Coercion For Christmas
Ho Ho Ho
Hi everyone, thank you for reading MFN this year. This will be the last post of 2024, given (I assume) you will all have better things to be doing next week. As ever, if you enjoy MFN and feel like doing me a solid, please consider becoming a paid subscriber.
Trump’s approach to trade is akin to an extortion racket: “Give me what I want, or a bad thing will happen.”
No countries like this, but most are prepared to suck it up because, well, he’s got a very big tariff stick.
The EU is in a slightly different camp. Collectively, it does have a big enough stick to at least prod back a little (even if it is still willing to play the game to an extent).
The problem last time around was that when the EU wanted to hit back, it didn’t have an obvious domestic legal basis for doing so.
Enter the anti-coercion instrument (ACI), which I predict we will hear much more about next year.
If another country tries to coerce the EU or its member states, the ACI allows the EU to introduce countermeasures, including tariffs, quotas and licence requirements, but also other restrictions such as:
Measures applying to transiting goods;
Restrictions on the right to participate in public procurement tender procedures (e.g., excluding suppliers from particular third countries from tenders and score adjustment for tenders);
‘Measures’ affecting the supply of services and access by foreign investors to the EU;
‘Restrictions’ on the protection of intellectual property rights and their exploitation;
‘Restrictions’ on the access by banking and insurance entities to EU capital markets and other financial services activities;
‘Restrictions’ on placing certain chemicals, sanitary and phytosanitary goods in the EU marketplace.
But it is important to appreciate the nuance.
For example:
Suppose Trump imposes a universal 10% tariff on all imports with no conditions attached. Probably not coercion.
What if Trump imposes a universal 10% tariff but tells the EU he’ll waive the tariff if the EU imposes a 60% tariff on China imports? Probably coercion.
What about if Trump applies the suspended tariffs linked to USTR’s previous Section 301 investigation into digital services taxes in Austria, France, Italy and Spain? Coercion? Maybe?
How about this?
Kinda a little bit coercive, don’t you think?
So, what’s the process for using the ACI? [There is always a process …]
In summary:
First, the Commission will investigate a third-country measure to determine whether it can be classified as coercion, either on its own initiative or at the [evidenced] request of someone else.
If the Commission decides there is evidence of coercion, it then submits a proposal to the Council to determine whether coercion exists via an implementing act. The Council has 8-10 weeks to complete this step and is signed off via qualified majority voting (QMV). For those of you not au fait with EU voting procedures, this means that the decision will be adopted if at least 55% of member states – meaning 15 out of 27 – representing at least 65% of the EU population, approve. This means that, in practice, it cannot be blocked by a single member state *cough Hungary* deciding it doesn’t want to play ball.
Once the implementing act is in place, the Commission then needs to engage with the third country to see if it can resolve the issue in a civil manner. The Commission may also decide to chat about the coercion with other impacted countries to share information and coordinate responses.
If chatting about the coercion doesn’t fix the issue, well, this is when it gets spicy. Assuming it is still the case that a measure is necessary to protect the rights and interests of the EU and its member states, the Commission can introduce some of the measures mentioned above, subject to conditions relating to proportionality, minimisation of negative impacts, etc. I’m pretty sure that via a committee, the measures chosen need to be positively signed off by member states via a QMV process, but I might be wrong, given in this bit of the regulation rather than just saying what the process is the drafters have decided to cross-reference to other bits of legislation to make the whole thing confusing.
Once the counter measures are signed off, it’s time to cross your fingers and hope they work.
Merry Christmas!
Other things
The US has published its 2021-2024 “QUADRENNIAL SUPPLY CHAIN REVIEW” which sounds really interesting but is also 383 (three hundred and eighty-three) pages long, so I haven’t read it yet. One for the Christmas break.
New research from the smart folk at LSE looking at the trade impact of Brexit has finally pumped out a result that doesn’t suffer from really dodgy data and feels about right when I run it through my entirely unscientific “vibes” filter:
See you in the new year!
Sam