, including raising them in technical WTO
Committees and WTO dispute settlement, the EU expressed concerns as regards the
coercive dimension to the matter raised by Australia. The EU noted that, as it appeared, the
underlying true reason for the alleged Chinese resort to those measures, that may be formal
or informal, is an intention to put pressure on or sanction Australia for policy choices. The
EU further noted that such coercion raises questions of international legality beyond and
apart from the WTO-consistency.
should respond as allies and work together to reduce our vulnerability by ensuring our economies are more
integrated with each other than they are with our principal competitors.”
56
http://www.npc.gov.cn/npc/c30834/202010/cf4e0455f6424a38b5aecf8001712c43.shtml
57
http://tfs.mofcom.gov.cn/article/bc/202101/20210103029710.shtml
58
http://tfs.mofcom.gov.cn/article/bc/202009/20200903002593.shtml
59
China – Implementation of Trade Disruptive and Restrictive Measures – Request from Australia, see item
22 of the Proposed Agenda for the Meeting of the Council for Trade in Goods of 8 and 9 July 2021, WTO
document G/C/W/795, 2 July 2021. Minutes of the meeting are not yet available, but will be, in due course,
as WTO document G/C/M/140, and will be derestricted 45 days after their circulation.
17
3.2. What are the problem drivers?
The use of economic coercion for geopolitical ends has increased recently, blurring
economic and geopolitical lines. Most recently, power conflicts are re-emerging in a more
tense geopolitical environment.
Foreign countries’ desire to impose their own economic or political preferences to their
benefit (different preferences as to economic policies)
In certain instances, this is an expression of foreign countries’ desire to impose on others
their own economic or political preferences. The motives can be commercial, in the sense
of furthering or protecting economic gains for the country’s economic operators. The
motives can also be political and related to divergences of views on issues of international
relations. In that sense, the coercion can relate to matters of both internal policy and
external relations. The objective of influencing partner countries is not illegitimate in itself,
and, certainly, there are legitimate means by which to see to do so. However, the (mis)use
of trade or investment restrictions with the objective of attaining a specific outcome lying
within the legitimate policymaking space of the EU or Member State goes beyond and
should be differentiated from the ordinary use of soft powers to influence partner countries.
Geopolitical instability with increased tensions over economic governance
A separate global trend is recent geopolitical instability with increased tensions between
various countries, of varying intensity, and where some of these tensions give rise to
measures of economic coercion. As a result, restrictions on trade or investment are being
used by various players with the aim of pressurising other countries to modify their
policies, even though international law permits those policies and gives no right to other
countries to demand those policies change.
Interconnectedness of the world economy and enhanced ability to disrupt economic
activities in other countries through restrictions on trade, investment or financial flows
What has also changed over the last few decades is the closer integration of the world
economy in the form, inter alia, of more complex value chains in the manufacturing sector,
overseas investment and intensively interconnected financial systems. These aspects have
contributed to an enhanced ability of certain governments to disrupt economic activities by
imposing restrictions on trade or investment.60
Second, as the examples, have
demonstrated, there is a recent trend of more frequent recourse to informal or unofficial
restrictions. Third, the interconnection of the world economy has given rise to enhanced
recourse, and ability to have recourse, to extra-territorial restrictions, because of at least two
reasons: the presence of internationally active economic operators in the market of the
coercing country, giving the latter the ability to enforce at home concerns relating to
activities abroad; and the ability to control certain elements of the international banking
system and thereby to prevent or sanction banking activities abroad.61
Insufficient deterrence on the part of the EU
60
Cf. Daniel W. Drezner, Introduction in: Daniel W. Drezner et al., The Uses and Abuses of Weaponized
Interdependence (2021); Henry Farrell & Abraham Newman, Weaponized Interdependence, International
Security, 44 International Security 42-79 (2019),
https://direct.mit.edu/isec/article/44/1/42/12237/Weaponized-Interdependence-How-Global-Economic.
61
Cf. Darren Lim and Victor Ferguson, footnote 11 above.
18
The fact that there is so far on the side of the EU and its Member States no credible and
effective instrument or policy of deterrence and response to economic coercion contributes
to the ability of other countries to deploy such means. They may be tempted to assume that
there will be no reaction and hence that their action is relatively cost-free. For instance, the
mere availability of legal means to apply restrictions on EU market access as a response to
coercion could be a powerful deterrent but it is currently lacking.
In the public consultation, stakeholders largely confirmed that the existing gap plays a role
in driving third countries’ recourse to economic coercion. Some highlighted the
impossibility to deal with the problem through standard diplomatic means. Additionally,
across stakeholder groups, there is convergence that non-EU countries’ use of coercion is
often a means for attempting to avoid political, economic or other effects of actions by the
EU and Member States, for preventing these from regulating, for imposing the commercial
interests of their national companies abroad, as well as for limiting or influencing the
conduct of other countries’ economic operators elsewhere in the world.
3.3. How will the problem evolve?
The geo-economic tensions that the international order is currently experiencing are
unlikely to dissipate in the coming years. On the contrary, there is no objective reason to
assume that they will recede in the near future. There are a number of tensions and
standoffs in international relations, which are likely to continue to drive coercive policies.
The ECFR policy brief “Measured response: How to design a European instrument against
economic coercion” of June 202162
argues that Europe is at ever greater risk of economic
coercion coming from several sources. From a number of countries, including China,
Russia and Turkey, the rhetoric in the direction of other countries often takes on coercive
tones (see examples reported in section 3.1. and by stakeholders in the public consultation).
It has been noted that some actors such as China and Russia are using economic coercion as
a foreign policy tool more frequently than they used to,63
whilst other countries have
continued to resort to economic coercion.64
The US has a new administration that has
changed the tone and atmosphere in international interactions and adopted a more
cooperative approach towards partners in multilateral frameworks. There is however still
legislation in place, such as Section 301 of the Trade Act (and the investigations into digital
services taxation ongoing at the time of the public consultation) or several instances of
legislation applying sanctions affecting EU operators. It is impossible to tell the approach
of future US administrations to international cooperation.
62
The policy brief of June 2021 is based on the work of ECFR’s Task Force for Strengthening Europe
against Economic coercion that brings together high-level representatives from six Member State
governments the Czech Republic, France, Germany, the Netherlands, Spain, and Sweden) and private
sectors (although the report does not necessarily represent their views). ECFR has been very active on the
issue of economic coercion. An earlier report entitled “Defending Europe’s economic sovereignty: New
ways to resist economic coercion” of October 2020 presented eleven policy options for the EU to tackle
economic coercion; a type of an anti-coercion instrument is among these, but also a reform of the Blocking
Statute, creation of European export bank, building digital currency, creation of EU resilience office and
EU resilience fund, etc. An earlier policy brief “Redefining Europe’s economic sovereignty” also discusses
an agenda to strengthen the economic sovereignty.
63
Bryan R. Early and Menevis Cilizoglu, ‘Economic Sanctions in Flux: Enduring Challenges, New Policies,
and Defining the Future Research Agenda’, 21 International Studies Perspectives 438–477 (2020).
64
Dawid, Walentek, ‘Economic Peace Revisited, Coercion in a Liberal Order’, APSA Preprints 2020.
19
There is also a clear tendency to revert to disguised or silent economic coercion,65
especially by countries whose domestic governance structures enable the respective
leadership to transmit instructions to the private sector and state-owned enterprises, without
recourse to formal legal acts. In some instances, they rely on the possibility of plausible
deniability of their involvement. This trend poses additional challenges because of the more
difficult attribution of the action to the government. It, simultaneously, highlights the
necessity of holding such governments to account to safeguard the normative force of
international law.
Stakeholders observe that instances of coercion have been multiplying in recent years and
the EU and Member States have been regular targets of coercion. Stakeholders further
report cases representing an imminent or medium- to long-term threat, highlighting the
expectation that coercion would not subside on its own.66
Business associations, in
particular, but also other stakeholders, give a pessimistic prognosis that the rise of coercive
measures will continue. Even the minority stakeholders, which do not appear convinced
about a direct need for an EU policy intervention and consequently called for further
analysis, yet recognise the existence of the problem, also in the foreseeable future, and that
the EU may or should respond and preferably deter potential coercion from third countries.
Accordingly, it is considered unlikely that coercion would disappear on its own or even
would recede to the more manageable level that tended to prevail in the past. On the
contrary, it is expected that it continues unless addressed appropriately.
4. WHY SHOULD THE EU ACT?
4.1. Legal basis
A possible legal basis for the EU intervention is Article 207(2) TFEU.
Article 207(2) TFEU provides for the adoption of measures defining the framework for
implementing the common commercial policy. Article 207(1) TFEU defines the scope of
the common commercial policy, which refers to, inter alia, trade in goods and services, and
the commercial aspects of intellectual property, foreign direct investment, export policy and
measures to protect trade. The initiative is concerned with foreign countries’ measures that
take the form of trade or investment restrictions towards the EU economic operators. The
initiative is also concerned with providing a response to foreign countries’ measures
primarily in the area of the common commercial policy.
4.2. Article 207(2) TFEU is expected to be a sufficient legal basis for the
purposes of a policy intervention in the situations of economic coercion, as
described below. Subsidiarity: Necessity of EU action
Article 5(3) TEU provides that the principle of subsidiarity applies in areas which do not
fall within the exclusive competence of the EU. Article 3(1)(e) TFEU provides that the EU
has exclusive competence in the area of common commercial policy. The possible legal
basis, Article 207(2) TFEU, falls into the category of exclusive competences. Therefore, the
65
See, for instance, Darren Lim and Victor Ferguson, footnote 11 above. The ECFR policy brief “Measured
response: How to design a European instrument against economic coercion” of June 2021 highlights the
rise of informal coercion, in particular.
66
See the results of stakeholders’ replies to questions 6 and 8 in the public consultation here, and a summary
factual report here.
20
question of subsidiarity does not arise insofar as the third countries’ coercive measures
and/or the EU response falls under the common commercial policy.
In any event, only an action at EU level would ensure a uniform EU solution to a problem
of concern to the EU as a whole. Member States remain, of course, responsible and able to
act in defence of their rights under international law; this includes their right to counteract
international coercion, as long as they do so without taking measures for which the EU is
exclusively competent. However, it is not possible for the Member States to put in place
national legislation in order to cover coercion that is targeted against the EU and not against
that Member State. Also, national legislation would not be capable of providing an
effective solution in the situation of concern to the EU as a whole or across the Member
States. EU action remains the sole option under which the EU can implement its obligation
to define and conduct the common commercial policy.
4.3. Subsidiarity: Added value of EU action
The added value of an action at EU level lies in the achievement of benefits that cannot be
achieved sufficiently, if at all, at Member State level. These benefits relate to deterrence
and counteraction against coercion by third countries to defend and protect the EU’s and
Member States’ autonomy in policy-making and against trade and investment restrictions
used for coercion.
5. OBJECTIVES: WHAT IS TO BE ACHIEVED?
5.1. General objectives
In a context of geopolitical instability, the EU aims to safeguard its open strategic
autonomy, that is its ability to make its own choices by remaining open and connected to
the world whilst protecting itself from economic coercion.
The general objectives of the initiative are the following:
- Contribute to preserving the legitimate policymaking space of the EU and Member
States;
- Protect the international rights and interests of the EU and its Member States;
- Protect the economic interests of EU economic operators by preventing or limiting
economic losses as a result of foreign countries’ coercive actions.
5.2. Specific objectives
The analysis of the drivers of the economic coercion shows that it is primarily the choice of
non-EU countries to seek to impose their own policy preferences and their enhanced ability
to disrupt economic activities mediated by the interconnectedness of the world economy,
tied with geopolitical instability, which drives coercion. At the same time, there is
insufficient deterrence exerted by the EU or Member States towards those non-EU
countries. There are broader efforts by the EU in managing the geopolitical instability and
increasing the EU’s resilience.67
The present initiative focuses specifically on the issue of
economic coercion and the EU’s possible response.
67
As noted earlier: Commission Communications on Trade Policy Review, the European economic and
financial system: fostering openness, strength and resilience, the Industrial Strategy update, and also more
generally the Commission’s upcoming 2021 Strategic Foresight Report.
21
It has the following four specific objectives:
1) Deter coercion
The prime objective is to deter coercion so that it does not take place in the first place. The
deterrence effect will arise from the mere existence of an EU framework to tackle coercion
specifically, provided that it is effective, credible and can be deployed quickly.68
Averting
coercion, and thus averting harm and the need for counteraction, is the best-case scenario
for this initiative. Nearly all stakeholders recognise and support this key objective.
2) Provide for de-escalation
Where coercion nevertheless takes place, the objective is to de-escalate the situation such
that the coercion is withdrawn without the need for counteracting it directly. This implies
that the initiative may involve the use of a first range of responses rather than leading
directly to countermeasures. A majority of the stakeholders strongly supports this objective.
3) Induce the discontinuation of specific coercive measures
This implies using a range of responses that are capable of inducing the discontinuation of
coercive measures.
4) Counteract specific coercive measures (and/or their effects)
As a last resort, where all other avenues are exhausted, the EU may decide to counteract the
harm which the coercing country is causing.
The table below illustrates the intervention logic, notably the relation between the problem,
its drivers, the objectives and the envisaged intervention and outcome.
Table 1 Intervention logic
Problem
The pressure which
foreign countries
exercise towards the EU
and/or its Member
States through most
often a trade or
investment restriction
with the objective of
attaining a specific
outcome falling within
the legitimate
policymaking space of
the EU or a Member
State.
General objectives
Contribute to preserving
the legitimate
policymaking space of
the EU and Member
States;
Protect the international
rights and interests of
the EU and Member
States;
Protect the economic
interests of EU
economic operators;
Envisaged intervention
Creation of a framework
to tackle coercion
specifically;
Range of responses
without
countermeasures to
choose from in
individual cases;
Envisaged outcome or
intended change
Foreign countries do not
resort to coercion in the
first place;
The foreign country
ends its coercive
measures quickly
without EU
countermeasures;
The foreign country
ends its coercive
measures quickly as a
result of the EU
countermeasures;
Drivers
Foreign countries’
desire to impose their
own policy preferences
Specific objectives
Deter coercion in a
wider sense;
68
Thomas C. Schelling, Arms and Influence, Yale University Press (1966).
22
to their benefit;
Enhanced ability to
disrupt economic
activities in other
countries through
restrictions on trade,
investment or financial
flows;
Interconnectedness of
the world economy;
Geopolitical instability
with increased tensions
over economic
governance;
Insufficient deterrence
on the part of the EU.
De-escalate specific
coercive measures
Induce discontinuation
of specific coercive
measures;
Counteract specific
coercive measures
(and/or their effects).
Range of
countermeasures to
choose from in
individual cases;
Consequently, the
interests of the EU and
of the Member States
are protected from
coercion
6. WHAT ARE THE AVAILABLE POLICY OPTIONS?
In light of the objectives, the report considers the following types of policy options:
 Option 1: no policy change (baseline);
 Option 2: a new legal instrument based on several design parameters; and
 Option 3: a “resilience” office.
Options 1 and 3 have been considered but are discarded at an early stage, for the reasons
explained below. The report retains for further consideration and thus focuses on option 2
as a suitable option and the various parameters for the design of a legal instrument.
6.1. Options discarded at an early stage – Option 1: No policy change (also the
baseline from which other options are assessed) and Option 3: A
“Resilience Office”
6.1.1. No policy change (also the baseline from which other options are
assessed) – discarded at an early stage
The no-policy option presents the currently available framework and relation to
international law, and discusses whether possibilities for response to the problem exist. The
option is discarded because it is found inadequate to address the problem. As a baseline, it
reveals a gap in the current legislative framework and accordingly in the EU’s ability to
protect its interests and those of Member States from coercion. The following framework as
belonging to the baseline is identified:
 International law
As pointed out in section 3.1, when facing coercion from third countries, the EU and the
Member States have the right to respond to this coercion with the means which
international law allows. These means include the right under customary international
law, as codified in Articles 49 et seq. of the International Law Commission’s Articles on
23
State Responsibility,69
to take countermeasures if the coercive act breaches international
law. If this is not the case, the EU (or its Member States) is always entitled to resort to a
retorsion,70
i.e. an act per se not inconsistent with international law. However, the principle
of conferred powers means that the EU and its institutions can deploy the means existing
under international law only when empowered to do so. There is currently no such
framework specific to an anti-coercion response.
 Dispute settlement
The possibility to file a lawsuit under international law before an international tribunal
does not exist by default because such avenue of adjudication must first be created through
agreement between the EU and the third country concerned. The WTO dispute settlement
system and the bilateral dispute settlement systems of trade agreements concluded by
the EU are available only for addressing breaches and, in the WTO’s case, other cases of
nullification or impairment of benefits under the respective agreement.71
Coercion in breach
of customary international law does not feature among the possible claims that can be
submitted to these treaty-made dispute settlement systems.
There can be instances in which the third country’s coercive measure is both coercive and
represents a breach of substantial commitments under the WTO Agreement. For example, if
a third country arbitrarily or selectively initiated an anti-dumping investigation against
certain EU exports, for instance without there being any evidence of dumping, this would
be an example of coercion and simultaneously a substantive breach of the WTO Anti-
Dumping Agreement. Likewise, the coercive action could take the form of excessive and
discriminatory border checks for sanitary or phytosanitary purposes, or, a selective import
ban or higher-than-bound import duties on products from a particular Member State. All
such cases can be challenged successfully in the WTO dispute settlement system, and
certain countries (Canada, Australia) are bringing such cases at present.72
However, such WTO cases, where only the WTO breach forms the basis (and claim) for the
legal assessment, do not tackle the question of coercion and its illegality under customary
international law. WTO dispute settlement, therefore, is no substitute to the creation of an
anti-coercion instrument whose purpose is the EU’s defence not against the infringements
of its rights under the WTO Agreement, but of its right, distinct under international law,
that third countries do not coercively interfere in the EU’s internal or external affairs.
However, as already noted, the principle of conferred powers means that the EU and its
institutions can deploy the means existing under international law only when empowered to
do so, and currently there is no such framework.
 Standard diplomatic means
Standard diplomatic means are available and can be deployed but they are not
sufficiently effective in all cases. In particular, they may not, and have not, effectively
69
Articles on Responsibility of States for Internationally Wrongful Acts adopted by the International Law
Commission at its fifty-third session, in 2001, and submitted to the General Assembly.
70
“Retorsion” is the accepted term in international law scholarship to designate a state’s response to another
state’s action when the response is not in departure from international obligations which the responding
state has.
71
Cf. Article XXIII:1 of the GATT 1994, the Articles of other WTO agreements on trade in goods referring
to Article XXIII:1 and the corresponding Articles of the GATS and TRIPS Agreement, the latter presently
subject to a moratorium on complaints other than violation complaints.
72
See footnotes 52-54.
24
deterred a third country from taking coercive measures or encouraged it to drop such
measures.
 Article 207 TFEU
The European Parliament and the Council can act on the basis of Article 207 TFEU to
adopt measures defining the framework for implementing the common commercial policy.
