EU seals powerful trade tool to tackle economic bullying, with China in mind

A powerful trade tool aimed at tackling economic bullying moved closer to reality on Tuesday, after European Union negotiators reached a deal on exactly how it should work.

Representatives from the EU parliament and the European Council, the body made up of diplomats from member states, ironed out their final differences in marathon overnight talks that wrapped up at 4am.

The anti-coercion instrument, which was designed partly with China in mind, is now expected to be in place before the end of the year.

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Once adopted, Brussels can slap countries with tariffs, export controls, quotas or market entry freezes if they "interfere in the legitimate sovereign choices" of the EU or its member states "by applying or threatening to apply measures affecting trade or investment".

The tool was initially conceived as a response to former US president Donald Trump's section 301 trade tariffs. But after an initial lukewarm response from EU nations, it gained popular support following China's unofficial boycott of Lithuanian goods beginning in 2021.

The move from Beijing came in response to the opening of a "Taiwanese Representative Office" in Lithuanian capital Vilnius. All other official Taiwanese premises in the EU are named after "Taipei", in deference to Beijing's view of Taiwan as breakaway territory with no right to build official ties with other governments.

Brussels viewed Beijing's response to the Vilnius office as an assault on its single market.

Russia's invasion of Ukraine last year and Moscow's threats to weaponise energy exports accelerated the instrument's passage.

It is seen as the most geopolitical of a suite of trade defence measures being formulated by the EU. Beijing has decried these tools as "protectionist".

Bernd Lange, the European Parliament's lead negotiator, said the tool would prove a powerful deterrent against future strong-arming.

"We have now an instrument which is not a toothless tiger, it is really a tiger with teeth. It's really not the water pistol - it's a gun, and sometimes it's necessary to put a gun on the table, even knowing that it is not going to be used," Lange said.

He cited a recent threat by the Chinese ambassador to the Netherlands, who said the country would face consequences if it blocked the export of high-end semiconductor equipment to China, as an example of where the instrument could be used.

Lange added that the tool could be used retrospectively, such as in the case of China and Lithuania. But this may put parliament on a collision course with the European Commission, the bloc's civil service, which has suggested that it is unlikely to be used retrospectively.

Lithuanian foreign minister Gabrielius Landsbergis said the deal would "stop dictators bullying the EU with unofficial sanctions".

"Lithuania pushed to accelerate the process after resisting a Chinese special trade operation. The EU just got stronger," he tweeted.

To stop dictators bullying the EU with unofficial sanctions, @europarl and all 27 member states have agreed on a new anti-coercion instrument ✅️ Lithuania pushed to accelerate the process after resisting a Chinese special trade operation. The EU just got stronger 🇪🇺

- Gabrielius Landsbergis🇱🇹 (@GLandsbergis) March 28, 2023

EU trade chief Valdis Dombrovskis said that the bloc was "taking a step closer to deterring economic coercion".

"Progress on the anti-coercion instrument is key to reinforce our trade agenda, giving the EU the tools to preserve open trade and address risks in a targeted way," he said.

The deal was reached after three prickly negotiations, during which the parliament pushed for a tougher law, but council looked for more wiggle room.

Some member states were worried about launching tit-for-tat trade disputes, others worried about the EU taking a protectionist turn.

In the end, parliament ceded authority to the council on determining when coercion has taken place. The two bodies had been haggling over a proposal made by the commission last September.

In return, the council agreed to establish timelines for each stage of the process to ensure it would not be bogged down in the sorts of diplomatic infighting that plagues member states.

It also agreed to open up the possible countermeasures to include export controls, and actions in sectors including phytosanitary certification, chemicals and intellectual property.

Bernd Lange, the EU parliament's lead negotiator, says the process will not be a "never-ending story". Photo: AFP alt=Bernd Lange, the EU parliament's lead negotiator, says the process will not be a "never-ending story". Photo: AFP>

In total, it could take 12 months for a EU countermeasure to kick in once coercion has been proven, according to those timelines.

Once a complaint of coercion has been made, the commission will spend a maximum of two months conducting a preliminary investigation. After this, the council will decide by qualified majority vote - meaning no single member can veto the ruling - whether coercion is happening, based on the commission's evidence.

"I hope this maximum timeline will not be used in general, but it is a clear signal that it will not lead to a never-ending story," Lange said.

The country accused of coercion will then be asked to stop immediately. If they refuse, the commission would have a maximum of six months to implement countermeasures, which could severely hamper access to the EU's massive market.

Lange accused the council of not wanting the tool in the first place, and making efforts to water it down during negotiations.

"My feeling was that the council wanted to weaken the proposal. It's no secret that the council was not really happy about the instrument at all," he said.

"Some member states were really sceptical about that, but now they tried to water it down."

This article originally appeared in the South China Morning Post (SCMP), the most authoritative voice reporting on China and Asia for more than a century. For more SCMP stories, please explore the SCMP app or visit the SCMP's Facebook and Twitter pages. Copyright © 2023 South China Morning Post Publishers Ltd. All rights reserved.

Copyright (c) 2023. South China Morning Post Publishers Ltd. All rights reserved.