Europe’s anti-coercion instrument is a wake-up call for the global economy

Europe is loaded for the bear.

Last August, Brussels drafted something it calls an “anti-coercion instrument” (ACI). It’s a regulation motivated by Europe’s belief that trade is “increasingly armed”. TO document that explains why the ACI is needed cites the “weakened role” of the World Trade Organization (WTO), the “rise in protectionism, and the growing deployment of economics as a geopolitical tool.” But will ACI help or hurt?

If you haven’t heard of Europe’s ACI, you’re not alone. It didn’t get much attention until China launched a trade war with Lithuania. The backstory is that Lithuania invited Taiwan to open a de facto embassy in Vilnius. Beijing took offense and imposed import and export bans on goods and services from Lithuania, and even from other countries that use Lithuanian inputs. The European Union (EU) responded presentation a WTO case against China at the end of January.

Few are optimistic about taking this dispute to Geneva. The EU Trade Commissioner, Valdis Dombrovskis, had to to confess that “we see no other way forward”. Zhao Lijian, a spokesman for the Chinese Foreign Ministry, warned that the WTO will not be of much help. because

This is precisely the type of situation that the ACI seeks to remedy. The regulation says that if a third country is found to “interfere with the legitimate sovereign elections” of the EU or a member state, through “explicit”, “disguised” or “silent” economic coercion, Brussels can retaliate with a broad range trade and investment sanctions. The problem is that the ACI is not finalized yet.

Brussels talks a lot about China in the supporting materials on the ICA. It literally uses China’s trade bullying of Lithuania as its case studywhile increasing China’s trade disputes with Australia and Canada as proof of concept. But make no mistake, the ACI is meant to cast a wider net.

Two intriguing themes emerge in Europe’s narrative about the ICA. The first is US Section 301. it really is Annex B, right after China’s feud with Lithuania. Indeed, Washington’s “threats” to use this unilateral stick to change European policies on digital trade are cited as an example of “explicit” economic coercion.

The second is a ready of cutting-edge issues that Europe says the ACI can help with: namely “climate change, taxes or food safety”. This list is worrying. Take food safety. Is this an import or export concern? The Commission suggests the latter, but this is exaggerated. The EU is a defendant in the most important food safety dispute pending in the WTO, since endocrine disruptors for antimicrobial (AMR). In fact, the fight for AMRs will largely be in third markets, so again, is Europe on the defensive or on the attack?

Speaking of the WTO, it is not mentioned even once in the regulation. Sure, the ICA refers to rights under “international law” and certainly admits that the EU could decide to seek WTO dispute resolution. But these references are mainly about how the sanctions might end, not how they might start.

The plot thickens. Europe recently issued another regulation to deal with the “weakened role” of the WTO, given the disappearance of the Appellate Body. Is named Regulation 2021/167and accelerates the EU’s retaliation against a country that appeals a ruling by the WTO panel in this “loophole”, or refuses to participate in one of its preferential trade agreements.

So add Regulation 2021/167 to a working ACI, and the EU is locked and loaded. Not just in terms of dealing with China, mind you, but with each and every country. This is what happens when the rules-based trading system starts to unravel.

Every time the 12th WTO ministerial conference happens, Russia will surely be the talk of Geneva. But aside from debating whether Russia should be suspended or expelled, attendees need to see the ICA for what it is: a wake-up call. The 1930s is as recent as a state of mind.

Marc L. Busch is the Karl F. Landegger Professor of International Business Diplomacy at the Walsh School of Foreign Service at Georgetown University. Follow him on Twitter @marclbusch.

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