Article 207 could allow for the adoption of measures on a case by case basis; however, this
would be subject to the ordinary legislative procedure which takes considerable time. A
case-by-case approach under Article 207 TFEU would not permit to address economic
coercion in individual instances in a swift manner, providing a deterrent effect. Framework
legislation, which would provide for swift implementing or delegated acts, does not exist.
 Article 215 TFEU
The Council can act pursuant to Article 215 TFEU to take restrictive measures against
third countries and against natural and legal persons, based on a decision in the area of the
common foreign and security policy under Article 29 TEU. Article 29 TEU, in turn, is the
basis for upholding the values laid down in Article 21 TEU. However, Article 215 TFEU is
not a dedicated instrument dealing specifically with the issue of economic coercion, setting
out the EU’s overall approach to it and the conditions under which the EU can counteract
coercion. It follows that Article 215 TFEU is not an appropriate legal basis to achieve the
objectives of this initiative.
 Other existing instruments
The Blocking Statute is the EU’s principal tool to counteract the extra-territorial
application of laws, regulations, and other legislative instruments of non-EU countries that
purport to regulate activities of natural and legal persons under the jurisdiction of the
Member States.73
It applies exclusively to the legal acts listed in its annex (currently only to
measures of the US concerning Cuba and Iran although it can be adjusted by delegated act).
Whenever extra-territorial sanctions are applied with the intention to coerce the EU’s or
Member States’ public authorities, there is an overlap with problems identified by the
current initiative. Stakeholders systematically referred to this overlap. It follows that
consistency and coherence between the two instruments must be ensured. However, the
Blocking Statute is not an option addressing this initiative’s objectives. It does not have a
deterrent effect as regards coercion.
The baseline scenario could consider solely the Blocking Statute as it stands today.
Amendments of the Blocking Statute are under preparation (inception impact assessment
published in August 2021, public consultation open until 4 November 2021) in parallel to
the present initiative, so as to render it more efficient in deterring extra-territorial sanctions
and in protecting EU operators from them. A possible legislative proposal for the
amendment the Blocking Statute is expected for quarter 2 of 2022, thus falling outwith the
timeframe for the present impact assessment.
Some stakeholders (mainly public authorities) referred to several existing instruments.
Such instruments would be the trade defence instruments (anti-subsidy measures and
73
As a matter of principle, the EU considers the extra-territorial application of sanctions contrary to
international law. In line with this principle, EU’s own sanctions apply only where the EU has jurisdiction
(i.e. impact actors when active in the EU), even though these sanctions inherently aim to affect policies or
activities in non-EU countries.
25
safeguards, in particular), the Foreign Direct Investment screening regulation, the
Enforcement Regulation, the Foreign Subsidy Instrument, the International Procurement
Instrument (the latter two are currently in the legislative process and thus are not in force
and deployable yet). These stakeholders argued that in the presence of these instruments,
the creation of a new legal instrument is not needed or justified. However, none of these
instruments are either designed or able to address specifically the issue of economic
coercion because they pursue different objectives and apply to different situations. The
legal conditions for their application are unconnected to coercion by third countries, as
defined in this document. Consequently, their use with the specific objective of countering
acts of coercion would be legally impossible as a matter of EU law, and such use could also
be questionable under international law, given the triggers for these instruments are not
aligned with the relevant conditions under international law for responding to coercion. As
a result, these instruments are not suitable for or capable of addressing economic coercion
and they do not fill the gap. It follows that they do not form part of the baseline. Annex 5
contains an overview of these instruments, where potential overlap is claimed, and
illustrates that they are unconnected to the problem of coercion.
 National legislation
Specific national legislation to address economic coercion towards individual Member
States could not be identified. Member States can, like many third countries, adopt
retorsions or reprisals (countermeasures) against other states, based on international law
and in line with internal constitutional requirements, which may or may not require the
passage of formal legislation. In three ways, however, this avenue is not suitable for
tackling effectively the problem of coercion targeting the EU. First, where coercion is
directed against the EU and the EU has, under international law, the right to respond, that
right cannot automatically be exercised by individual Member States, as a matter of
international law. Second, a uniform reaction of the EU would require action at EU level.
Third, the exclusive competence of the EU in the area of notably the common commercial
policy but also in other areas precludes action at Member State level if the response
measures fall into this area.
 International initiatives
International initiatives in this area have been discussed (see section 3.1) and may offer
scope for cooperation in the future. They are an important means in principle and
stakeholders attached great value to those.74
However, such alliances and cooperation are
no substitute for the EU’s ability to take action. Moreover, it is relevant to the EU’s ability
to take part in such cooperation to have an instrument available at EU level which permits
the EU to respond. It needs to be recalled that, whilst the possibility for cooperation may
develop further, specific interests may not always align and it is therefore important that the
EU maintain the ability to act where cooperation is either not possible or remains too
general to address some of the specific problems to be addressed by this initiative.75
The above demonstrates that the existing EU framework does not provide for instruments
to deter and counter coercion in a prompt, coordinated and credible manner. As things
74
Stakeholders across the groups raise the question of international cooperation. They regard it not so much
as a substitute to an EU policy intervention but as a complementary avenue and one that must be preserved
and supported, and not neglected or harmed (in particular via an EU policy intervention). They suggest that
he EU should make efforts to cooperate with partners that face the same problems.
75
Stakeholders similarly acknowledge that reaching global solutions might be difficult in the current political
environment.
26
stand, the current array of available instruments does not produce a strong and credible
deterrence effect. Thus, there is no possibility for taking prompt, coordinated trade,
investment or other policy measures or to address the evolving forms of coercion, where
the need arises. There is no system to provide for de-escalation, nor to induce
discontinuation, where coercion takes place. The baseline scenario is consequently
inadequate to address the problem in a comprehensive and satisfactory manner. The
baseline reveals a gap in the current legislative framework and accordingly in the EU’s
ability to protect its interests and those of Member States against coercion.
This conclusion reflects the majority view in the public consultation. The baseline scenario
is an unsuitable option for most stakeholders across the groups, in particular in the long-
term. They argue that it would allow the coercion to continue and damage EU businesses,
including SMEs, the EU’s autonomy in decision-making and the EU’s credibility on the
international scene.
6.1.2. Option 3: A “Resilience Office” – discarded at an early stage
Option 3 proposes the creation of a dedicated entity either within the Commission or within
the EU institutions (commonly referred to as a “resilience office”) with specific functions in
relation to the deterrence and counteraction of coercion, which would be complementary to
option 2. Thus, it is not a self-standing solution to the issue of coercion, nor an alternative
to the anti-coercion instrument. The option has been considered due to the considerable
support among some stakeholders. However, it is not retained, at this stage and is discarded
as not feasible in terms of being created in this specific instrument, for the reasons set out
below.
Some business associations, some Member States, and ECFR, put forward the idea of a
“resilience office” (also referred to as “watch tower”, “coordination unit/cell”) either within
the Commission or within the EU institutions (some suggestions were about a liaison
resilience committee linked to the Council as the institution to trigger the use of instrument,
and so institutionally outside the Commission). The idea originates in the ECFR policy
brief “Defending Europe’s economic sovereignty: New ways to resist economic coercion”
of October 2020.76
That policy brief, and references to it in the policy brief of June 2021 on
the future anti-coercion instrument, suggest creating a dedicated entity, which should
essentially oversee relevant policies and provide better support to EU businesses. Suggested
specific functions include: monitoring, information collection and documenting, cost
assessment and analysis of economic coercion, investigations, identifying deterrence and
countermeasures and assessing their potential impact (across available instruments),
providing a corresponding “coercion margin”, contact with third countries, keeping
international partners informed about developments, liaison with Member States and access
point for businesses, and various assistance and support to EU businesses. There are
suggestions about functions also as regards EU sanctions and other foreign economic tools.
A Special Representative for Economic Coercion (similar to the Chief Trade Enforcement
Officer (CTEO)) could head the office, comprising experts with various backgrounds, and
using state-of-the-art analysis tools. The idea resonated with businesses and Member States
and came through the public consultation contributions, although no question addressed it.
The idea has merits in pooling and coordinating relevant knowledge, expertise, action and
assistance on the subject. A dedicated office may well enhance the deterrence function of
76
That policy brief presented eleven policy options for the EU to tackle economic coercion; a type of an anti-
coercion instrument and EU Resilience office are amongst them.
27
the instrument. However, this legislative instrument would be the appropriate vehicle to
create a resilience office, which, if it were to be created, is rather a question of internal
organisation for the Commission or between the EU institutions. At this stage, it can be
noted that if an anti-coercion instrument is created, it will fall under the operational
responsibility of the Commission’s CTEO. Existing structures are already capable of
ensuring effective coordination of policies within the Commission and between the
Commission and the EEAS, with the appropriate involvement of the other EU institutions
and Member States in line with their respective responsibilities.
6.2. Options retained for further analysis – Option 2: A legal instrument and
design parameters
Option 2 considers developing a new legal instrument to address the problem of economic
coercion and fill in the identified gap. This would be a framework regulation of the
European Parliament and the Council allowing EU action in situations of economic
coercion under certain conditions.
The majority view of stakeholders is supportive of a new instrument. During the public
consultation, in response to the specific question on whether an EU policy instrument is
needed to tackle coercion, no respondent expressed disagreement; respondents agreed or
strongly agreed, or were neutral. Those who were not immediately convinced about the
need for a new legal instrument, welcome the approach to have an impact assessment that
can examine if a new instrument is justified. Obviously, when it comes to the design of the
instrument, stakeholders have various views and some concerns (as discussed below).
Moreover, stakeholders defined the need for an instrument as pressing (the majority, among
which mostly business associations but also other groups) or as medium- to long-term, or a
possible need. The urgent/pressing need was justified inter alia by preserving the EU’s
credibility on the international stage and providing a long-term vision, the growing
tendency towards the weaponisation of trade and investment measures, geopolitical
tensions and tendencies towards protectionism.
In light of the four specific objectives for this initiative, presented earlier, the following
components are considered to be the main design parameters for drawing up the
instrument: (A) Triggers for action; (B) Threshold for action; (C) Possible action; (D)
Selection conditions for countermeasures; (E) Decision-making; (F) Activating the
instrument; (G) Stakeholders involvement.
This section presents the design parameters and suitable options for them, starting with an
overview in Table 2. Section 8 presents the most suitable configurations of parameters and
options and examines how they compare, while section 9 identifies the preferred option.
Table 2 Overview of design parameters and options under consideration
Design parameter Options under consideration
(A) Triggers for action (A1)
Explicit, disguised, silent coercion
and boycotts
(A2)
(A1) without extra-territorial sanctions
(B) Threshold for action (B1)
Quantitative threshold
(B2)
Qualitative threshold
28
(C) Possible action (C1)
First resort actions and
Countermeasures
restricting trade in
goods or services,
commercial aspects of
intellectual property
rights, access to EU
public procurement
market, as well as
foreign direct
investment
(C2)
(C1) and Additional
countermeasures
(C3)
(C2) and Financial
compensation
(D) Selection conditions Effectiveness, minimal damage, minimal administrative burden, general EU
interest
(E) Decision-making Treaties’ framework: Delegated/Implementing acts
(F) Activating the
instrument
(F1)
Complaint mechanism
(F2)
Ex officio
(G) Stakeholders
involvement
(G1)
Comprehensive approach
(G2)
Case-by-case approach
Design parameter (A) Triggers for action
The triggers for action are the specific situations of coercion where it would be appropriate
for the EU to be able to respond to under the instrument. Determining which situations
would trigger a response precisely means addressing the existing gap in the legislative
framework. As clarified above, there is currently no legal instrument which enables the EU
to act in situations of coercion as identified in this report, in order to address and respond to
coercion precisely and directly. Given the multitude of sources of coercion, as discussed in
the problem definition, the scope of the trigger ought to be country-neutral in all scenarios
and in any option.
The parameter is highly relevant for the deterrence value of the instrument because it
defines the scope of application of the instrument; the broader the scope, the broader the
deterrence effect, but eventually it defines the situations where the EU may adopt
countermeasures, if the need arises. The mere identification in a legal act of situations that
are undesirable and would attract countermeasures where necessary, should have the effect
of discouraging third countries from creating such situations in the first place because third
countries are expected to want to avoid countermeasures or other negative effects.
The following alternative options are considered as suitable in the respect of establishing of
an appropriate scope of application:
(A1) The option stands for a comprehensive scope capturing any situation where there is an
intention or effect to coerce the EU or Member States into a particular policy choice, by
applying any trade or investment restrictions. This can be achieved by introducing these
conditions for application in the legal instrument. The fulfilment of these conditions would
be assessed in any individual case, and where they are found to be met, the third country’s
29
measure in question would fall within the scope of the instrument and so may trigger an EU
response.
Therefore, the scope extends to all identified types and manifestations of economic
coercion in section 3.1, notably explicit, disguised, silent and boycotts, as well as any
other possible action satisfying the conditions. Accordingly, the option comprises instances
of coercion towards the EU or Member States also through extra-territorial sanctions (but
it does not include instances of extra-territorial sanctions merely used to pressure EU
private economic operators which are exclusively addressed by the Blocking Statute).
Instances of coercion through extra-territorial sanctions may fall within to the scope where
their objective or effect would be to force the EU or its Member States to align their
policies towards a target country with the coercing country’s policy as regards that target
country, by restricting trade or investment. As referred to in the baseline, the Blocking
Statute (currently also being amended) is the dedicated instrument to address extra-
territorial sanctions and this is irrespective of their perceived intent towards EU or Member
States policies. Therefore, from the perspective of coherence, this option implies a co-
existence of two instruments, where both instruments can be available to respond to the
same situation, if such arises, but to address different issues (extra-territoriality and
coercion). As a matter of co-existence, it could be considered that the Blocking Statute is
the leading instrument in relation to extra-territorial sanctions, while the legal instrument
for the present initiative can complement the EU’s ability to act under the Blocking Statute
in these specific cases of coercion through extra-territorial sanctions.77
The specific choice
of instrument in any given case, can be left for the implementation stage and should be a
decision for the Commission to take in specific circumstances.
If the specific choice of an instrument is left for the implementation stage, the situation
would not be novel. It should be a policy choice between two available avenues guided by
the specific circumstances in individual cases taking into account that the legal instrument
of the current initiative would be the only one available to address coercion and no other
instrument is able to do so. In any event, coherence is achievable.
Finally, the scope does not extend to situations of coercion purely against private actors
where there is no intention to coerce the EU or Member States (see section 3.1 on what falls
outside the problem), but it includes situations of coercion where the third country uses
private actors as vectors of coercion towards the EU or Member States.
(A2) This is option (A1) but explicitly excluding extra-territorial sanctions on the basis
that they have specific distinctive features and are covered by the Blocking Statute and the
upcoming amendment thereof.78
From the perspective of coherence, the exclusion will
ensure a delineation between the two instruments with one instrument addressing all
coercive measures except extra-territorial sanctions and the other addressing only extra-
territorial sanctions. An exclusion would restrict the scope of application as described under
option (A1).
Design parameter (B) Threshold for action
77
The majority view of stakeholders (mostly businesses but some public authorities, too) is that the two
instruments must be complementary such that they both address extra-territorial sanctions in a
complementary and adequate manner. There are also extreme views that one instrument must take over the
other in respect of extra-territorial sanctions, and a spectrum of other suggestions in between (see the
results of the public consultation here, and a summary factual report here).
78
Commission proposal planned for quarter 2 of 2022.
30
This means that the EU may consider responding to coercion, where the coercive action,
which otherwise falls within the conditions of application of the instrument (see discussion
under design parameter (A)), reaches a specific level of intensity as opposed to responding
to any incident of coercion. It would complement the trigger (design parameter (A)) as it
would introduce further layers in the assessment whether an individual coercive measures
necessitates an action under the instrument. Reaching a certain threshold however should
not result in an obligation to act. It is rather that action would not be appropriate below
certain threshold. The parameter is relevant for all the specific objectives and can be
particularly effective in deterring coercion. The following options are considered:
(B1) quantitative – monetary or economic thresholds, i.e. action considered if the harm
(potential or inflicted) reaches a certain minimum monetary or economic threshold;
(B2) qualitative – action considered on a case-by-case basis e.g. in light of the degree of
encroachment upon areas of the EU’ or Member States’ sovereignty, and the intensity,
severity, frequency, duration, breadth and magnitude of the third country’s measures as
relevant in individual cases. The impact is not necessarily defined in monetary or economic
terms. This type of threshold can also capture a situation of patterns and series of actions
and provide for flexibility in the application. This would render the instrument more
effective and its use more efficient.
Stakeholders in the public consultation are divided on the question of a threshold in terms
of its effectiveness and usefulness. the majority were neutral, while those in favour are
slightly fewer than those against a threshold. On a related question on whether the EU
should respond to each case of coercion, stakeholders were also divided with negative
replies prevailing over affirmative and over neutral ones. Those who see the need for a
threshold tend to prefer a flexible, case-by-case approach, based on qualitative option.
Specific reasons against a threshold include the consideration that any limitation of the
scope of application would invite more coercion and be counterproductive for its
usefulness, timeliness and or/effectiveness. Some argued that not tolerating coercion of any
size as a matter of principle.
Design parameter (C) Possible action
This is a fundamental design parameter as it concerns the specific action which the EU may
take under the instrument and it is of fundamental importance for the effectiveness of the
instrument. It is suggested to have a two-step, gradual process. The first step is the same in
all options for this design parameter, and it comprises initial measures whose objective and
potential is to end the coercion in a manner not involving recourse to countermeasures,
without imposing costs on the coercing country or other actors. That step has the potential
to be effective also as regards the objective of de-escalation. If that fails in halting the
coercion, the second step becomes available (but not mandatory). This entails an array of
potential countermeasures and/or financial compensation (to choose from in the concrete
use of the instrument), whose objective is to counteract and whose potential is to induce
discontinuation of the coercion, i.e. it is interventionist and imposes costs. The launching of
each step would be a matter of assessing if the relevant substantive conditions are met and
conducting respective procedural steps. Any assessment would be supported by evidence.
The figure below illustrates the sequence of the EU’s main actions in the two-step process,
relevant for all options for this design parameter, bringing together the other relevant design
parameters.
Figure 1 Sequence of EU’s main actions under the two-step process
31
In general, the mere availability of responses towards the third country’s measure, and the
range of these responses, has an important direct deterrence effect in the first place because
it is reasonable to expect that the mere availability of appropriate response has the potential
to discourage a third country from contemplating coercion towards the EU or Member
States in the first place as the third country is expected not to want to face such
countermeasures or other negative effects. The parameter is also crucial in achieving the
other objectives of de-escalation, inducing discontinuation and counteracting. Thus, this
parameter is of fundamental importance for the effectiveness of the instrument, as also
recognised by stakeholders.
Stakeholders across the groups systematically alluded to a gradation in the process of
taking action under the instrument. The two-step process corresponds to this. Stakeholders
insisted that countermeasures sanctioning the third country must be a last resort. This stems
from considerations of the potential costs and negative consequences of countermeasures
but also from the idea to curb escalation first through diplomacy and negotiation.
