Effective Deterrence? The Coming European Anti-Coercion Instrument

Today, the anti-coercion instrument is mostly discussed in the context of China's record of practicing coercion. The list of China's recent targets is long, expanding, and includes European nations; Lithuania and Norway join the likes of Australia, Canada, Japan, the Philippines, and South Korea. Interestingly, all of these targets are democratic systems, in which coercion can more easily sow discord between various political forces. 

The success of the EU's ACI will be measured by its ability to effectively deter coercive behavior. At this stage, close to the finish line, the intra-European negotiations still need to address three critical issues - the outcome of which will decisively determine the strength and credibility of the European anti-coercion instrument.

First, there is the highly political issue of which EU institution gets to make the decisions. At its core, it is about the balance of power between the Commission and the Council. Under the current version, the instrument arranges a decision in three stages:

• In a first step, the Commission will investigate and determine whether coercion occurs based on the legal definition provided by the ACI, but the Council decides by qualified majority voting (QMV).
• Next, the Commission will propose a package of countermeasures (the "implementing act") to respond to the act of coercion. 
• The 27 Members of the European Council make the final call: they can vote down the package through QMV.

In addition, as Francesco Galietti argues in his article for this series, as it is - and because anti-coercion does not fall within the exclusive competence of the Commission - there will always be a need for a European political majority in favor of counteraction. The Parliament as a result will play an important role to unlock resistance and trigger the anti-coercion process.

Second, there is the question of what countermeasures the EU uses to respond to anti-coercion. Here, the risk for Europe is to deliver a half-baked instrument that lacks deterrence credibility. If the objective of the instrument ("obtaining the cessation of a measure of economic coercion") is to be attained, the possible package needs to instigate fear in would-be coercers.

What should the package of countermeasures include to constitute a credible threat and deter coercion? The current proposition goes beyond trade tariffs. It allows the imposition of quotas, export restrictions, limitations on IP rights, participation in public procurement procedures and on foreign direct investment, restrictions of access to banking services and European financial markets, and even sanctions targeted at "natural and legal persons" when they act on behalf of the government of the third party concerned. The final ambition of the list of countermeasures is still subject to internal debate, but the temptation to water down the initial proposal of the Commission has been successfully resisted. On paper, the list of possibilities is clearly impressive.

Yet, there is a major weakness in the current text, resulting from a difficult debate on whether the EU should compensate Member States that are victims of coercive practices. In the tabled versions of the ACI, compensation has not been included. 

The anti-compensation camp may have won the argument already, but many doubt that a system without a compensation mechanism will be efficient enough. This is one of the arguments deployed by both Luke de Pulford and Luke Patey in this series. In the end, compensation may still be needed, but outside of the ACI, through unilateral sovereign decisions, or by coalitions of states, intra-European or not. After all, the ACI does not necessarily represent the totality of a European response to an act of coercion.

Third, the Council and the Commission do not agree on whether European individuals and companies directly affected by coercive measures can claim damage and reparation from the coercive party. The version of the Council completely erased the part on damage and reparation initially proposed by the Commission - the argument being that holding natural or legal persons from a third country liable for a state policy of coercion will create more problems than solutions for the European Union. However, as a result, the instrument is currently weaker than it initially was - but final decisions are still to be made, and the damages/reparation issue is still up for discussion in the trilogue.

In sum, the ACI should be thought of as one tool in a larger toolbox, and one element of a larger foreign policy response. In the case of relations with China, a critical mass of like-minded states showing collective determination will usefully complement the ACI.

This is partly because compensation, even though it is not in the ACI, will always be a critical issue in the broader fallout. The coerced state/parties will seek compensation from various sources to make up for their losses in terms of market access: the United States provided critical help to Lithuania, just as Japan provided critical support to Taiwan. When coercion is not limited to market access but targets supply chains, concerted action beyond countermeasures against the coercive state will be extremely important.

This is also because, in actual cases of coercion, escalation control will be central to the game - particularly when dealing with a great power like China, which coerces in the name of national security and geopolitical interests, not in the name of trade, and seeks to make other parties believe that it is willing to escalate.

If in the future, Europe responds to Chinese coercion with a package of countermeasures, China will be tempted to demonstrate that it is undeterred. If a cycle of escalation begins, Europe will need its international partners. Therefore, deterring coercion should remain a priority on the agenda of European consultations with key countries having faced similar attacks in the past, in addition to G7 format discussions - Australia, Canada, the Republic of Korea, Japan, Norway and the United Kingdom are the most obvious candidates. In short, the ACI will carry much greater weight if the EU works with its partners too. 

Copyright: Kenzo TRIBOUILLARD / AFP