EU flexes geopolitical muscle with new trade weapon

Brussels will attempt to increase the EU’s geopolitical heft by proposing a new policy weapon that would allow it to impose sanctions more easily on economic rivals such as China — and even the US.

While the form of economic howitzer that the EU has in mind is certainly novel, free-trading European countries and trade experts are already warning it could blow up in the face of the world’s biggest trade bloc.

The European Commission’s proposal for an “anti-coercion” weapon comes after years of the EU complaining that it is vulnerable to economic blackmail from countries that exploit divisions between European nations because retaliatory sanctions can only be imposed by unanimity. To counter that weakness, this new tool will allow the Commission to impose commercial sanctions against a country outside the bloc, which the 27 EU nations could only block with a majority vote.

In recent years, the EU has frequently found itself at the mercy of strong-arm tactics from its rivals, who are experts at games of divide-and-rule. China has made threats against French wine and German cars, and even vowed not to buy Airbus airliners in attempts to shut down a range of policy initiatives from the EU. Similarly, the EU contests that the U.S. imposed tariffs illegally on European steel and aluminum by claiming that Europe’s metals posed a threat to American national security.

Most controversially, EU officials were furious that Europe was frozen out of attempts to rebuild ties with Iran by the reimposition of US sanctions under the administration of Donald Trump that could penalize EU companies dealing with Tehran. At the time, several European diplomats argued that part of the function of an anti-coercion instrument should be to stop the US dictating EU foreign policy, though it is unclear whether the recent proposal will provide a meaningful way around these kinds of sanctions by Washington.

The new draft law, obtained by POLITICO, says that Europe faces a “legislative gap” over how to respond to this kind of realpolitik while trade is “increasingly weaponised in a geo-economic context.”

“The Union currently does not have a legislative framework for acting against economic coercion. None of the existing legal instruments addresses the issue of economic coercion,” the draft says.

Jonathan Hackenbroich from the European Council on Foreign Relations argued the new weapon is a “much more political instrument than anything we’ve seen from the EU’s trade department.”

Almost as if on cue, the EU is now facing just the sort of showdown where the anti-coercion instrument could be called into play. In a David versus Goliath contest, Beijing recently effectively stopped all trade from Lithuania in response to the country’s diplomatic support for Taiwan. Lithuanian Foreign Minister Gabrielius Landsbergis asked the EU to intervene on the country’s behalf and said it was high time to finalize the anti-coercion mechanism. “While third countries can target a member state with economic sanctions, member states cannot take any to counter these measures,” Landsbergis said.

Bernd Lange, the European Parliament’s trade committee chair who will lead the chamber’s position on the upcoming instrument, was supportive of the idea. “Those who are unable to resolutely oppose third countries will allow others to dictate policy decisions. We must and will not allow that to happen,” Lange said. 

The proposal is so far-reaching, however, that some European capitals want to hit the brakes over fears of snowballing trade conflicts.

“We are very concerned about this proposal,” said one EU trade diplomat. “Of course the EU should not be naive in its trade and foreign policy. But we cannot be the ones escalating trade disputes.”

In theory, the new anti-coercion instrument is meant to deter countries from using bullying tactics in the first place. But in practice, the proposal risks opening Pandora’s box.

“The question is whether the proposed design will actually be an effective deterrence against coercive superpowers [like Russia, the US or China] — or just another trade irritant,” said Hosuk Lee-Makiyama of the European Centre for International Political Economy.

Lee-Makiyama warned that the EU has much to lose. “The use of this instrument is based on an assumption that the hostile country will not retaliate, and that they have more to lose than the EU. That is rarely the case since the EU is the largest exporter in the world.”

An EU reaction could trigger a chain of retaliation measures, which can target totally different sectors. “Some hot-tempered member states would need to learn consequential thinking before they start playing with scissors,” Lee-Makiyama said.

Politico