Dissenting views included the contention the efforts to reach a diplomatic solution may
cause delays in effectively using the instrument, and the use of countermeasures should not
be delayed on this account.
Accordingly, in light of their potential to bring about effectiveness, the following
alternative options are considered as suitable:
(C1) A two-step process: initial measures of first resort involving the identification of
coercion, and if they fail, measures of last resort: countermeasures.
Step 1: Measures of first resort do not involve countermeasures and include the
following: a formal determination as regards a coercive measure on the basis of a set of
conditions (design parameter (A)), space for a dialogue and negotiations, mediation,
undertaking steps towards the joint submission of the dispute to third party adjudication, i.e.
an independent international tribunal (while the coercive measures are suspended until at
least the end of the adjudicative process). Their objective is to obtain the discontinuation of
the coercion in the short term without imposing costs through EU countermeasures (costs to
the coercing country and potential costs to the EU economy) and to de-escalate tensions.
Step 1: First resort
measures
Assessment of a third-
country measure -
conditions and threshold,
including possibly inviting
input
Public identification of
the coercion and call on
the third country to end
its measure
Efforts towards direct
negotioations, mediation
or adjudication with the
third country with a view
to end coercion
Step 2: Last resort
measures (i.e. where first
resort measures were
unsuccessful)
Assessment of the need
for further action
Call on the third country
to end its measure within
a certain period
Selection and design of
countermeasures,
including stakeholder
involvement
Imposition of temporary
countermeasures
(range of
countermeasures
depends on the option)
Financial compensation
(only under option (C3))
32
Some may be appropriate in situations of a threat as well, thus in preventing coercion. This
stage does not require any step taken by private actors, it can be exclusively carried out by
the EU institutions.
The formal determination as regards the coercive measure does not currently exist as a legal
possibility because no available legal instrument sets out which conditions should be
assessed for such a determination. Thus, a dedicated instrument would deliver this new
possibility. Otherwise, the rest of the measures of first resort can be pursued even in the
absence of a dedicated instrument (i.e. diplomatic means and resort to adjudication in any
event). Nevertheless, it is considered that a dedicated instrument would formalise and
structure such possibilities in order to achieve more effectively both the deterrence
objective and the objective of inducing discontinuation without the use of countermeasures.
Thus, a dedicated instrument would bring about a benefit.
 Conditions and criteria for launching the first step
As regards the substantive conditions and criteria, there would be an assessment of whether
a concrete third-country measure in individual cases falls within the scope of the instrument
(design parameter (A)) and whether a certain threshold is reached (design parameter (B)).
Procedurally, the assessment may involve gathering of additional information from
stakeholders (design parameter (G)). A public affirmative determination at EU level may
follow such an assessment (i.e. the first measure under the instrument). The EU may call on
the third country to end its measures at this point. Depending on the cooperation of the third
country in question, an affirmative determination may lead to subsequent measures, such as
direct negotiations, mediation or international adjudication, with a view of ending the
coercion. The choice of such subsequent measures would depend on the circumstance of
any individual case and may differ from one case to another.
Any action under this step should be justified and supported by evidence that the relevant
conditions and criteria are met. The evidence base would include elements such as evidence
that an individual measure by a third country meets the conditions of application of the
instrument (design parameter (A)), and that a certain threshold that justifies action is
reached (design parameter (B), evidence of efforts to enter into consultations with the third
country in question and of consultation of stakeholders (design parameter (G)) where
necessary.
Step 2: Measures of last resort (i.e. countermeasures) would include measures under the
common commercial policy that temporarily restrict trade or investment. More specifically,
the scope potentially extends to the following:
- new or increased customs duties and quantitative restrictions on export and import
of goods;
- additional charges on imported or exported goods;
- restrictions on the transit of goods;
- quantitative restrictions on imports or exports of goods through quotas, non-
automatic import or export licences or through other measures;
- new or increased restrictions on trade in services;
- restrictions on investments, in particular new investments;
- restrictions on the protection of intellectual property rights or their commercial
exploitation, in relation to right-holders who are nationals of a third country
concerned;
- the exclusion from public procurement of suppliers of goods or services established
in and operating from a third country concerned;
33
- a mandatory price penalty on tenders of suppliers of goods or services established in
and operating from a third country concerned and/or on that part of the tender
consisting of goods or services originating in a third country concerned;
- any other restrictions of access to public procurement;
- blocking exports of products subject to export control measures (i.e. those that
would otherwise be permitted).79
A similar scope exists under the EU Trade Enforcement Regulation (most notably without
investment and with some limitations regarding intellectual property rights, public
procurement access and measures on trade in goods), and a further extension should be
examined in its review due by February 2022.80
None of the above types of measures are novel. They are known from various common
commercial or other instruments but they are deployable under specific objectives and
purposes, distinct from anti-coercion. In other words, in the absence of a respective legal
basis, none of the above measures is deployable to address coercion, even less so to deter
coercion. Moreover, as mentioned above in the baseline discussion, their use with the
specific objective of countering acts of coercion would not only be legally impossible as a
matter of EU law, but such use could also be questionable under international law, given
the triggers for these instruments are not aligned with the relevant conditions under
international law for responding to coercion. In that sense, a dedicated legal instrument
would deliver precisely the legal basis to permit the use of the above measures. A new legal
instrument would introduce no overlap as no other instrument contains a comparable legal
basis for action against coercion.
At the same time, the provision of the same or similar types of measures in other
instruments with the objective to inducing a third country to comply (for instance, under the
EU Trade Enforcement Regulation to induce compliance with a WTO ruling), as well the
acquired experience of their application, supports the proposition that such measures are a
capable tool to encourage a third country to end its coercion as it would be the objective in
the present case.
Stakeholders across the groups broadly support this scope in terms of effectiveness and
appropriateness, with those in disagreement being in the minority (also across the groups).
Moreover, stakeholders felt that this scope is the minimum that the EU should envisage. At
the same time, identified sensitivities relate mainly to intellectual property rights, but also
to trade in services and in goods, and public procurement, depending on the stakeholder
(see section 7).
79
The ECFR policy brief of June 2021 considers that export controls could be “one of the most strategic and
effective ways for the EU to protect itself from economic coercion”. The rationale for this measure is that it
can be very targeted at specific product or service of importance to the coercing country and it comes at
less costs for the EU. The use of export controls is picked up by some other stakeholders.
80
The current EU Trade Enforcement Regulation, as amended in February 2021, provides for the following
possible commercial policy measures: customs duties or any additional charge on imports or exports of
goods; quantitative restrictions on imports or exports of goods, whether made effective through quotas,
import or export licences or other measures; restrictions on trade in services; restrictions on the protection
of intellectual property or their commercial exploitation, where rights are granted by a EU institution or
agency and valid throughout the EU; specific narrow restrictions on goods, services or suppliers in the area
of public procurement. Pursuant to Article 10, the Commission is due to undertake a review aimed at
envisaging additional commercial policy measures in the field of trade-related aspects of intellectual
property rights, by February 2022.
34
In the use of the instrument, this stage would involve consultations with relevant
stakeholders on the economic interests potentially affected by any countermeasures
considered as well as by the coercive measure. Depending on the countermeasure in each
case, public authorities may need to take action in applying the measure (e.g. levying and
collecting customs duties; applying the access restriction to public procurement markets).
 Conditions and criteria for resorting to countermeasures
The second step of the gradual process, i.e. the imposition of countermeasures, would
follow the completion of the first step only where efforts have not led to discontinuation of
the coercion and the coercion is still ongoing. In that regard, the substantive conditions and
criteria for proceeding with the second step would be that the first step was unsuccessful in
ending the coercion and that it remains necessary for the EU and Member States to protect
their interests and rights from the ongoing coercion. Before applying countermeasures, the
EU would call on the third country in question one last time to end the coercion and find a
solution.
Procedurally, the second step would also involve information gathering from stakeholders
(design parameter (G)) particularly as regards their interests in relation to the design of
countermeasures. The choice and design of countermeasures would depend on the
circumstance of any individual case and may differ from one case to another.
Design parameter (D) discusses in detail the range of conditions for selection and design of
countermeasures in individual cases.
Any action under this step would be supported by evidence. The evidence base would
include the evidence that the measures of first resort were unsuccessful and protection from
ongoing coercion remains necessary, consultation of stakeholders as regards their relevant
interests, notifications of the third country in question before action is taken, and evidence
of the likely impact of potential countermeasures in terms of effectiveness but also
collateral damage, proportionality of response, EU’s general interest (design parameter (D)
conditions).
(C2) Option (C1) with additional countermeasures
The two-step approach could be complemented with additional possibilities for last resort
responses (option (C1)). These potentially include:
- Withholding of EU funding to partner countries through financing managed by the
EIB, EBRD or other institutions and other programmes managed by the EU;
- Restrictions on authorisations for banking, insurance and other activities (licence);
financial transactions, financial services;
- Restriction of access to EU capital markets;
- Restrictions on registrations and authorisations under the REACH Regulation and
the hazardous chemicals legislation or similar actions;
- Listing of companies that would then be subject to various restrictions mentioned
above in this list of above (in particular state owned enterprises);
- Restriction of access to EU research programmes or exclusion from EU research
programmes;
- Visa measures – this could, amongst other options, include suspending the issuing
of multi-entry visas, suspending optional fee waivers etc.
35
In applying these and other restrictions (listed under C1) it would be necessary to analyse,
on a case-by-case basis, the extent to which existing authorisations/permissions/grants
should be withdrawn given these might impact an already established legal environment
and whether the focus should be on future authorisations/permissions/grants.
The availability of such measures in other instruments supports that they have the potential
to be effective. Thus, they have the potential to be effective in pursuing the objectives of
this initiative.
Adding the above countermeasures to the second-step range of actions under option (C1)
justifies considering the package as a separate option because of the specificities of the
additional countermeasures. The additional countermeasures are not the classic type of
common commercial policy measures as under option (C1). They relate typically to other
areas but most of them can be construed as belonging to the common commercial policy for
the purposes of this instrument. The rest can be construed as belonging to other areas of
exclusive EU competence.
Stakeholders are generally positive about expanding the scope of possibilities for
countermeasures. The main preference expressed is to have a choice of measures that are
less costly and burdensome, in particularly on EU businesses (normally tariff measures
have costs for EU business which are consuming the products concerned) but that are also
effective towards the coercing country (both deterrence and counteraction). Stakeholders
put forwards measures such as: restrictions on mutual recognitions, licensing and
certification, data flow restrictions or mandatory access to companies’ sensitive data,
restrictions on individual persons.
Similarly to option (C1), in the use of the instrument, this stage would also involve
consultations with relevant stakeholders and possible action by public authorities in
applying the concrete measure. As for option (C1), the same conditions and criteria as well
as evidence base would be applicable for both the first and second step, respectively.
(C3) Option (C2) with the addition of a financial compensation – the two-step approach
can be complemented with the possibility to compensate EU economic operators suffering
losses either from the coercive measures of the foreign state or from the EU
countermeasures. This would require the creation of a fund for use under the instrument and
for compensating businesses, with criteria for paying compensation while ensuring a certain
degree of flexibility. The need for flexibility results from the difficult predictability of
possible level of financing necessary in terms of frequency of the acts of coercion or their
impacts in individual cases. Private actors could request compensation and provide data for
the losses suffered showing also the actions taken to mitigate losses. There would need to
be a designated administrative structure to deal with the requests. The option corresponds
directly to the objective of protecting economic operators, but it is also relevant for the
deterrence effect of the instrument under the logic that if public budgets absorb the losses
from coercion, it will not be (as) effective.
Stakeholders were split on this issue. Around half of the respondents in the public
consultation (mainly businesses) supported the possibility, while the other half (including
public authorities) were sceptical or did not take a position. Some suggested that tariff-
based EU countermeasures could fund the specific compensating mechanism.
As for option (C1), the same conditions and criteria as well as evidence base would be
applicable for both the first and second step, respectively. Additionally for the second step
36
under option (C3) the following would be necessary: assessment of the applicability of the
financial compensation, in parallel to the possible use of countermeasures.
Design parameter (D) Selection conditions for countermeasures
A range of conditions under the instrument could guide and frame the narrowing down of
the possible available countermeasures in individual cases. The conditions could assist in
calibrating the envisaged measures in any given case so as to manage the risks associated
with the instrument (such as provoking escalation, harming international relations and
increasing collateral costs). They relate to the following objectives for the initiative:
deterrence, discontinuation, counteraction. At the same time, they would be a central part of
the evidence base for the use of countermeasures.
In light of the specific objectives, the following cumulative conditions are identified:
Commensurability – this condition stems from the general principle of proportionality of
international and EU law and in practice would mean that the response to a harm must not
exceed the harm. A related question is about measuring the harm in order to ensure
proportionality. It may be that harm caused by some coercive measures would be more
challenging to measure, at least in theory, than in other cases (depending on the availability
of data). It would also be the case that the sheer uncertainty caused by the coercive
measures is a harm in and of itself.
Another aspect of commensurability is the duration of the measures. They should last no
longer than what is necessary to produce the intended effect, and be repealed when no
longer useful. Stakeholders broadly support having countermeasures in place until the
coercion is discontinued. Differing views emerged suggesting countermeasures should be
imposed for a limited period of time (e.g. suggestions for a short term of 3 to 6 months) and
renewed if necessary, as leverage.
Objective of discontinuation of the coercive measure – the condition implements one of
the specific objectives of the initiative. In practice, it means that the selection and design of
any concrete measures in a given case must seek to achieve that objective. Nearly all
respondents agreed with this objective.
Seek to provide relief to affected EU economic operators, to the extent possible – this
condition is intrinsically linked to the specific objective of discontinuation but it
implements the general objective of the initiative that is the protection of economic
interests. In practice, the condition would mean that where there is a choice between
otherwise equally effective available measures, those that have the potential to provide
relief to EU actors should be selected.
Smallest possible collateral damage to EU economic operators – this is the cost that is
associated with the countermeasures which must be kept to a minimum. In practice, it
means selecting those measures, among various available options, that are less harmful for
EU actors (industries and consumers). Possible compensation for such actors to encourage
them to diversify away from relying on the country taking the coercive actions and can also
reduce the collateral damage (option C3)).
Smallest possible administrative burden for implementation and application of measures
by EU national authorities – this stems from the general principle of avoiding
administrative burdens where possible and aiming at simplification.
37
Action in light of the EU overall interest stands for an assessment of relevant interests;
i.e. those of economic operators, Member States and the EU as a whole, in order to
determine whether the likely positive effects of a countermeasure would outweigh the
likely negative effects it would or could81
produce. The assessment could also cater for
situations in which the interests of only certain Member States are directly concerned. The
assessment can be conducted on the basis of information collected from stakeholders and
Member States. Businesses and public authorities raise this question.
Stakeholders across the groups strongly support all of the above conditions. In contrast, a
condition of parallelism such as that countermeasures should correspond in type and/or
sector of the coercive measure was not supported overall (only some stakeholders). The
report does not develop it as an option mainly because of its practical limitations (it is not
always feasible or possible to respond in the same sector or with the same type of
measures) but also because it is not suitable in terms of general effectiveness.
Design parameter (E) Decision-making
The power to take actions in specific cases will need to be delegated to the Commission,
either in the form of implementing or delegated acts under Articles 290 and 291 TFEU. The
Commission exercises its implementing and delegated powers with the respective
involvement of the European Parliament, Council and/or Member States as currently
assigned by the TFEU and the secondary legislation.
Where empowered by the legislators in the basic act, the Commission may adopt an
immediately applicable implementing or delegated act on duly justified grounds of urgency
and consult subsequently. This option is available for introducing measures or for their
modification and repeal.
This design parameter is crucial for the deterrence value of the instrument as well as for the
objective to end coercion quickly because it relates to the efficiency of the decision-making
procedure. The decision-making procedure can increase the deterrence and encourage
discontinuation if it can be conducted relatively quickly (i.e. speed of action has a value)
and the procedure is relatively straightforward (i.e. does not involve excessive risks of the
process being blocked or delayed). At the same time, the decision-making process must
ensure the appropriate political responsibility.82
In addition to the inherent efficiency of the decision-making process (due to the respective
roles of the EU institutions and applicable steps), the Commission should execute each step
expeditiously and without an unreasonable delay while remaining flexible to accommodate
the political sensitivities towards the aim of ending coercion. This would increase the
efficiency of the process.
Design parameter (F) Activating the instrument
81
This is a question not only of estimating factual probability, but also of evaluating normative relevance:
where for example the possible reactions of the third country in question are at issue (e.g. litigation or
retaliation – in the latter respect see below in section 7 on the Impact of the policy options), it would have
to be evaluated to what extent these are, apart from their likelihood, legitimated by international law and, if
not, whether and how the EU should factor these in.
82
Argued by some public authorities and businesses and in a detailed manner by the ECFR policy brief of
June 2021.
38
Some public authorities and businesses raised the question about the availability of a formal
complaint mechanism under the instrument (F1). Such mechanism could mean that
stakeholders could submit a formal substantiated request for action under the instrument.
Accordingly, the Commission would assess the request and on that basis decide whether to
activate the instrument. A parallel or an alternative approach is ex officio activation (F2).
There is stakeholder support for that option as well. Neither option should preclude
stakeholders from coming forward with data. These possibilities would contribute to the
effectiveness of the instrument, by ensuring that all instances of coercion are flagged and
the instrument effectively deployed to bring about deterrence.
Design parameter (G) Stakeholder involvement
Stakeholder involvement in the process of decision-making under the instrument is a
fundamental design point in general and in relation to the specific objectives of deterrence,
discontinuation and counteraction. Stakeholder involvement facilitates and promotes the
consideration of relevant economic interests. To that end, relevant stakeholders should have
a meaningful opportunity to express their views when their interests are affected. There
would be two groups of stakeholders in each case, those affected by the foreign country’s
measure, and those potentially affected by the EU’s planned response under the instrument.
There could be overlaps between the two groups.
Respondents in the open public consultation are close to unanimous in requesting
meaningful involvement where the instrument is used. The difference in views concerns
only the form of this involvement. Typically, businesses are interested in a greater
involvement, longer periods of consultation (ranging from seven days to three months),
opportunities for private and public hearings and receiving precise requests for input. For
other groups of stakeholders the minimum period is five days, ten days or 10-20 days.
Accordingly, two options are identified, reflecting also stakeholder’s views. (G1) a more
prescriptive approach, whereby the instrument would prescribe the involvement in detail,
for example, with a minimum period for consultations, and a mandatory process of
hearings. (G2) a case-by-case approach, whereby there will be a degree of flexibility in
how the involvement can happen in individual cases, depending on the nature of potential
action. The benefit of this flexibility was also recognised by stakeholders.
7. IMPACT OF THE POLICY OPTIONS
This section assesses the impact of a new legal instrument and of the policy options as
regards its main design parameters, against the baseline scenario.
