Striking the right balance: reinforcing Europe’s arsenal of trade defence instruments (TDIs)

By Robin Vandendriessche

In December 2021, the European Union (EU), in an attempt to increase its geopolitical theft, proposed a new policy instrument that would allow it to impose sanctions more easily on economic rivals such as China. The Anti-Coercion Instrument (ACI) came after years of perceived European vulnerability to economic blackmail as third countries often exploit divisions between member states in order to prevent the unanimous adoption of retaliatory measures. The instrument would counter the so called divide-and-rule tactics by adopting sanctions following a qualified majority vote (QMV) instead of unanimity. The ACI is only the latest addition to Europe’s toolbox of trade defence instruments (TDIs), several other mechanisms were proposed in recent years such as the International Procurement Instrument (IPI), through which the EU can restrict access to its procurement market in case EU companies face discriminatory measures, and the Foreign Subsidy Instrument (FSI), enabling the Union to block foreign subsidies that distort the internal market.

Admittedly, anti-dumping and anti-subsidy instruments are nothing new but the European Commission has brought trade defence to the very center of its trade policy, given its ambition to be a geopolitical commission. A first trigger for this was the Trump administration which has been one of the main causes of increased unilateralism in world trade such as its move to block appointments to the the appellate body of the World Trade Organisation (WTO), plunging the multilateral rules-based trading system into crisis, or the unilateral imposition of steep tariffs which provoked a trade war with China. Unsurprisingly, due to increasing geopolitical tensions, the Biden administration does not seem in any rush to revitalize trade dispute settlement within the WTO either.

A second trigger has been a series of events which pushed the EU to live up to its 2015 trade policy review of ‘assertive trade’. A typical case in which China leveraged its economic might and weaponized trade to further its political objectives was the Chinese trade embargo on EU member state Lithuania. This was a response to that country’s opening of a de facto embassy in Taiwan which China sees as a breakaway province. Beijing even blocked goods from other EU member states if they contained components coming from Lithuania. U.S. secondary sanctions that might stop companies of its allied EU member states dealing with Iran or Beijing’s unfair trading practices such as dumping are other examples. A recent third trigger is the start of the Russo-Ukrainian war and its further consequences as Moscow has taken the weaponization of trade in energy to the next level by shutting off gas deliveries to EU member states such as Germany.

Admittedly, the world has entered an era of increased protectionism and trade weaponization and indeed, Europe’s trade defence toolbox has a clear gap as third countries now too easily can convince one or several member states to vote against much-needed countermeasures. Nevertheless, several member states, especially the free trade-minded ones such as Sweden and the Czech Republic, voiced their concerns, fearing that the EU’s trade department will play an increasingly political role. Critics not only see the ACI as an internal EU power grab by circumventing the unanimity requirement for (trade) sanctions, but also fear that such TDIs could trigger a chain of retaliatory measures. As such, these instruments might well start the trade wars they are intended to deter. Being the largest exporter in the world, the Union has often nothing to gain from increased protectionism. Furthermore, the assumption that third countries will not retaliate, on which the ACI seems to have been built, is unrealistic at best.To conclude, much will depend on the ability of member states and the European Parliament to strike a balance between having an assertive trade defence arsenal, so as to deter third countries from weaponizing trade, while at the same time not appearing too hostile so as to avoid spirals of trade wars and retaliatory measures. And still, TDIs are not a magical solution to prevent the Union from being strong armed economically. Working on diversifying Europe’s supply chains and trade relations, instead of just completely decoupling from countries such as China, will also be key to reduce the Union’s asymmetrical dependence on unreliable partners and authoritarian regimes. The Russo-Ukrainian war and increasing tensions with China over Taiwan have made this abundantly clear.

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