7.1. General remarks
The instrument under assessment would be a regulation of the European Parliament and the
Council establishing a framework for possible future EU action under specific
circumstances and conditions. The EU’s action takes place via subsequent secondary legal
acts, if and when the instrument is used. Furthermore, the main purpose of the instrument is
not its use, but its non-use (because the mere availability of the instrument aims to deter
coercion). The best-case scenario is that there is no need for using the instrument.
Where the instrument is used, the envisaged possibilities for the EU’s action are numerous
in any of the options for the design parameter (C) (possible action). The choice of a
concrete action in a given case is a function of a variety of circumstances, such as: the
identity of the coercing country, the international relations with this country, the coercive
39
measure and the intention of the coercion, the economic and political consequences and
effects of the coercion, which concrete EU measures are available and recommendable
towards this particular country, which concrete measures are effective in pursuing the
objective of discontinuation of the coercion from that particular country, possible future
developments.
The frequency of use is yet another variable which essentially depends on choices made by
a third country about resorting to coercion (see section 3.2 on drivers), and can be
influenced by a successful deterrent. This report assumes that use would be irregular and
low, but with some caveats and limitations. Initially, the use could theoretically be higher
or lower compared to later years. This would be due to the geo-economic environment, the
expectations of stakeholders and their willingness to request the use of the instrument in
individual cases. In the medium- to long-term the use can be grossly estimated as
approximately two-three cases per year, of which fewer than one case per year would result
in action in the form of countermeasures. The assumption is based on the observed
frequency of incidents of coercion in the past, the likely evolution of the problem (section
3.3), the likely successful deterrence effect of the instrument, the likely effectiveness of the
measures of first resort, and stakeholders’ views.83
An important limitation of the
assumption is that it is impossible to predict third countries’ choices.
Any potential impact will also depend on the duration of the EU’s action and whether it is
one-off or continuous in individual cases. The overall duration of countermeasures would
vary from a case to another because it would depend on the rapidity in producing the
desired effects (bringing an end to the coercion).84
Some measures would produce their
intended effects rapidly because the third country in question reacts promptly. In another
case, the desired effect might emerge more slowly.
The above considerations illustrate that it is not feasible to estimate with sufficient
precision in advance, or in the abstract, the potential impact arising from the use of the
instrument, neither it is useful as it could even be misleading. Generally, stakeholders
viewed the impact assessment as a useful exercise but they also pointed out that the impact
depends on the concrete countermeasures in any given case.
Consequently, the assessment focuses on the likely impact of the creation and existence of
the instrument and it is by necessity qualitative. Additionally, the assessment also covers
the likely impact arising from the potential use of the instrument.
7.2. Economic impact
7.2.1. Non-EU countries that use or contemplate coercion towards the EU or
Member States
The legal instrument aims to change the conduct of third countries that use or contemplate
using coercion towards the EU or Member States. The desired change is that third countries
refrain from using coercion in the first place, or that they discontinue their coercion
83
Stakeholders across the groups advocate and recognise that this instrument should not be for a regular use.
84
Stakeholders broadly support having countermeasures in place until the coercion is discontinued. As
pointed out by a business association, under public international law there is no time limit for the duration
of countermeasures, only specific conditions in which countermeasures should be lifted (Article 52 of the
International Law Commission’s Articles on State Responsibility). The differing views are that
countermeasures should be imposed for a limited period of time (e.g. suggestions for a short term of 3 to 6
months) and renewed if necessary, as leverage.
40
quickly. In that sense, these third countries are addressees of the instrument. The EU and
Member States are the main beneficiaries since the instrument is meant to protect the ability
of the EU and its Member States to take measures in its own interest.
There are no direct, indirect or enforcement costs for the third countries arising from the
creation and the existence of the instrument. If by refraining from coercion (as a result of
the deterrence effect), the third country incurs losses by foregoing the political or
commercial benefits which it would expect from its coercion, then this cannot be
considered a relevant cost. Refraining from interfering in the jurisdiction of the EU or its
Member States is not a cost to a legitimate interest which the EU must take into account. In
fact, third countries refraining from coercion is exactly a desired benefit for the EU,
producing gains or savings, not losses. Also, this would translate into a benefit in terms of
the rejection of international coercion as a policy.
Costs and other negative effects may arise from the use of the instrument and they will be a
function of the type and duration of the countermeasure (design parameter (C) possible
action) in individual cases, and frequency of use in general. The measures of first resort
(i.e. the first step for each option) could involve direct and indirect costs associated with
any negotiation or agreed litigation, should such avenues be followed; or reputational costs
for the third country when the third country’s action is publicly qualified as coercive.
Diplomatic efforts to resolve any crisis are not expected to involve any direct costs. In any
event, such costs would be the same as for the baseline where diplomatic means are an
available option. The measures of last resort in options (C1) and (C2) are diverse and
would be deployed depending on what is most effective and feasible in any particular case.
The economic impact would be targeted and strictly case- and country-specific, some
measures may not be available for certain countries or might not be considered effective, or
not effective at a particular moment. Hence, the impact cannot be estimated in the abstract.
As regards design parameter (A) triggers for action, namely the coverage of situations in
which the EU may take action, this is likely to influence the frequency of use and thus to
increase the instances where an impact will arise. Thus, only on basis of coverage, option
(A1) covering extra-territorial sanctions implies in principle more frequent use than option
(A2) that does not cover them. Since the Blocking Statute would remain the primary
instrument to counter extra-territorial sanctions, the use of the instrument is likely to be
higher only to a limited degree (the instances when the instrument is applied in addition to
the Blocking Statute) under option (A1). However, this is relative and qualitative and
cannot be estimated quantitatively with any precision. The use of the instrument will
primarily depend on the choice of a third country whether to resort to coercion, and second
on the effectiveness of the initial, first resort measures in individual cases. It is recalled that
only if the first resort measures (with relatively fewer costs) fail, that the EU will proceed
with countermeasures (relatively more costs). The same reasoning applies as regards design
parameter (B) threshold for action. A higher threshold (either quantitative or qualitative)
will decrease the instances of potential use in relative terms.
More importantly, the overall design of the instrument entails a restraint in the first place
and counteraction only if an engagement with the coercion country does not produce the
necessary effects. Also relevant is that the instrument is activated exclusively in response to
a third country’s coercion and it is never the EU that creates the situation.
Furthermore, those third countries may theoretically decide to respond to the action which
the EU is taking under this initiative by retaliating through further measures taken against
41
the EU.85
This risk of escalation through retaliation should not be taken for granted, and
needs to be placed in context. A detailed discussion follows in the box.
 First, the other country in question would in no way be entitled to respond in this
manner, except in the form of a retorsion. Countermeasures (reprisals) would not be
allowed in response to a permitted EU response action (whether it is a reprisal or
retorsion).
 Second, it also seems wrong to expect a further retaliatory response in all cases
because the EU’s anti-coercion reaction would already have the effect of putting the
coercing third country on notice that the EU is not tolerating the coercion. Further
escalation is thus unlikely to foster a positive solution or de-escalation, and the EU’s
proportionate anti-coercion measure would encourage the third country to work in
the direction of such a solution, rather than escalation.
 Third, empirically, it is by no means the case that countermeasures always elicit
further measures.86
Even in trade wars, such as that between the US and China that
started to become real with punitive tariffs of USD 50 billion imposed in March
2018, there is no general trend of endless escalation. What can be observed in many
cases is, rather, that after one or two exchanges of measures, a new stable situation
is reached from where the participants work towards a solution, even if the countries
involved consider each other’s measures illegal.87
The cases in which the targets of
coercion have chosen not to react formally, but instead opt for mitigation measures
or WTO dispute settlement sometimes nevertheless feature continuous rounds of
further measures (cf. China – Australia), and sometimes do not.
To the extent that there remains a risk of retaliation with costs associated for the EU, these
risks and costs have to be weighed against the costs if the EU continues not to have a well-
calibrated instrument in which case the EU would forego the benefits of deterring coercion.
A third country subject to EU anti-coercion measures may also consider resorting to dispute
settlement procedures available under the WTO Agreement or a bilateral trade agreement
with the EU. This risk of litigation against the EU applies only where the EU
countermeasure involves a departure from EU obligations under the WTO Agreement and
certain trade agreements, respectively. Whether the WTO Agreement and bilateral trade
agreements can be invoked to oppose such countermeasures remains unsettled, but it can be
reasonably argued that they cannot, in so far as the countermeasures are compatible with
customary international law.
85
This risk is raised by some stakeholders including businesses and public authorities, associating with it
with further costs for businesses and trade tensions.
86
Dursun Peksen and Jin Jeong studied this question and arrived at the conclusion that the economic weight
of the country that would be subject to the retaliation and the salience of the issue instigating the measures
it has taken are inversely correlated to the likelihood of retaliation. Dursun Peksen & Jin Jeong, Coercive
Diplomacy and Economic Sanctions Reciprocity: Explaining Targets’ Counter-Sanctions, Defence and
Peace Economics 2021, 1-17. This has the potential of working to the EU’s benefit, based on the EU’s
economic weight and an assumption that it would take anti-coercion measures on important matters.
87
Louis Henkin, How Nations Behave: Law and Foreign Policy (1979), p. 47: “Almost all nations observe
almost all principles of international law and almost all of their obligations almost all the time.” which
supports the argument that retaliation should not be taken for granted in the relationship between subjects
of international law most of which most of the time abide by most of their international obligations.
42
It should, moreover, not be taken for granted that a coercing country would invoke WTO
dispute settlement action against the EU anti-coercion measure. One reason is that the third
country was the first to step outside the international legal order. If that third country
invokes e.g. WTO dispute settlement procedures, then the EU would defend itself and the
legality of its anti-coercion action including based on customary international law. This
could well imply a full presentation of the coercive action and its international illegality.
The coercing country might well be reluctant to undergo such discussion and scrutiny.
7.2.2. International relations
This section refers to relations with non-EU countries in general. Third countries which use
coercion are discussed separately above.
There are no direct costs for third countries in general either from the existence of the
instrument, or from its use. On the other hand, potential benefits may arise in terms of
establishing international cooperation to tackle economic coercion. This is possible also
today and forms part of the baseline. However, a dedicated EU instrument sends a more
visible, powerful and effective message as regards where the EU stands and provides a
platform for international cooperation more effectively in comparison to the baseline.
At the same time, there are potential risks to be managed in respect of international
relations in general. See the discussion in the boxes below.
As also some stakeholders point out, third countries may perceive the instrument as
harming political or economic international relations, or perceive it as protectionist.88
The careful design of the instrument manages these risks.
 Design parameter (A) triggers for action ensures that the instrument is activated
exclusively in response to a third country’s coercion and it is never the EU that starts a
standoff. Only specific situations attributable to the non-EU country would trigger the
instrument. Stakeholders also put forward that it is not the EU that would harm
international relations through the anti-coercion instrument but it is the non-EU country
that harms those relations by resorting to coercion in the first place. The triggers are
based on observed situations of coercion.
 Design parameter (C) possible action ensures that the instrument operates in two
steps. The first step is always non-interventionist and aims to stop the coercion. The
EU’s (counter)-action would be grounded on EU and international law.
 Design parameter (B) threshold ensures that the instrument targets only cases with
certain important and relevant negative impact on the EU or Member States (as opposed
to any act of coercion).
 Design parameter (D) selection criteria ensures that the action taken is commensurate
and targeted and does not go beyond, and does not last beyond, what is necessary.
88
Stakeholders across the groups expressed concerns or called for a careful assessment and management of
this risk. The ECFR Policy brief of June 2021 identifies a risk of encouraging protectionism and suggests
mitigation strategies for the new instrument. The analysis in this report aims to address the concerns, in
line with stakeholders’ input.
43
 Design parameter (G) stakeholder involvement ensures that the application of the
instrument is done taking into account relevant economic interests as raised by
stakeholders.
 Furthermore, it is recalled that the primary objective of the instrument is deterrence
and not necessarily its use.
Furthermore, there may be a perception by some that the EU’s creating an anti-coercion
instrument would be a challenge to multilateralism or to the perception of the EU as
strong supporter of multilateralism.
 First of all, the creation of the instrument would not weaken multilateralism either in
the field of trade or in the field of international peace and security. The WTO would
remain the core multilateral forum for addressing trade concerns, and the EU would
continue to take to the WTO any grievances it has with regard to third-country trade
restrictive measures if the EU considers those to be at odds with WTO disciplines. This
includes cases of coercion when these simultaneously present infringements of WTO
disciplines.
 The WTO however is not an effective and suitable forum for debates about the
disrespect of non-WTO rules of international customary law, such as the prohibition of
intervention or interference in the internal or external affairs of another country. This
however is precisely what the anti-coercion instrument aims to tackle; hence
multilateralism in trade is not thereby challenged because trade rules do not cover this
exact question.
 This applies mutatis mutandis to bilateral trade agreements of the EU.
7.2.3. UN Sustainable development goals
The UN Sustainable Development Goals are relevant to this initiative. This is particularly
the case for Goal (16) to “Promote peaceful and inclusive societies for sustainable
development, provide access to justice for all and build effective, accountable and inclusive
institutions at all levels” and Goal (17) to “Strengthen the means of implementation and
revitalize the global partnership for sustainable development”.
The initiative would support the achievement of these goals as it would support the rule of
law and the respect for international law. It would also protect the stability and
predictability of the international economic order, which are being disrupted when third
countries take coercive measures that restrict international trade or investment.
7.2.4. EU economic operators and consumers
The group consists of two categories, those affected by the coercion and those affected by
the EU’s action. There could be overlaps.
There are no direct, indirect or enforcement costs for this group arising from the creation
and the existence of the instrument. Costs will arise only from the use of the instrument and
specifically from the application of countermeasures (assumed to be less than once per
year). As noted earlier, these depend on the concrete countermeasure, its duration and the
third country concerned. In qualitative terms, the following applies:
44
Design parameter (C) possible action ensures that, in any option, preference is given to
first resort measures, which do not involve costs for EU economic operators and
consumers. This solution reflects stakeholders’ views across the groups, there is strong
support for careful initial engagement with the coercing country. Possible countermeasures
under option (C1), which similarly exist under the other options would restrict trade or
investment and thus would affect this group. The impact would vary per type of measure.
The negative effect would likely be produced in the short-term after the imposition of a
countermeasure, and may last as long as the countermeasure lasts. This would concern only
those EU economic operators with trade or investment links to the coercing country, or
those with any corporate links to affected foreign entities, and then within specific sectors.
The following breakdown per type of countermeasure illustrates the typology of costs for
this group under this option.
Restrictions on trade in goods: the countermeasures may increase costs for EU importers
for goods from a specific non-EU country, or may lower market opportunities for specific
EU exporters of a specific good. Indirect costs could include costs related to substitution
(e.g. reliance on alternative sources of supply), transaction costs, any price pass-through
effects and negative impacts on market functioning such as reduced innovation or
investment. Stakeholders reported also potential negative effects such as uncertainty in
conducting business caused by possible additional costs on long-term contracts,
compromised conditions on cooperation, and in an extreme case the loss of business. Some
business associations urge that countermeasures do not rely exclusively on trade in goods,
as goods have continuously been taken hostage of trade disputes in the past years, bearing a
disproportionate burden while often being entirely unrelated to the core nature of the
disputes. They would see merit in focusing on trade in services.
Restrictions on trade in services: the countermeasures may increase the costs for the cross-
border provision of services of the concrete service in respect of a specific non-EU country.
Indirect costs could be similar to those for restrictions on trade in goods. Some stakeholders
expressed concerns with the possibility of countermeasures that affect essential services
sectors, such as logistics, on which the entire range of EU sectors would rely, because of a
detrimental effect on the that sector. Furthermore, concerns were flagged with targeting
digital trade and sectors where the EU has a trade surplus.
Restrictions on commercial aspects of intellectual property rights: countermeasures may
prevent or increase the costs for a third country intellectual property owner to benefit from
protection. Stakeholders, including businesses, expressed caution about using restrictions
regarding commercial aspects of intellectual property rights.
Restrictions on public procurement access: restrictions or exclusions of specific third
countries’ providers, goods or services from public procurement in the EU could limit
competition on the EU market.
Restrictions on foreign direct investment into the EU: countermeasures could result in less
investment (capital and jobs) in the EU; if not targeted precisely, investment restrictions
could indirectly affect the EU’s or other third countries’ companies whenever there are
links between companies operating in global value chains.
Export controls: fall under the national security exceptions but may be an effective
countermeasure in case of refused licence for export of a specific product to a specific non-
EU country (the coercing non-EU country), export controls may result in foregone business
(opportunities) and in direct costs for the affected EU economic operators who in some
cases may not have sufficient alternative export destinations.
45
Stakeholders suggested also general potential negative effects valid for most of the above
countermeasures such as uncertainty in conducting business caused by possible additional
costs on long-term contracts, compromised conditions for cooperation, and in an extreme
case the loss of business. This confirms the identification of the costs.
Stakeholders pointed to a number of sensitive areas and sectors to better avoid for
countermeasures, notably: critical infrastructure, health sector, humanitarian sector, basic
public services, certain fundamental values, essential services, such as logistics, on which
the entire range of EU sectors would rely, , the areas provided for in Article 50 of the
International Law Committee’s Articles on State Responsibility in the context of
countermeasures, sectors in which the EU enjoys a strong trade surplus which is more
likely to be targeted by the third country’s retaliation.
On the other hand, stakeholders suggested the following areas and sectors for
countermeasures: energy, the financial sector (including banks), transport,
telecommunications, information and communication technologies, prohibition of
investments above a certain threshold for people with permanent residence in specific third
countries, specific investment prohibition for real-estate property or acquisitions of
companies for people with permanent residence in such countries, including any legal
entities owned, controlled by them, regardless of the place of incorporation; restriction of
key patents for transfer /use in targeted non-EU countries; or sectors that are politically
sensitive for the coercing country.
With respect to any EU departure from EU’s international obligations (WTO or other trade
agreements), such departures would not necessarily occur and would be a matter for
political decision in individual instances that would be taken in line with the EU’s rights
under general international law, including the permission to take countermeasures in
response to a coercive measure that infringes on general international law.
Under option (C2), additional possible countermeasures would have relatively less impact
on this group because of their nature (e.g. visa restrictions, restricted access to funding,
financial market restrictions), or may have no direct impact at all if the group is not
concerned. The following qualitative impact can be identified:
Restriction of access to EU research programmes or exclusion from EU research
programmes of actors from the coercing non-EU country – may restrict innovation
indirectly; otherwise no direct costs for EU economic operators as the specific restrictions
are not related to them;
Visa restrictions for nationals of from the coercing non-EU country – no direct or indirect
costs for EU economic operators as the specific restrictions are not related to them;
Withholding of EU funding to the coercing non-EU country – no direct or indirect costs for
EU economic operators as the specific restriction is not related to them;
Restrictions on authorisations for banking, insurance and other activities (licence) to actors
from the coercing non-EU country; financial transactions, financial services – such
measures may have (direct or indirect) effect in case of corporate links of EU economic
operators with the coercing non-EU country. More generally, such measures must take into
account any risk to the financial stability of the EU financial sector and the need to
adequately protect the financial market participants and other persons in the EU;
46
Restriction of access to EU capital markets by actors from the coercing non-EU country –
such measures may have (direct or indirect) effect in case of corporate links of EU
economic operators with actors concerned;
Restrictions on registrations and authorisations under REACH Regulation and the
hazardous chemicals legislation or similar actions – such measures may affect (directly or
indirectly) EU economic operators in case they act as representatives of importers or
manufacturers from the coercing non-EU country which request registration; or in case of
authorisation, if EU operators request authorisation to use certain chemicals on behalf of an
economic operator from the coercing non-EU country.
Restrictions on individual persons linked to a government which has adopted coercive
measures – no direct or indirect costs for EU economic operators; such measures do not
affect them.
Listing of companies – applying various restrictions mentioned above to companies (in
particular state owned enterprises) or other persons which have been listed – the impact
would be the respective type identified per specific measure, i.e. there would be impact if
there is a trade, investment or corporate link between EU economic operators and the
coercing non-EU country and/or its operators.
Option (C3) does not involve additional costs as it provides financial compensation for
losses for EU economic operators. At the same time, to benefit from financial
compensation, concerned economic operators will need to make a substantiated request
with any possible associated administrative costs. The financial compensation granted may
not offset the totality of claimed costs. Stakeholders also pointed at complexity and
difficulty in determining losses and compensation.
It follows that, in all cases discussed for design parameter (C), the magnitude of the
impact would vary from a case to another. More importantly, however, the impact would be
knowable in concrete cases through the possibility of stakeholder consultation etc. and
measures with no or smaller negative impact could be prioritised.
As previously noted, regards design parameter (A) triggers for action, or the coverage of
situations in which the EU may take action, this is likely to influence the frequency of use
and thus to increase the instances where an impact will arise. Thus, only on the basis of
coverage, option (A1) including extra-territorial sanctions implies more frequent use than
option (A2) that excludes them, keeping in mind that the Blocking Statute would remain
the main vehicle for responding to extra-territorial sanctions meaning the difference may
not be significant.
Again, as previously noted, similar reasoning on frequency applies as regards design
parameter (B) threshold for action. A higher threshold will decrease the instances of
potential use in relative terms. However, there are specific advantages and disadvantages
for each option for this parameter from the perspective of this group. A quantitative
threshold enhances the clarity and predictability, it is objective and technically easy to set.
On the other hand, it may be challenging to identify an optimal universal threshold that will
apply across the board, thus there is a risk that a chosen number misses the target and
important cases of coercion are left out only because they do not reach a particular
quantitative threshold. A qualitative threshold offers more flexibility in taking into account
a variety of dimensions beyond the commercial or economic dimension, but it could be
47
criticised for lack of sufficient clarity and predictability.89
The formulation of the threshold
in the legal text should aim to mitigate this risk.
Furthermore, it is recalled that the primary objective of the instrument is deterrence and
not necessarily its use. Therefore, any negative impact on this group will materialise only as
a last resort, after the other options fail to provide a resolution.
Design parameter (D) selection criteria ensures specifically that any collateral effect is as
small as possible, which is of direct relevance for this group, and that the action taken is
commensurate and targeted and does not go beyond the necessary. Moreover, the action
must be in the general interest of the EU in all cases, comprising the interests of this group.
Design parameter (G) stakeholder involvement ensures in relation to this group that the
application of the instrument accounts for relevant economic interests. EU businesses and
consumers, which are potentially affected, will have an opportunity to come forward and
make their views known as regards their interests. The possibility for stakeholder
involvement is considered beneficial for this group, as is recognised by stakeholders
themselves. Some expressed the view that the participation helps in mitigating the potential
impact. Participation in the consultation may however result in an administrative burden in
parallel, i.e. costs borne as result of responding to information requests, although
participation will be voluntary. Option (G1) may be preferable for stakeholders in terms of
clarity and predictability but it may be otherwise inappropriate in some consultations where
for example only a limited number of potential measures are under consideration. Option
(G2) has the advantage of flexibility and adapting the parameters of involvement to the
concrete needs in a given case (e.g. more potential measures: longer periods, more complex
measure: more possibilities for input, including hearings and assistance). At the same time,
such flexibility will decrease to an extent the clarity and predictability for this group (which
should be resolvable on a case-by-case basis). The other advantage of this option is that it
allows adapting the duration and process of consultations to a particular need for speed of
action in a given case. This is directly relevant for the effectiveness of the concrete action,
as well as for the deterrence value of the instrument (i.e. a signal that measures can be put
in place swiftly, if necessary).
As regards the activation of the instrument (design parameter (F)), a formal complaint
mechanism (option (F1)) will lead to administrative costs to those who request the use of
the instrument as the request would have to be substantiated. It is very likely that such costs
would be offset by the potential benefits of the EU’s action requested. Ex officio initiation
(option (F2)) will not lead to such costs, although this option should not prevent those that
have relevant information to come forward. Under both options, but particularly a formal
complaint mechanism, stakeholders may be concerned with the issue of confidentiality, for
fear of retaliation. Necessary guarantees and mechanisms will have to be put in place in
order to ensure that the flow of information, to ensure that the use and effectiveness of the
instrument is not prejudiced by the fear of retaliation against those commercial actors in
third-country markets where they are vulnerable vis-à-vis governments not effectively
bound by the rule of law and capable of arbitrarily punishing economic operators that
defend their rights and interests. Furthermore, stakeholders may not have access to
sufficient evidence to substantiate their requests which will prevent them from requesting
action. Therefore, a reliance on formal complaint based requests for action would imply
89
Stakeholders who see the need for a threshold (20%) find more appropriate a flexible, case-by-case
approach, corresponding to the qualitative option discussed here. No stakeholder argued in favour of a
quantitative threshold.
48
uncertainty because of the difficulties for private operators to come forward with evidence.
It therefore does not seem advisable.
On the other hand, substantive benefits for this group are expected at both levels: the
creation and existence of the instrument, and its use. Benefits will first materialise where
the deterrence effect is successful in averting coercion, i.e. avoiding the negative effects of
the coercive measures and countermeasures’ potential negative effects on EU economic
operators and consumers. In this respect the scope of the triggers, notably the specific
situations of coercion that trigger the instrument, plays a role. The wider scope under
option (A1) would produce a wider deterrence effect and avert a wider scope of coercion,
in comparison to option (A2). However, option (A2) implies that the extra-territorial
sanctions not covered by the anti-coercion instrument, would be addressed by another
instrument, namely the Blocking Statute. Therefore, extra-territorial sanctions would be
addressed one way or another. Among the potential costs associated with coercion by third
countries, stakeholders identify the loss of market access causing a fall in revenues, higher
transaction costs when goods are stranded in ports or are destroyed, and damage to their
reputation and commercial attractiveness in third country markets that can arise even with a
threat of coercion. Second, benefits will materialise though the use of the instrument, in
providing protection to EU economic operators and consumers concerned and
counteracting negative effects of the coercion while aiming at a discontinuation of the
coercion. The measures of first resort are equally beneficial in that they also aim to stop the
coercive measures. The financial compensation (Option (C3)) could help affected EU
economic operators. For example, exporters suffering from a sudden drop of their sales to a
coercing country could use public funds to make up for some of their losses while they find
alternative destination markets for their products. The importers of the coercing country’s
products, experiencing higher costs, may be able to source the inputs elsewhere or modify
their production processes (or provision of services). If the financial compensation is
properly designed, it could neutralise negative effects imposed by a coercive country and/or
those identified in options (C1) and (C2) on EU trade and investment flows.
7.2.5. SMEs
Where they engage in international trade, SMEs would experience similar type of impacts
as other EU economic operators, with the possible difference that because of their smaller
size they would be less exposed to being used by third-country governments as symbolic
examples. SMEs reported additionally that a lack of EU policy intervention may lead to
reluctance on their part to carry out their trade and investment activities abroad as they
would fear that they would not be protected against economic coercion. At the same time,
SMEs may experience the same impact more acutely, they are also less capable of directly
voicing their interests vis-à-vis foreign and their home governments and of sustaining
losses (less resources at their disposal, such as human, financial, technology).90
7.2.6. Trade and investment flows
The mere creation and existence of the instrument may have consequences for trade and
investment flows. To the extent that the instrument is effective in preventing coercion, it
safeguards trade and investment flows that could otherwise be targeted by the relevant
coercion and would allow trade and investment decisions based on the respect for the rules-
90
One SME came forward in the public consultation. Participating business associations represented also
SMEs’ interests (e.g. European Confederation of the Footwear Industry; Cerame-Unie; SEMAE (ex
GNIS); EURATEX, SPECTARIS, and others).
49
based international order. Thus, medium- to long-term economic effects on trade and
investment flows will be positive, in particular because reductions and distortions in trade
or investment flows can be avoided. More generally, the instrument will increase the
perception of stability in the international trading system, fostering confidence in and of
economic operators.
The imposition of countermeasures will have a direct impact on trade and investment flows
which will depend however on the specific countermeasure in individual cases. This is
discussed in details in relation to EU economic operators and third countries above.
7.2.7. Public authorities (EU, national, regional or local administrations)
The creation and existence of the instrument does not result in direct, indirect or
enforcement costs for public authorities. Such costs will potentially arise only in the use of
the instrument. National public administrations could be involved in applying specific
countermeasures if such are imposed in concrete cases (i.e. design parameter (C) possible
action). Countermeasures would fall under the common commercial policy and the
regulation would be directly applicable in all EU Member States. There are no costs as
regards first resort measures in any of the options.
Thus, the only action likely to be required at national level, if any, would be administration
and application of countermeasures (e.g. national customs services enforcing EU
legislation, visa restrictions, etc.). The range of possible measures is familiar to the public
authorities as it exists in the respective fields already and other instruments (e.g. EU Trade
Enforcement Regulation). Therefore, it is unlikely that a national action would require
substantial additional resources in comparison to the baseline scenario. A similar
assessment applies as regards EU agencies that may be involved in the application of
countermeasures under option (C2). It is of note that it is not intended and expected that
the instrument is applied regularly. Its design and objectives rather imply limited use.
Nevertheless, public authorities participating in the public consultation expressed concerns
about administrative cost of restrictions on trade in services (they argued that uniform
implementation in non-harmonised areas would, in particular, be complicated) and public
procurement. It was said that more important than defining the areas of action is their
effectiveness and proportionality, which should always be assessed on a case-by-case basis.
Any applicable costs, as identified in a concrete case of the use of the instrument, as well as
any views of the public authorities would be taken into account when adopting specific
countermeasures. According to design parameter (D) selection conditions, the smallest
possible administrative burden is among the conditions for selection of specific measures
such that those that are less burdensome should be preferred.
As regards design parameter (E) decision-making, Member States may need to appoint
delegates to serve as members of a committee in case of implementing powers conferred on
the Commission, or experts in case of delegated powers conferral. The resources involved
would depend on the frequency of use.
None of the other design parameters involves an action at national level, therefore, there is
no additional impact to be created by the other design parameters.
On the other hand, benefits will arise from averting coercion that targets public authorities
through the mere existence and availability of the instrument, or its discontinuation, using
50
the instrument. The result would be that public authorities would withstand foreign
interference in their policy choices and would preserve their autonomy.
As regards the Commission, potential costs would occur for administration, monitoring,
enforcement and adjudication in relation to the instrument and its use. Significant costs in
individual cases would be associated with the collection of evidence on the nature and
effects of the third-country measure, and on potential effects of contemplated counter-
measures. This would involve additional human resources for the Commission (around two
or three FTEs depending on the frequency of use). On the other hand, the financial
compensation (option (C3)) implies substantial additional resources in terms of creation of
a fund and increased administrative burden in terms of managing the fund, other than to the
extent that existing schemes may be used (under the Common Agricultural Policy).
7.2.8. EU citizens and society as a whole
The report looks also at impacts that are widespread and do not affect a particular sub-
group in a specific way. No direct impact is expected, but a general benefit from deterring
or discontinuing coercion quickly is expected, in particular if this makes it easier for the EU
or Member States to act to protect citizens.91
7.3. Social impact
Generally, the existence of the instrument is expected to have a positive effect on social
indicators, in that coercion may decrease or be prevented. The positive effect arises from
preserving the status quo and averting adverse changes that are associated with the coercion
(e.g. on employment, competitiveness, risk of investments and loss of market opportunities
in third countries, increased uncertainty in conducting business). Where the instrument is
used, benefits will arise if the EU’s action is successful in ending the coercion quickly.
Some stakeholders argue that if both coercive and anti-coercion measures would stay in
place for long, this could have a significant adverse impact on income and employment. As
also pointed out by stakeholders, it is expected that the instrument will contribute to the
EU’s capability to set ambitious social standards (for instance, it would protect the EU in
the event that third countries sought to impose retaliation in respect of the EU’s due
diligence legislation). Stakeholder involvement (design parameter (G)) will assist in
identifying any relevant negative impact so that any such impact is factored in the selection
and design of concrete countermeasures before their application. Ultimately, the instrument
should help build a more stable environment for using regulatory powers.
7.4. Environmental impact
There is no discernible adverse impact on the environment from the instrument or its use.
Furthermore, and as pointed out by stakeholders, it is expected that the instrument can
contribute to the EU’s capability to develop ambitious environmental standards in a
predictable way (for instance, it would protect the EU in the event that third countries
sought to impose retaliation in respect of the EU’ climate change mitigation legislation –
something which has already happened when the Emission Trading Scheme was originally
extended to aviation). Stakeholder involvement (design parameter (G)) will assist in
identifying any relevant impact so that the selection and design of concrete
91
Participating citizens (6) from Germany, France, Italy, Hungary spoke generally about business and
political interests and potential benefits of having a dedicated instrument, rather than from a societal
perspective. Those views are integrated into the respective impact sections.
51
countermeasures factor them in. Ultimately, the instrument should help build a more stable
environment for using regulatory powers, one that protects the environment in the EU.
7.5. Fundamental rights
The creation of an anti-coercion instrument itself would affect fundamental rights only by
protecting them, in implementation of the EU’s positive obligation to protect the rights of
its citizens against infringements from other sources, in this case foreign governments,
when the existence of the instrument can make a contribution towards deterring their acts of
coercion which could negatively affect those rights.92
The use of an anti-coercion
instrument could similarly contribute to this protective effect. It could also, however, and
depending on the EU’s action chosen in the individual case, imply EU-imposed restrictions
on trade or investment (under any option), thereby restricting the freedom to engage in
international trade or investment as part of the freedom of professional activity.93
Intellectual property rights could also be affected (under any option).94
Individual EU
stakeholders affected by these restrictions contrary to other stakeholders (e.g. because they
import the products subject to restrictions) can also feel affected in their right to equal
treatment.95
These restrictions, however, would be a legitimate action by the EU authorities
bound by the Charter because they would be taken in conformity with the requirements that
the action be taken on the basis of a proper legal basis, by the competent authorities, in
pursuit of a legitimate objective, and in line with the principle of proportionality.96
Ultimately, the instrument would be apt to help build a more stable environment for using
regulatory powers, one that promotes fundamental rights in the EU and abroad.
8. HOW DO THE OPTIONS COMPARE?
Following the assessment of the impact of the various design parameters and options, this
section presents three alternative policy packages for a legal instrument and examines how
they compare based on effectiveness, efficiency and coherence with other EU policies.
8.1. Configuration of policy packages
The identified policy packages represent the most suitable configurations of policy
parameters or their options based on the likely impact as identified and their potential to
achieve the initiative’s objectives. The configurations resulted from the following
methodological steps:
First step: The policy packages are built around, and vary, on the basis of, the EU’s
possible action that is being considered (design parameter (C)). That parameter came
across as the most determinative in the design of an appropriate and effective instrument; it
carries the most weight in terms of potential impact, both positive and negative.
Second step: Each policy package includes the two alternative options for triggers (for
design parameter (A)) as considered, i.e. both options are retained as suitable, for reasons
discussed below, and the choice is left for the legislative proposal.
92
Article 52(1), in fine, of the Charter of Fundamental Rights of the European Union.
93
Articles 15(1) and 16 of the Charter of Fundamental Rights of the European Union.
94
Article 17(2) of the Charter of Fundamental Rights of the European Union.
95
Article 20 of the Charter of Fundamental Rights of the European Union.
96
Article 52(1) of the Charter of Fundamental Rights of the European Union.
52
Third step: The other components for a legal instrument are the same across the policy
packages (the constant parameters). Three of them (threshold, activation, stakeholder
involvement) correspond to the most viable option per respective design parameter and
they have the function of enhancing the main component (i.e. possible EU action). The
rationale for identifying the most viable option is based on its likely impact as identified
and potential to support the initiative’s objectives, as discussed in more detail below.
Finally, the remaining two components (selection conditions and decision-making) are
constant and do not foresee policy options from the outset. They also apply equally across
the three policy packages. Their overall effectiveness and efficiency is discussed as an
integral part of the policy packages in the next section (8.2).
8.2. Policy packages
Following the above steps of configuration, policy package 1 proposes a two-step process
for possible action under the instrument, namely first resort measures, and, if they fail, last
resort measures limited to countermeasures under option (C1). Policy package 2 proposes
the same two-step process for possible action but with an additional possibility for
countermeasures under option (C2). Policy package 3 proposes the same two-step process
as policy package 2 but with yet another possibility that is granting financial compensation.
Thus, all policy packages include the same first resort measures but there is a progression in
the level of ambition as regards the second step. Policy package 1 is sufficiently ambitious,
policy package 2 is more ambitious and the policy package 3 is the most ambitious of the
three. Finally, they all include trade and investment measures.
Next, each package contains two alternatives for triggers (options (A1) and (A2)). The two
alternatives differ as regards the coverage of extra-territorial sanctions when they also
coerce the EU or Member States public authorities. Each option is considered suitable, thus
they are retained as alternatives. Option (A1) (i.e. including those extra-territorial
sanctions) is more ambitious than option (A2). Based on likely impact and potential to
support the initiative’s objectives, it is considered viable and appropriate for this
instrument, and it is suitable for each of the three policy packages. It covers
comprehensively coercive measures and potential evolutions, excluding only those that are
directed at private actors and do not seek to coerce public authorities. Coercion by means of
extra-territorial sanctions would entail substantial costs for EU economic operators, and
therefore be harmful and requires adequate attention. The Blocking Statute remains the
principal instrument for the EU to deal with extra-territorial sanctions, while the anti-
coercion instrument should operate in the background, and only come into play when
further actions may be required at EU level, to top up the response where needed.
Option (A2) carves out extra-territorial sanctions with a coercive effect which otherwise
fall within option (A1), is also viable and would be appropriate, and equally suitable for
each of the three policy packages. It is an appropriate alternative because of the potential
reform of the Blocking Statute that is foreseen to update the response to extra-territorial
sanctions and to ensure effective deterrence, protection and counteraction. Otherwise, the
remaining scope of triggers under option (A2) covers sufficiently the other observed
coercive measures (explicit, disguised, silent, boycotts). It implies a less frequent use than
option (A2) which would potentially reduce the cost of using the instrument (all other
factors equal). The deterrence as regards the covered forms of coercion would remain
unchanged in this option.
The other (constant) components of the policy packages are the same across the packages
and they serve to strengthen the EU’s possible action. They are identified as follows:
53
Qualitative threshold for action (B2) – this option is more appropriate and viable than the
quantitative threshold option in cases such as economic coercion because it could provide
for a flexible and sophisticated approach in deciding which incidents of coercion should be
tackled at a given time. It allows for taking into consideration not only the commercial
dimension of the coercion but any other relevant dimensions like relations with the
coercing country, industry affected, significance of the interests affected, political
considerations. No substantial differences in impact were otherwise identified.
Ex officio activation of the instrument (F1) – this is a more viable option than setting up
a formal complaint mechanism for this instrument in several respects. A formal mechanism
would cause additional administrative costs both for the stakeholders that will contemplate
using it, and for the Commission to set it up and respond to requests. More importantly,
however, a private stakeholder-driven mechanism might not be a suitable solution for an
instrument that addresses coercion against EU public authorities, where political
considerations play an important role in a given case. It is also more suitable not to require
a formal complaint to avoid that petitioners are subject to retaliatory actions. Thus, an ex
officio mechanism would respond to the uncertainty associated with identified difficulties
for private operators to come forward with evidence.
Mandatory stakeholders involvement with a case-by-case approach (G2) – this is a
more viable and appropriate option for this instrument in general. It will allow adapting the
process of consultation to concrete needs, including the duration and form of consultations.
Mandatory public hearings may not be useful in all circumstances and will lead to
additional expenses for both stakeholders and the Commission. However, where useful,
public hearings could be arranged on a case-by-case basis. At the same time, private
meetings with stakeholders in the context of a consultation, to provide assistance, remain a
possibility as well under this option. Similarly, it is more practical and reasonable to adapt
the duration of the consultation to the specific circumstances of each case, keeping in mind
that in some cases there is a need for longer periods, and in others for shorter periods (e.g.
reflecting the complexity of potential countermeasures, number and magnitude of potential
countermeasures; available timeframe for effective action). Either way, the objective
remains that stakeholders receive a meaningful opportunity to provide input.
Table 3 Overview of policy packages
Design parameter Policy package 1 Policy package 2 Policy package 3
(A) Triggers for
action
(A1)
Explicit,
disguised,
silent
coercion
and
boycotts
(A2)
(A1)
without
Extra-
territorial
sanctions
(A1)
Explicit,
disguised,
silent
coercion
and
boycotts
(A2)
(A1)
without
Extra-
territorial
sanctions
(A1)
Explicit,
disguised,
silent
coercion
and
boycotts
(A2)
(A1)
without
Extra-
territorial
sanctions
(B) Threshold for
action
(B2) Qualitative threshold
(C) Possible action (C1)
First resort actions
and Countermeasures
restricting trade in
goods or services,
(C2)
(C1) and Additional
countermeasures
(C3)
(C2) and Financial
compensation
54
commercial aspects of
intellectual property
rights, access to EU
public procurement
market, as well as
foreign direct
investment
(D) Selection
conditions
Effectiveness, minimal collateral damage, minimal administrative burden,
EU’s general interest
(E) Decision-
making
Stemming from the Treaties’ framework: Delegated/Implementing acts
(F) Activating the
instrument
(F2) Ex officio
(G) Stakeholders
involvement
(G2) Case-by-case
8.3. Comparison
8.3.1. Effectiveness or the extent to which the policy packages would achieve
the objectives (deter, de-escalate, discontinue, counteract)
 Deter coercion (objective 1)
As explained already, the deterrence value of the instrument depends on the possibility for
the EU to respond effectively and quickly and in a credible way. It is considered that the
mere possibility of using the instrument has the potential to produce the necessary
deterrence effect on third countries so that they do not use coercion in the first place, and
hence, the EU does not need to impose countermeasures. This is the best-case scenario.
Ultimately, however, whether coercion takes place depends on the third country’s choices
and these are factors beyond the control of the EU or Member States (see section 3.2 on
drivers). Consequently, even if the instrument is designed to produce a deterrence effect,
coercion may nevertheless occur. If it happens less frequently, that would be also
beneficial. In any event, in comparison to the baseline, the availability of a dedicated
instrument, under any of the three policy packages, significantly increases the chances of
preventing or persuading the third country not to engage in coercion.
Specifically, policy package 1 has solid prospects of achieving the objective of deterrence
by providing for a potentially very broad menu of effective and versatile measures as a last
resort. Policy package 2 has even better prospects because it adds to the menu further
versatile possible measures to allow even better tailoring and effective impact on the third
country concerned. Policy package 3 may slightly increase the deterrence effect further
because the financial compensation could offset the negative effects of the coercion on EU
economic operators.
The scope of the triggers will very likely broaden the deterrence effect as regards a
sufficiently broad range of known and potential coercive measures. Option (A1) captures
and thus has the potential to deter any form of coercion as long as the target of the coercion
is a public authority including threats and evolving forms of coercion. It is, however, only
theoretically more encompassing that option (A2), since the revised Blocking Statute will
remain the primary instrument to address extra-territorial sanctions in any event. Option
(A2) excluding extra-territorial sanctions, would enhance the deterrence effect in the same
55
way for all forms of coercion with the exception of extra-territorial sanctions (which would
be further addressed in the Blocking Statute).
Some of the constant components would further enhance the deterrence potential of each
policy package. The decision-making process is, in particular, very determinative for the
deterrence effect. The possibility for a swift adoption of countermeasures without excessive
risks of blockages or delays, will significantly contribute to that. Conversely, if the
decision-making process is lengthy and prone to blockages and delays, the deterrence effect
would significantly decrease, regardless of how broad the triggers are and how versatile the
countermeasures. Finally, the possibility to swiftly consult stakeholders on potential
countermeasures could also contribute to the effectiveness of the decision-making process,
and thus to the deterrence effect.
 De-escalate specific coercive measures (objective 2)
There is no difference between the three policy packages in this respect as all of them
incorporate the same first resort measures. In comparison to the baseline, all three policy
packages have the potential to be effective because they provide for a structure and
predictability as well as for additional responses as compared to the use of diplomatic
means available in the baseline. The difference in coverage of triggers means that in option
(A1) relevant extra-territorial sanctions could be addressed via this step under the anti-
coercion instrument, while in option (A2) they will not be addressed in this instrument (i.e.
exclusively by the Blocking Statute), but this has no effect on the response for the rest.
 Induce discontinuation of specific coercive measures (objective 3)
There is no difference between the policy packages when it comes to the first resort
measures and their potential to induce the discontinuation of the coercion. Achieving this
objective without inflicting cost will always be preferable. However, if that were no
solution, the EU would be able to adopt countermeasures as a last resort.
Policy packages 1 and 2 have the potential of inducing discontinuation using the range of
countermeasures available. The already broad menu of possibilities under option (C1) has
sufficient potential (policy package 1). Increasing the possibilities to choose the most
appropriate and effective measures (option (C2)), will increase the potential as well, i.e.
policy package 2 scores even better. The possibility for financial compensation may bring
the advantage of absorbing the coercion and hence contributing to its deterrence and
discontinuance (policy package 3).
The constant components would contribute to achieving this objective as well. In particular,
the selection conditions explicitly require that measures must be capable of inducing
discontinuation. Stakeholder involvement will allow for relevant views to reach the EU so
that the EU’s action takes into account all relevant circumstances.
The scope of the triggers under option (A1) would allow that relevant extra-territorial
sanctions be addressed under the instrument as a complement to the Blocking Statute, while
option (A2) excludes them without affecting the other triggers.
 Counteract specific coercive measures (objective 4)
Policy packages 1 and 2 achieve the objective through the use of the available range of
countermeasures. The already broad menu of possibilities in policy package 1 serves the
objective sufficiently well, while adding to the menu possibilities under policy package 2
56
will serve the objective even better because of the broader choice and increased chance of
selecting an appropriate countermeasure. The possibility for financial compensation does
not have direct relevance but it is not excluded that it may be used to counteract the
coercion while it does not inflict a harm on the coercing country (policy package 3).
The constant components would serve this objective essentially by setting requirements that
the countermeasures are proportionate, carefully targeted, cause as little collateral damage
as possible and minimise administrative burdens (selection conditions) and that they apply
only as a last resort, in the general interest of the EU and following appropriate consultation
of stakeholders.
Again, the scope of the triggers under option (A1) would allow that extra-territorial
sanctions be counteracted under the instrument as a complement to the Blocking Statute,
while option (A2) excludes them without any bearing on the other triggers.
8.3.2. Efficiency
In terms of the main potential costs and negative effects such as collateral harm to EU
economic operators from the specific application of countermeasures and the risk of
negative perception and escalation of geopolitical tensions, there is a light progression
between the policy packages. Policy package 1 is associated with fewer costs and fewer
risks than policy package 2 because of the additional range of possible measures under
policy package 2, and the potential collateral harm and potential risks that such an addition
implies. Policy package 3 is the most costly because of the addition of a financial
compensation to the range of measures under policy package 2. At the same time, policy
package 3 should not make any difference as regards the other potential negative effects
because the financial compensation would have no negative effect on the third country
concerned or would run no additional risks of negative perception and escalation of
geopolitical tensions in comparison to the other policy packages. However, the likely
difference in costs and negative effects between the policy packages much depends on any
given case, as the main variables are unforeseeable: which countermeasures exactly would
apply, for how long and under which circumstances? It is therefore conceivable that
although policy package 2 is more costly than policy package 1 in theory, in a given case
the concrete countermeasure would be more efficient (bring about the intended effect at a
lower cost and applicable for a limited period of time) and run no risk of negative
perception and escalation of geopolitical tensions. In any event, managing any applicable
risks and keeping collateral harm as small as possible in the concrete use of the instrument
is inherited in the design of each of the three policy packages for a framework legislation.
In terms of main potential benefits such as averting or minimising the costs associated with
the coercion and protecting the EU’s and Member States’ interests and legitimate
policymaking space, there is a gradation, but in reverse. Policy package 1 is less beneficial
in comparison to policy package 2 because of the broader scope of possible EU’s action in
policy package 2, while policy package 3 is the most beneficial as the scope of possible
EU’s action includes also financial compensation. However, as mentioned above, the likely
differences in benefits between policy packages would depend on the particular
circumstances in a given case. Effectiveness of the EU response is an inherent feature of the
design of the framework legislation for each of the three packages.
On balance, the three policy packages score similarly in efficiency rates because of the
synergies. For instance, the broader scope for the EU’s action under policy package 2 is
potentially more costly but its deterrence effect is stronger notably because of the broad
scope. The same is true for policy option 1, where the costs are lower but its potential to
57
avert incidents of coercion in comparison to other policy packages is similar. The financial
compensation (in policy package 3) is associated with additional costs (EU funds,
budgetary implications) but also with additional benefits (offsetting harm, potentially
absorbing the coercion). The main benefit of the instrument is its deterrence value, which, if
successful, can avert costly coercion without inflicting harm. In all three options, the
threshold for action, selection conditions, involvement of stakeholders and the decision-
making process have the purpose to drive the potential costs and risks down, and strengthen
and support the potential benefits. Thus, efficiency would be also aimed at through the
application of the instrument in individual cases.
Finally, the two alternative options for triggers imply a different frequency of use of the
instrument (all other factors equal). Specifically, under option (A1) the use may be slightly
more frequent as more situations are covered, while under option (A2) the use may be less
frequent in comparison because of the exclusion of the extra-territorial sanctions. More
frequent use may result in more counteraction, but with the respective synergies between
costs and benefits of the counteraction. Thus, this has no bearing on the overall efficiency,
but only on the policy decision between the two options.
8.3.3. Coherence with other EU policy objectives, including the Charter for
fundamental rights, and with other policy initiatives and instruments
All policy packages aim at enhancing EU’s open strategic autonomy, and are
complementary to efforts on the economic front for the EU to recover from the Covid-19
crisis, remain competitive and address strategic dependencies that could make the EU or the
Member States vulnerable to coercion. They are also coherent on the external front of
updating the Blocking Statute and cooperating on coercion as discussed in the G7 context
(May 2021). As regards the Blocking Statute, coherence at the level of both options (A1)
and (A2) is considered equal, irrespective that they offer contrary solutions. It is considered
that maximum coherence is achievable for both options. Option (A1) would ensure
coherence by maintaining the Blocking Statute as the main vehicle, at EU level, for
responding to extra-territorial sanctions, while the alternative option (A2) excluding extra-
territorial sanctions avoids the interaction completely. Under option (A1), the choice of
whether the instrument may be used to complement the Blocking Statute in individual
cases, can be left for the implementation stage. Under option (A2), the legislative text –
either for the current initiative or on the future amendment of the Blocking Statute, would
need to include a specific clause to the effect of excluding coercive extra-territorial
sanctions from the scope of triggers under the instrument. Given that the revision of the
Blocking Statute is subsequent to the current initiative, it is not possible for the current
impact assessment to provide further precision and consideration. Nor does it preclude any
option that the amendment of the Blocking Statute might consider and pursue.
Package 2 ensures maximum policy coherence as it brings a range of EU policies working
together in sync in terms of possible countermeasures. Solely on the account of the option
for a financial compensation (the single difference to package 2), package 3 raises the issue
of coherence with the current Multiannual Financial Framework (MFF). The MFF would
need to be reopened to provide the necessary financial resources to support this option. This
may be difficult to do during the current MFF at this point in time despite the merits of this
option, but the question could be revisited in the next MFF.
All three packages for the creation of a legislative framework are in line with the EU’s
international obligations, in the sense that the sole existence of an instrument does not
breach any international obligation of the EU. The choice of the appropriate
countermeasure would in any event be made in individual circumstances while duly
58
considering all relevant circumstances, including international legality. Therefore, there is
no difference between the policy packages in these terms.
Finally, all three packages are coherent with the EU’s human rights policy and consistent
with the Charter of Fundamental Rights. Where the use of the instrument results in
restrictions that affect fundamental rights (relevant for all packages), this would be a
legitimate action by the EU authorities bound by the Charter. The existence of an anti-
coercion instrument, alone, would only positively affect fundamental rights, in
implementation of the EU’s positive obligation to protect the rights of its citizens against
infringements from other sources, in this case foreign governments.
Table 4 Overview of policy packages comparison
Basis for comparison Baseline Policy package
1
Policy package
2
Policy package
3
Effectiveness Objective: deter 0 ++ +++ ++++
Objective: de-
escalate
0 +++ +++ +++
Objective: induce
discontinuation
0 ++ +++ +++
Objective: counteract 0 ++ +++ +++
Efficiency 0 ++ ++ ++
Coherence with other EU policies 0 ++ +++ +
9. PREFERRED OPTION
Based on its overall high score in terms of effectiveness, efficiency and coherence (see the
comparison in section 8), policy package 2 emerges as the preferred option.
Design of the preferred option to achieve the specific objectives
Policy package 2 shows the potential to achieve the policy objectives of the initiative. It is
capable of exerting a deterrence effect on the basis of a broad and versatile menu of
possible EU response to coercion in either trigger option (with or without coercive extra-
territorial sanctions). It also has the potential to ensure swift EU action.
More specifically, the envisaged range of possible actions provides for a broad menu of
versatile and effective responses to choose from in individual cases. Those measures
should be quickly deployable. This is crucial for the deterrence objective in particular.
Furthermore, the broad choice of countermeasures would permit the EU to tailor its
approach to a particular case, to ensure that the countermeasures are most likely to bring
about de-escalation, discontinuation and counteraction.
Either option for triggers is considered capable of deterrence as regards the respective
coercive measures captured. Option (A1) captures a comprehensive range of possible
coercive measures, corresponding to incidents of coercion observed in the recent past, as
also reported by stakeholders, and takes into account possible further developments. Under
option (A2), coercive extra-territorial sanctions would be outwith the scope and exclusively
59
addressed in another instrument, without affecting the rest of the triggers and their
deterrence effect.
It is expected that all these elements can contribute to averting the targeted coercive
measures. Should coercive measures take place nevertheless, the EU would be in a position
to take a specific action in a given case.
In this respect, the preferred option serves optimally the specific objectives of de-
escalation, discontinuation and counteraction of coercive measures. First, it provides for
a two-step action. The first step refers to deploying measures of a first resort, with the
prime aim to de-escalate the coercion and encourage the third country to withdraw their
measures. This is a non-interventionist approach but has the potential to be powerful and
effective without the need to impose costs. This is the best-case scenario if deterrence does
not work in a given case.
The second step relates to the objective to counteract and refers to the use of
countermeasures. While the countermeasures aim to respond to the coercive measures
and/or their adverse effects and to induce discontinuation of the coercion, they would do so
only after all other avenues are exhausted without satisfactory solution. Their use as a last
and non-mandatory resort also reflects the objective of de-escalation.
The variety of possibilities allows calibrating the potential countermeasures, so that they be
effective and efficient in individual cases. It would also allow navigating potential concerns
and would provide for measures capable of diminishing potential costs and managing real
and perceived risks (collateral damage, escalation risks, negative perception).
The other design parameters would additionally strengthen the intended deterrence effect
and would facilitate the calibration of the appropriate action by the EU in individual cases
in terms of the other specific objectives. The qualitative threshold for action ensures a
flexible and sophisticated approach in deciding which incidents of coercion to tackle, taking
into account all dimensions of the coercion (such as economic effects, relations with the
coercing country, industry affected, significance of the interests affected, political
considerations). The selection criteria would guide the narrowing down of possible options
in terms of proportionality, EU general interest, reducing collateral costs and administrative
burden. Stakeholders could participate, so that the potential EU action takes account of all
relevant interests.
In terms of process, the application of the instrument would involve the following steps:
- The first step starts through an assessment of whether a concrete third-country
measure in individual cases falls within the scope of the instrument and whether a
certain threshold is reached, with the possibility for gathering of additional
information from stakeholders.
- A public affirmative determination at EU level may follow such an assessment (i.e.
the first measure under the instrument). The EU may call on the third country to end
its measures at this point.
- Depending on the cooperation of the third country in question, an affirmative
determination may lead to subsequent measures, such as direct negotiations,
mediation or international adjudication, with a view of ending the coercion. The
choice of such subsequent measures would depend on the circumstance of any
individual case and may differ from one case to another.
- Where the above efforts have not led to discontinuation of the coercion and the
coercion is still ongoing, and it remains necessary for the EU and Member States to
60
protect their interests from the ongoing coercion, the second step becomes
available, notably the recourse to countermeasures, as last resort;
- Before applying countermeasures, the EU would call on the third country in
question one last time to end the coercion and find a solution;
- Information gathering from stakeholders particularly as regards their interests in
relation to the design of countermeasures. The choice and design of
countermeasures would depend on the circumstance of any individual case and may
differ from one case to another (design parameter (D) discusses in detail the range
of conditions for selection and design of countermeasures in individual cases).
Any action under the instrument would be justified and supported by evidence that the
respective conditions and criteria are met. The evidence base would include elements such
as:
- evidence that an individual measure by a third country meets the conditions of
application of the instrument,
- a certain threshold that justifies action is reached,
- evidence of efforts to enter into consultations with the third country in question and
of consultation of stakeholders where necessary,
- the measures of first resort were unsuccessful and protection from ongoing coercion
remains necessary,
- consultation of stakeholders as regards their relevant interests,
- notifications of the third country in question before application of countermeasures,
and
- evidence of the likely impact of potential countermeasures in terms of effectiveness
but also collateral damage, proportionality of response, EU’s general interest
(design parameter (D) conditions).
On the other hand, the decision-making process under the instrument requires further
consideration for the legislative proposal. Relevant considerations are the role of the
Member States, Parliament and Council, and the need for speed of action to support the
intended deterrence and counteracting functions. The inherent efficiency of the decision-
making process in either avenue (due to the respective roles of the EU institutions and
applicable steps), would be enhanced if the Commission executes each procedural step
expeditiously and without unreasonable delay while remaining flexible to accommodate the
political sensitivities towards the aim of ending coercion.
Broader considerations in support of the preferred option
A single and comprehensive legal instrument would respond to the need for the EU to
handle the new geo-economic normal that accentuates the challenge of economic coercion.
It would increase the assertiveness and the resilience of the EU, and would fit with the
efforts to secure the EU’s open strategic autonomy. It can be a clear signal to international
partners that the EU is not willing to accept coercion. It would enhance the existing
framework that otherwise fails to offer a satisfactory solution to the problem of coercion.
Furthermore, it would underline the EU’s adherence to a rules-based approach.
The preferred solution is compatible with the EU’s international obligations. The creation
of an anti-coercion instrument, of the design considered, would in no event, as such (i.e. by
virtue of its sole existence), constitute a breach of WTO obligations or other trade
agreements concluded by the EU. When it comes to the actual taking of measures under a
future anti-coercion instrument, there are different views but it is considered that these can
be imposed in a manner consistent with the EU’s international trade and investment
61
obligations (most notably the WTO). The choice of the appropriate countermeasure would
in any event be made in individual circumstances while duly considering all relevant
circumstances, including international legality and the likely reactions and consequences.97
Last but not least, the preferred option respects the principle of proportionality. The
envisaged instrument would be a comprehensive framework for action against economic
coercion. Its structures imply restraint in action in order first to try resolve issues without
resorting to countermeasures (deterrence effect, de-escalation phase). The instrument would
explicitly prioritise a non-interventionist approach (first resort measures versus last resort
measures). However, where the need arises, the EU would be able to act. The selection
criteria explicitly include a requirement that countermeasures must be commensurate to the
harm that they counteract in individual cases. The selection criteria further prescribe that
collateral damage and administrative burden be as small as possible. Therefore, not only the
instrument itself, but also measures adopted under the instrument would be proportionate.
10. HOW WILL THE ACTUAL IMPACTS BE MONITORED AND EVALUATED?
The Commission services will monitor the functioning of the instrument. They will collect
data on coercive measures identified as well as on anti-coercion measures considered and
adopted. Data will notably be collected on:
 The number of coercive measures identified per year, as well as their magnitude;
 The number and type of actions of first resort and their outcome, in particular if they
resulted in discontinuation of the coercive measure or any other change;
 The number and type of countermeasures adopted by the EU, their duration and
impact, and in particular if they stopped the coercive measure.
Monitoring will also be applied to the operation of the various procedural and substantive
conditions for the application of the instrument, both as regard first resort and last resort
measures, with a view to their subsequent assessment. The legislative text will set out such
precise conditions, as explained above.
The impact of the existence of the instrument per se will be more difficult to measure, as
the counterfactual (i.e. the situation that would have prevailed in the absence of the
instrument) will be difficult to establish. However, the Commission services will try to
continue to engage with stakeholders to monitor their experiences and views regarding the
impact of the instrument.
The legislative proposal should provide for a review, within a reasonable time, on the
functioning and application of the instrument, with reporting obligations to the European
Parliament and the Council.
97
Cf. supra footnote 81 and accompanying text regarding also the reaction of the other country involved and
the extent to which the EU should take this into account from the outset.
62
Annex 1: Procedural information
1. LEAD DG, DECIDE PLANNING/CWP REFERENCES
Directorate General for Trade (DG Trade), PLAN/2020/9688 – TRADE
CWP 2021, Annex
2. ORGANISATION AND TIMING
Interservice (steering) group (ISG) chaired by SG supported the impact assessment work.
The ISG comprised representatives at the level of a Director and/or Head of Unit of the
following services (in addition to SG and TRADE):
- Legal Service of the Commission;
- FISMA, EEAS, DEFIS, INTPA;
- GROW, AGRI, ENER, MARE, TAXUD, ENV, CLIMA, CNECT;
- JUST, NEAR, JRC, EMPL, RTD, ECFIN, HOME, BUDG98
; and
- IDEA.
In total, five meetings were held, as follows:
- 17 February 2021 meeting devoted to an initial introduction of the initiative and the
inception impact assessment, which was published the same day;
- 15 March 2021 meeting devoted to the consultation strategy and the questionnaire
for the public consultation;
- 11 July 2021 meeting devoted to stock-taking of the consultation work by that time;
- 13 July 2021 meeting consulting the DGs on the draft impact assessment report
(with a later revised version circulated on 26 July 2021);
- 19 October 2021 meeting devoted to the preparation of the draft legislative
proposal;
Relevant documents were distributed in advance of each meeting by SG and/or DG
TRADE as applicable. SG prepared and circulated the meeting minutes to the participating
DGs.
3. CONSULTATION OF THE RSB
On 11 June 2021, an upstream meeting with RSB took place. On 30 July 2021, the draft
impact assessment report was submitted to RSB for scrutiny. On 22 September 2021, the
meeting on the draft report took place. The main recommendations received from the RSB
were assessed and the report modified accordingly (as indicated in the table below).
RSB main recommendations Modification of the report
Clarify relation with international law Section 3.1 now contains the following additional
98
HOME and BUDG invited subsequently.
63
clarifications:
1/ Coercive measures against the EU and Member
States can be considered a breach of customary
international law, which is a matter of a case-
specific analysis in individual cases;
2/ The EU lacks the legal means to address the
problem of coercion effectively and timely; The EU
has not counteracted coercion so far;
3/ Contrary to other jurisdictions, which may take
anti-coercion measures rapidly and without the need
for a framework legislation put in place first, the
principle of conferred powers requires the
establishment of a legal basis in the EU legal order
for the EU to act in specific cases such as coercion;
4/ Other countries’ standpoint is supplemented with
additional clarifications in these regards.
Present more systematically evidence on
significance and rise of the problem
Section 3 now contains additional references, e.g. to
the following:
1/ ECFR policy brief “Measured response: How to
design a European instrument against economic
coercion” and other contributions by academia;
2/ Results of the open public consultation;
Clarify the articulation with existing instruments 1/ Sections 3 and 6 (baseline; design parameter (A))
now contain further explanations, in particular on
the Blocking Statute;
2/ Annex 5 has been introduced to illustrate that
none of the existing instrument is suitable or
suitable to address the issue of coercion;
Highlight the gap the instrument is designed to fill Highlighted throughout the report, in particular in
sections 3, 4 and 6.
Clarify the conditions and criteria for launching a
case and for adoption of measures
1/ Section 6.2 (design parameter (C)), now contains
dedicated paragraphs on conditions and criteria as
well as on respective evidence base, for each of the
two steps. A flowchart now illustrates the process.
2/ Section 9 on the preferred option contains
references to the process.
3/ Section 10 also clarifies the monitoring as
regards these conditions and criteria.
Accompany policy options with the best possible
evidence of their effectiveness and efficiency
Further references to evidence have been added in
sections 6 and 7.
Comparison of options to take into account better
the likely differences in costs between the options
Section 8.3.2 contains now an elaborated
argumentation as regards the likely differences
between policy packages..
More precision on the required legal basis for the
actions taken
Section 4 now contains a further precision as
regards legal basis.
4. EVIDENCE, SOURCES AND QUALITY
The report uses several sources of information. First, it relies on input from stakeholders
received during the consultation period (public consultation and targeted consultation
activities) as described in Annex 2 to this report. The input encompasses opinions,
expertise, data. The detailed results of the open public consultation are available here, while
a summary factual report is available here.
Second, it relies on input and research on the subject from academia and think tanks, to list
a few:
ECFR policy brief “Measured response: How to design a European instrument against
economic coercion” of June 2021 based on the work of ECFR’s Task Force for
64
Strengthening Europe against Economic coercion that brings together officials from six
Member State governments (the Czech Republic, France, Germany, the Netherlands, Spain,
and Sweden) and private sectors (although the report does not necessarily represent their
views). ECFR has been very active on the issue of economic coercion.
ECFR policy brief “Defending Europe’s economic sovereignty: New ways to resist
economic coercion” of October 2020 presented eleven policy options for the EU to tackle
economic coercion; a type of an anti-coercion instrument is among these, but also a reform
of the Blocking Statute, creation of European export bank, building digital currency,
creation of EU resilience office and EU resilience fund, etc.
ECFR policy brief “Redefining Europe’s economic sovereignty” of June 2019 discusses an
agenda to strengthen the economic sovereignty.
Darren Lim and Victor Ferguson, ‘Informal economic sanctions: the political economy of
Chinese coercion during the THAAD dispute’, Review of International Political Economy,
advanced online publication;
Victor Ferguson and Darren Lim, ‘Economic power and vulnerability in Sino-Australian
relations’, in Linda Jaivin, Jane Golley, and Sharon Strange (eds), China Story Yearbook
2020: Crisis (Canberra: ANU Press, 2021).
Ketian Vivian Zhang, ‘Chinese non-military coercion—Tactics and rationale’, 22 January
2019.
Huong Le Thu, ‘China's dual strategy of coercion and inducement towards ASEAN’, The
Pacific Review, 32:1, 20-36 (2019).
Peter Krause and Timothy Crawford, ‘Coercion – The Power to Hurt in International
Politics’ (Oxford University Press, 2018).
Ravindran, Madhu Sudan, ‘China’s Potential for Economic Coercion in the South China
Sea Disputes: A Comparative Study of the Philippines and Vietnam’, in: Journal of Current
Southeast Asian Affairs, 31, 3, 105-132 (2012).
Christina Lai, ‘Acting one way and talking another: China's coercive economic diplomacy
in East Asia and beyond’, The Pacific Review, 31:2, 169-187 (2018).
Scott L. Kastner, and Margaret M. Pearson, ‘Exploring the Parameters of China’s
Economic Influence’, St Comp Int Dev 56, 18–44 (2021).
Peter Harrell, Elizabeth Rosenberg, and Edoardo Saravalle, ‘China's Use of Coercive
Economic Measures’, Report of 11 June 2018 by the Center for a New American Security.
James Reilly, ‘China’s Economic Statecraft: Turning Wealth Into Power’, November 2013,
Analysis by the Lowy Institute for International Policy.
The limits of China’s economic coercion: Luke Patey for Inside Policy
(macdonaldlaurier.ca), 26 April 2021.
Third, the report benefits from input by academic and policy experts. Several meetings
(March-May 2021) were held with Australian National University, School of Regulation
and Global Governance (REGNET), in relation to their research programme on Navigating
65
the Emerging Geoeconomic Order led by Prof. Anthea Roberts and including Dr. Darren
Lim, Dr. Benjamin Herscovitch, Victor Ferguson and Dr. Dirk van der Kley.
Furthermore, three dedicated exchanges of views took place with the following academics:
First session (May 2021) Affiliation
1. Dr. Dawid Walentek University of Warsaw, Department of Political Science and
International Studies, Poland
2. Drs. Felipe Rodriguez
Silvestre
Department of European, Public and International Law,
Universiteit Gent, Belgium
3. Univ. Prof. ret. Dr. Gerhard
Hafner
Institute of European, International and Comparative Law,
University of Vienna, Austria
4. Prof. Gerald Schneider Department of Politics and Public Administration,
Universitat Konstanz, Germany
5. Prof. Henri Culot Faculty of Law and Criminology, Universite Catolique de
Louvain, Belgium
6. Dr. Julia Grauvogel German Institute for Global and Area Studies, Germany
7. Ass. Prof. Ketian Vivian
Zhang
Schar School of Policy and Government, George Mason
University, United States
8. Dr. Luke Patey Danish Institute for International Studies, Denmark
9. Prof. Dr. Tom Ruys Department of European, Public and International Law,
Universiteit Gent, Belgium
Second session (June 2021)
1. Prof. Andrew Lang Edinburgh Law School, University of Edinburgh, United
Kingdom
2. Prof. Antonios Tzanakopoulos Faculty of Law, University of Oxford, United Kingdom
3. Prof. Antonino Alì National and European Security Law - EU Sanctions and
Judicial Review, Faculty of Law - School of International
Studies, University of Trento
4. Dr. Christian von Soest German Institute for Global and Area Studies (GIGA),
Hamburg, Germany
5. Prof. Dr. Julian Hinz Bielefeld University and Kiel Institute for the World
Economy, Germany
6. Ass. Prof. Kerim Can Kavakli Department of Social and Political Sciences, Bocconi
University, Italy
7. Dr. Lorand Bartels University of Cambridge and Counsel, Freshfields, United
Kingdom
8. Dr. Patrick M. Weber Department of Politics and Public Administration,
Universitat Konstanz
Third session (September 2021) (focused on the draft legislative proposal)
1. Prof. Andrew Lang Edinburgh Law School, University of Edinburgh, United
Kingdom
2. Prof. Antonios Tzanakopoulos Faculty of Law, University of Oxford, United Kingdom
3. Dr. Dawid Walentek University of Warsaw, Department of Political Science and
International Studies, Poland
4. Prof. Gerald Schneider Department of Politics and Public Administration,
Universitat Konstanz, Germany
5. Dr. Lorand Bartels University of Cambridge and Counsel, Freshfields, United
Kingdom
6. Dr. Patrick M. Weber Department of Politics and Public Administration,
Universitat Konstanz
66
7. Drs. Felipe Rodriguez
Silvestre
Department of European, Public and International Law,
Universiteit Gent, Belgium
8. Prof. Dr. Tom Ruys Department of European, Public and International Law,
Universiteit Gent, Belgium
9. Ass. Prof. Kerim Can Kavakli Department of Social and Political Sciences, Bocconi
University, Italy
Finally, the report is based on internal knowledge and expertise within DG TRADE and
also within other services (FISMA, GROW, RTD, HOME, CNECT, ENER, BUDG, Legal
Service and others).
67
Annex 2: Stakeholder consultation – synopsis report
Introduction
The stakeholder consultation comprised a variety of activities aimed to provide sufficient
opportunities for all relevant stakeholders and citizens to participate and make their views
known. The consultation activities were carried out throughout March-June 2021 and in
line with the announced Consultation strategy of 19 March 2021, available on DG Trade
webpage for the initiative. They included the following:
- Inception impact assessment for feedback from 17 February to 17 March 2021;
- Online stakeholder meeting for the launch of the public consultation (16 April
2021);
- Targeted consultations with specific groups throughout March-June 2021;
- Open public consultation on EUSurvey on all EU official languages for 12 weeks,
from 23 March to 15 June 2021;
- Ad hoc submissions March-June 2021 (some in July 2021);
The relevant stakeholders are identified as follows:
- EU businesses (including SMEs) and their associations, trade unions, including
those active outside the EU, as well as EU Member States’ public authorities. This
category is considered to have a high interest and stake in the initiative.
- Research and academic institutions, think tanks, consultancies and non-
governmental organisations and platforms, in particular as regards identifying and
studying the problem of coercion. This category is considered to have a high to
moderate interest and stake in the initiative.
- Finally, non-EU governments and non-EU businesses, as well as international
institutions and bodies. This category is considered to have a high to moderate
interest and stake.
The activities and their outcome are presented below.
Feedback on the inception impact assessment
The inception impact assessment (here) outlined the political and legal context, the problem
the initiative aims to tackle, the pursued general and specific objectives, the baseline
scenario and contemplated policy intervention as well as potential impact and consultation
activities foreseen. The Commission received 22 submissions (available here) from
Business associations (10), Company/Business organisations (5), Public authorities (3), EU
citizens (2), non-EU citizens (1) and Academic/Research Institutions (1), from the
following countries: Belgium (6), Sweden (3), France (3), Poland (2, Germany (2), Estonia
(1) Denmark (1), United States (1), Russia (1), Japan (1) and Iran (1).
The Commission took account of the feedback in the finalisation of the consultation
strategy and of the questionnaire for the public consultation as well as in the subsequent
assessment reflected in this report. The input was a useful early guidance for the
Commission in its preparatory work. The feedback confirmed the general approach of the
impact assessment report in terms of the elements that should be considered as part of the
available policy options and their impacts. Most of the respondents also participated in the
public consultation and/or other consultation activities with confirmed and/or evolved
views.
68
Stakeholders and citizens raised relevant issues for consideration with regard to the main
elements of the impact assessment. Businesses and their associations were predominantly
supportive of the initiative in that coercive measures are of a concern for EU interests
(reporting on some practices) and should be countered, the triggers for the legal instrument
should be broad (a number of suggestions were made), to include for example informal
coercion, and possibly extra-territorial sanctions by non-EU countries. At the same time,
they point to the need to avoid or minimize collateral damage to businesses when
countering the coercion, impact to stakeholders to be duly accounted for, and for proper
consultation with stakeholders prior to adoption of countermeasures. A few stakeholders,
across the groups, were cautious in their support, while some explicitly recognised that the
coercion is an existing issue. More specifically, they suggested a thorough assessment of
the need for an instrument and its impact, especially any detrimental impact on
international relations, on EU Member States and other stakeholders, as well as a prominent
role for EU Member States in the operation of such an instrument. That group also
prioritises building cooperation among international partners and integration with those
facing the problem. Additionally, across the groups, a few raised the issue of compatibility
of an instrument for countering coercion with the WTO Agreement and of a legal basis
under the EU Treaties. Finally, several, across the groups, referred to the need for
coherence with the parallel Commission’s initiative on the reform of the Blocking Statute.
Stakeholder meeting
A stakeholder meeting accompanied the launch of the public consultation. The meeting
assisted stakeholders and citizens in participating in the public consultation, and offered a
first exchange of views. The Commission used the feedback as a basis for further
discussions with specific stakeholders and took it into account in the subsequent work.
Accordingly, the feedback guided the Commission in every aspect of the impact assessment
work, in particular as regards the development of available policy options and their likely
impact.
More than 120 participants registered for the meeting, representing the following groups:
- Business associations and companies: predominantly operating within the EU, and
in the UK, China, US;
- EU Member States’ public authorities: Belgium, Italy, Estonia, Germany, Denmark,
Czech Republic, Ireland, Hungary, Spain, Lithuania, Austria;
- Non-EU public authorities: Brazil, New Zealand, Japan, Taiwan;
- EU institutions: European Parliament, EESC;
- Academic/research institutions: Belgium, Italy, Finland, US, Turkey;
- NGOs: Belgium;
- EU citizens in France, Germany, Lithuania;
- Journalists and law practitioners within the EU.
Intervening participants spoke generally in favour of an anti-coercion instrument and the
need to preserve the open strategic autonomy and policymaking space of the EU and
Member States. Some expressed the view that the instrument should be adaptable to the
geopolitical challenges in the next 20 years and not merely focused on the next few years.
As regards possible triggers for the instrument, the need for a response to extra-territorial
sanctions of third countries was a recurring theme with most speakers suggesting coverage
within the instrument. Participants also emphasized that informal coercion exists and
should be addressed. Excessive and burdensome export controls was also raised as a form
69
of coercion to be considered. It was further suggested that triggers must be high and that
there should be a reaction only if vital interests are at stake. Some argued for a wider scope.
As regards possible responses and their likely impact as well modalities of use, participants
spoke about the need for predictability and legal certainty, proportionality, fairness, the
temporary nature of measures and effectiveness. At the same time, some expressed caution
about causing harm and targeting industries with a big trade surplus. It was noted that
account must be taken of global supply chains.
As regards decision-making under the instrument, some raised the issue of managing
Member States solidarity and the question of an EU interest test. Effective stakeholder
involvement was regarded as essential and suggestions for public and private hearings as
well as longer consultation periods were made. The importance of the speed of action to
ensure the effectiveness of the instrument was also highlighted.
Additionally, participants regarded the question of WTO and public international law
compatibility of the instrument as essential. Others put forward the idea of a data collection
and coordination body within the institutions to ensure a coordinated response through
various available instruments to the horizontal nature of coercive and extraterritorial
measures that can take place in many fields like export control, data, digital, etc.
Targeted consultations
The Commission carried out a number of targeted consultations with the aim to deepen the
discussions with specific stakeholders on specialised subjects in relation to the problem of
coercion and the possible solutions. This was an opportunity for the respective stakeholders
to provide their expertise but equally to seek clarification from the Commission with a view
to shaping their positions. Meetings were held in closed sessions due to the level of
technical detail as well as to allow for an open exchange of views on a sensitive subject.
Certain stakeholders preferred an oral exchange and were reluctant to provide written input
for fear of adverse consequences for their interests abroad. In the majority of cases, views
were shared informally, while the formal views followed through the public consultation or
formal ad hoc submissions. Yet, the informal views shared in this context were valuable
and effective guidance on elements for consideration in the impact assessment. In addition
to the meetings planned and initiated by the Commission, many stakeholders came forward
and requested meetings or invited the Commission team to participate in events organised
by their organisations on the subject.
Activities took place with each of the identified groups of stakeholders. The majority of the
activities (10) were with businesses and their associations (across Europe but mostly based
in Germany, France and Belgium), and those active abroad (China, Russia). Events were
organised with EU Member States (all) or with their participation, including individual
meetings with Member States on their request, academia (three dedicated discussions with
academics-experts in the field, a list available in Annex 1) and think tanks and the like
(ECFR, Cercle Europe, Justice et Droits, Fondation pour le droit continental), non-EU
countries’ public authorities (Australia, Canada, New Zealand, Japan, Singapore, the UK,
the US). The CTEO spoke on the subject at the International Trade Committee (INTA)
April 2021 meeting at the Parliament.
EU business associations and those active abroad focused on the scope of the triggers with
the tendency to argue for a broader scope, including informal coercion, coercion at private
operators, extra-territorial sanctions. They were also mindful of the possible collateral
damage of EU countermeasures, inflicted on them, as well as the risk of escalation though
70
retaliation. There is a strong interest for this group to be properly involved and consulted
prior to any use the instrument. Ideas as regards the creation of a coordination or resilience
body or office were floated. The impact assessment report treats all these topics.
Particularly useful were the exchanges with academia and think tanks as regards the
definition of the problem of economic coercion, drivers and evolution of the economic
coercion, and possible solutions. The input received, also in the form of literature and
articles on the subject, fed substantively into the impact assessment. References to the work
relied on are contained in the report.
The meetings with the EU Member States and political parties in INTA helped indicate the
preliminary views about coercive practices and likely impact of a policy intervention. The
main topics raised in INTA at that stage concerned the scope of triggers and the necessity to
address informal coercion and for the instrument to be comprehensive and ambitious in
general, including coverage of extra-territorial sanctions. There were calls on the
Commission to speed up the preparation of the legislative proposal, sooner than end-2021.
Member States welcomed the ongoing work on an impact assessment, regarding it as
essential, and the preliminary views ranged from support to calls for caution about the
potential instrument.
Third countries’ reactions were careful at that stage, tending to inquire for details rather
than to share a position. The main topics of interest were types of actions to be qualified as
coercive, referring to the extra-territorial sanctions as well, the possible solutions, relations
with WTO and international law, and decision-making under the instrument.
Public consultation
48 contributions were submitted via EUSurvey, including 12 position papers, while 12
additional contributions were made outside. The majority were business associations,
representing hundreds of companies and industries at national or EU level. 16 countries
were represented. The detailed results of the open public consultation, including a list of
respondents, are available here, while a summary factual report is available here.
A few points emerged as consensual among all groups and they form the basis of the
preferred option. First, economic coercion is increasingly posing a problem for the EU and
Member States such that it needs an appropriate solution. Stakeholders put forward a
number of examples of coercive measures taking place from multiple sources (but mainly
China, Russia, Turkey, US). Second, where the solution lies in the creation of a new legal
instrument, the deterrence function of the instrument must be predominant and a priority for
the design. Third, where coercion does happen, countermeasures should be taken only as
last resort and only after efforts are being made encourage the discontinuation of the
coercion. Fourth, the collateral costs of countermeasures must be factored in in the selection
of the EU’s action in concrete cases. Finally, most often stakeholders urged that the EU
consider the risk of conflict escalation and the consequences for the international
cooperation, multilateralism and the rules-based order. The report addresses these issues in
detail.
The public consultation shows some differences as regards more detailed design issues and
between the groups (rather than major differences within the groups). Typically, business
associations and companies, which came forward in large numbers, including those
representing SMEs, were in favour of an EU intervention in the form of a new legal
instrument. They recognise its benefits and argue that even if costs are unavoidable, the
cost of the coercion is higher than the cost of inaction. They generally act on their economic
71
interest of seeking protection from coercive measures (and/or their effects) and accordingly
not to be harmed even more, through potential EU countermeasures or third countries’
further measures in escalation. Because of this interest, they most often argued (also in line
with views expressed during targeted consultations) that the instrument should cover not
only informal, silent coercion, but also extra-territorial sanctions and any coercion against
private actions, and that the range of available countermeasure must be sufficiently broad to
allow for calibration in concrete cases, and to support the deterrence value of the
instrument. These options and reported potential impact are taken up in the impact
assessment. That group also expressed an interest in the financial compensation option,
which was not retained in the preferred option. The views on the subject are mixed.
Roughly half of the respondents across the groups favour it (mostly businesses), and the
other half either disagreed or showed no interest. Businesses in favour also pointed to
potential issues such as complexity of determining the compensation, budgetary
implications and appropriateness for this instrument.
Generally, the few EU Member States that came forward did not share the same line of
argumentation. Some Member States approach the possible EU intervention with more
caution (referring to concerns of interaction with the WTO and international law, alleged
risks for the multilateral trading system and not convinced about the absolute need for an
instrument but are willing to engage) and some that expressed solid support (while
recognising the risks and suggesting ways to manage them). However, the public
consultation is not capable of revealing the whole picture. Member States have a further say
during the legislative process. Nevertheless, their reactions at this stage is a valuable input
together with the rest of the input and are taken into account.
A few business associations and public authorities raise the idea of the resilience office.
The report refers to these views and explains why the option is not retained at this stage.
Ad hoc submissions
Additionally, the Commission provided for a direct contact for this initiative (via a
functional email address), which was an additional opportunity for citizens and
stakeholders to make their views known in a non-structured or informal fashion or to
request meetings on the matter. The Commission received 12 ad hoc submissions from
Business associations and organisations (7) and Member States’ public authorities (4), from
the following countries: Austria (1), Belgium (5), Denmark (1), France (2), Germany (2)
and Sweden (1). The input received is integrated and presented within with the public
consultation results in the preceding section.
Conclusion
The consultations covered all main components of the impact assessment and beyond.
Stakeholders’ input received through the different activities guided the Commission in the
assessment work, and the preferred option reflects the majority’s views. The input
contributed subsequently to the shaping and design of the proposed legal instrument. It has
been described throughout the report and annexes how the concrete elements of stakeholder
feedback were used.
72
Annex 3: Who is affected and how?
1. PRACTICAL IMPLICATIONS OF THE INITIATIVE
Stakeholder Practical implications:
Existence of the instrument
Practical implications:
Instances of use of the instrument
where coercion occurs
Public
authorities
(EU institutions;
Member States)
Setting up of the decision-making process
under the instrument; e.g. a committee or
expert group of Member States;
The European Commission would be
the most affected as it will carry out
the decision-making procedure.
Depending on the final determination
on the use of implementing and
delegated acts, Member States, the
Council and the European Parliament
would be affected as well.
The Commission would engage with
the third country concerned in the
application of this instrument.
The Commission would organise and
conduct consultations with
stakeholders in the application of the
instrument.
EU businesses,
including those
operating abroad
No direct implications. No action required.
Economic operators would have the
opportunity to submit to the Commission
any data or information they have as regards
coercive measures by non-EU countries.
The imposition of countermeasures
under the instrument would affect EU
economic operators where the
countermeasure is related to their
activities.
Economic operators would have the
opportunity to provide input as
regards the economic interests
potentially affected by planned EU
countermeasures, but also economic
interests affected by the concrete
coercive measures.
Consumers No direct implications. No action required. Indirect effects might be possible in
the use of certain countermeasures,
such as trade-restrictive measures.
Non-EU
countries
In general, they are the addressees of the
deterrence effect of the preferred option and
it is expected that they would be encouraged
to refrain from coercion towards the EU and
its Member States as a result.
The non-EU countries or their
economic operators or citizens may
be affected by the concrete EU
response.
2. SUMMARY OF COSTS AND BENEFITS
Specific cists are linked to the use of the instrument in specific, future cases and for the
reasons stated in the report it is not feasible to estimate them at the design phase.
I. Overview of Benefits (total for all provisions) – Preferred Option
Description Amount Comments
Direct benefits
EU authorities are able to adopt
policies, which were at the origin of
the coercion, without being subject to
external pressure
By deterring third country coercion or deterring threats of using coercive
measures
73
More predictable environment in the
sphere of trade policy; including:
(i) lower transaction costs for EU
exporters, which is of particular
importance for SMEs
If coercion would take the form of host country import restrictions
(ii) lower host country compliance
costs for EU investors
If coercion would take the form of restrictions in the market of the
coercing country
(iii) lower costs for EU importers and
predictable supply
If imports of inputs for their economic activity would be restricted
Indirect benefits
Continued and stable employment In sectors that would be targeted by coercive country
Lower or stable prices for EU
consumers
Costs are specified based on the assumption that the instrument is able to deter coercion
and therefore is used less than once a year. This is classified as “one-off” in the table below.
II. Overview of costs – Preferred option
Citizens/Consumers Businesses Administrations
One-off Recurrent One-off Recurrent One-off Recurrent
Policy
package 2
Direct costs Higher costs of
products if there is
pass-through
effect
Third country:
may take place if a
specific group of
funding or persons
is affected by
countermeasures
Higher costs of
imported products;
depressed market
access; restricted
operations of EU
investors abroad
(depending on
countermeasures)
Third country: may
take place if a specific
group of funding or
persons is affected by
countermeasures
Administrative
costs of
assessing the
damage to the
EU economic
operators and
designing
countermeasures
Third country:
may take place
if a specific
group of funding
or persons is
affected by
countermeasures
Indirect costs
74
Annex 4: Analytical methods
Analytical methods foreseen at this stage:
Formal coercion
In cases of formal coercion, economic impacts can be assessed with the use of an in-house
partial equilibrium (PE) model. The model allows quantifying those impacts and revealing
possible trade diversion effects and has been used extensively, for instance to assess
impacts of the adoption of countermeasures in the WTO context.
The PE model is an adaption and extension of the basic four equations, perfect competition
framework of Balistreri and Rutherford (2013)99
. On the basis of the elasticities of the
products considered and of the quantification of the trade cost increase brought by the
introduction of a barrier, the model calculates the reduction in trade generated by the price
increase for analysed subset of goods and for specified trade partners.
It has been used at DG TRADE for numerous analyses of trade policies usually focussed on
a subset of goods, such as trade defence and dispute settlement cases but also of initiatives
such as FTAs. The model being partial means that no macroeconomic effects, i.e. on GDP,
factor markets, aggregate price level, etc. are produced and their possible interaction with
what happens in single product markets are not available. Furthermore, no cross-price
effects are taken into account. The model is specified with trade and tariff data only,
meaning that domestic effects can only be analysed implicitly. Despite being partial, the
model closes the world market for each product under analysis by including a rest-of-the-
world aggregate and therefore allows to draw conclusions on possible trade diversion.
The model is run in GAMS.
Informal coercion
If it is possible to quantify a given trade barrier, the analysis of economic impacts of
informal coercion could be done with the use of the PE model described above.
However, when it is not possible to quantify a change in trade barriers, the analysis of
impacts would need to more be qualitative. It can follow the structure currently applied in
Market Access Cases Workflow (MACFLOW) repository. MACFLOW was created to
ensure the transparent workflow of enforcement activities – from the collection of
information, analysis and prioritisation, to removal actions. It provides structure for
encoding trade barriers enacted by third countries, which in turn allows prioritising and
managing irritants while developing synergies between desks, delegations and sectorial /
thematic units.
Necessity for tailor-made approach
99
Balistreri, E. and Rutherford, T. (2013): Computing general equilibrium theories of monopolistic
competition and heterogeneous firms. In Dixon, P.B. and Jorgenson, D.W. (ed.): Handbook of Computable
General Equilibrium Modeling. Chapter 23, pp. 1513–1570. Oxford (UK), Elsevier.
75
In any given case, it may be necessary to develop in-house, tailor-made, unique analytical
approach, incorporating some other tools of economic analysis, depending on the case (e.g.
econometrics).
Annex 5: Overview of certain existing instruments and their relation to coercion
Instrument Scope of application
and objectives
Action under the
instrument
Relation to coercion
Regulation on the
access of third-country
economic operators,
goods and services to
the Union’s
procurement market
and procedures
supporting
negotiations on access
of Union economic
operators, goods and
services to the
procurement markets
of third countries
(currently in the
legislative process)
Applies where a third
country does not give
EU companies access to
procurement
1/ Investigation of the
third country’s measures
and respective
consultations with the
third country on the
matter;
2/ Imposition of
measures to limit the
access of economic
operators
to the Union
procurement or
concessions market
in the area of non-
covered procurement;
Does not specifically
relate to coercion;
If a third country uses
measures that fall within
the scope of the
instrument but with a
coercive objective
towards the EU or
Member States, then the
instrument remains
available to address the
situation as it falls
within its scope.
This does not change the
proposition that the
instrument is neither
suitable, nor capable to
respond to the coercive
objective.
Regulation (EU) No
654/2014 concerning
the exercise of the
Union's rights for the
application and
enforcement of
international trade
rules
Applies where dispute
settlement procedures
have been completed (or
if they are blocked) to
enforce the EU’s
international rights
under WTO Agreement
or other EU trade
agreements
Various types of
countermeasures in
goods, services,
intellectual property
rights and public
procurement
The situations falling
within the scope of the
instrument are
unconnected to coercion.
The instrument is neither
suitable, nor capable to
respond to the coercive
objective.
Regulation (EU)
2019/452 establishing a
framework for the
screening of foreign
direct investments into
the Union
Applies where foreign
direct investment into
the Union is likely to
affect security or public
order
1/ Screening
mechanisms involving
assessment and
investigation
2/ Possibly prohibition
of foreign direct
investments to be
determined by the
Member States (not the
EU)
Does not specifically
relate to coercion;
If a third country uses
measures that fall within
the scope of the
instrument but with a
coercive objective
towards the EU or
Member States, then the
instrument remains
available to address the
situation as it falls
within its scope.
This does not change the
proposition that the
instrument is neither
suitable, nor capable to
respond to the coercive
objective.
Regulation on foreign
subsidies distorting the
internal market
(currently in the
legislative process)
Applies where foreign
subsidies may cause
distortions in the internal
market, in particular
with regard to
concentrations and
public procurement
procedures
1/ Investigation
2/ Redress and
commitments that
include divestment and
the reduction of market
presence
The situations falling
within the scope of the
instrument are
unconnected to coercion.
The instrument is neither
suitable, nor capable to
respond to the coercive
objective.
Regulation (EU)
2016/1037 on
protection against
subsidised imports
from countries not
members of the
European Union
Applies in case of
subsidies for the
manufacture,
production, export or
transport of any product
whose release for free
circulation in the Union
causes injury
1/ Investigation
2/ Countervailing
customs duties on the
supplying country
and/or individual
exporters and producers
to offset the
countervailable subsidy
or injury
3/Possibility for
undertakings
The situations falling
within the scope of the
instrument are
unconnected to coercion.
The instrument is neither
suitable, nor capable to
respond to the coercive
objective.
Regulation (EU)
2015/478 on common
rules for imports;
Regulation (EU)
2015/755 on common
rules for imports from
certain third countries
Applies where a product
originating in a third
country is imported in
such greatly increased
quantities as to cause or
threaten to cause serious
injury to Union industry
1/ Investigation;
2/ Safeguard customs
duties to offset injury
The situations falling
within the scope of the
instruments are
unconnected to coercion.
The instruments are
neither suitable, nor
capable to respond to the
coercive objective.
Regulation (EC) No
2271/96 protecting
against the effects of
the extra-territorial
application of
legislation adopted by
a third country, and
actions based thereon
or resulting therefrom
Applies where extra-
territorial application of
a legislation adopted by
a third country affects
the interest of designated
persons within the
Union engaging in
international trade
and/or capital movement
or other commercial
activities
Nullifying the effect of
foreign court rulings
based on the foreign
laws listed in the Annex
and allowing EU
operators to recover in
court damages caused by
the extra-territorial
application of the
specified foreign laws
Does not specifically
relate to coercion;
If a third country uses
measures that fall within
the scope of the
instrument but with a
coercive objective
towards the EU or
Member States, then the
instrument remains
available to address the
situation as it falls
within its scope.
This does not change the
proposition that the
instrument is neither
suitable, nor capable to
respond to the coercive
objective.
WTO dispute
settlement system and
the bilateral dispute
settlement systems
Available to address
breaches under the
respective international
agreements.
In the WTO’s case, also
other cases of
nullification or
impairment of benefits
can be addressed
Treaty-made dispute
settlement system
Does not apply to
coercion.
Coercion in breach of
customary international
law does not feature
among the possible
claims that can be
submitted to these
dispute settlement
systems.