A Massive Stick for Massive targets – EJIL: Speak!

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Applying economic pressure to coerce another country into a particular course of action has been around for a while, as developing countries can attest. In recent years, though, economic coercion has also been increasingly used against developed countries. The EU has been the target of such unwelcome pressure from, among others, China, Russia and the United States. On 8 December 2021, the European Commission published its long-awaited proposal for an EU Anti-Coercion Instrument. This proposal is groundbreaking. The European Commission posits that economic coercion may amount to a violation of international law. Furthermore, it asserts that the EU is able to redress this violation without regard to WTO law. These positions are not uncontroversial. They will be much debated in the first half of 2022, as the French Presidency of the EU is planning to give the Anti-Coercion Instrument a strong push (Programme for the Presidency).  

In an earlier post on EJIL:Talk!, Deepak Raju raised doubts about the compatibility of the Anti-Coercion Instrument with international law, while expressing no opinion on the WTO angle. In this post we take a closer look at both controversies.

The definition of economic coercion

For the Anti-Coercion Instrument to be triggered two conditions need to be fulfilled (Art. 2 of the Commission Proposal):

  • a third country seeks to interfere ‘in the legitimate sovereign choices of the Union or a Member State by seeking to prevent or obtain the cessation, modification or adoption of a particular act by the Union or a Member State’
  • by applying or threatening to apply measures affecting trade or investment.

In determining whether a third state has adopted an economic coercion measure, the following will be considered:

‘(a) the intensity, severity, frequency, duration, breadth and magnitude of the third country’s measure and the pressure arising from it;

(b) whether the third country is engaging in a pattern of interference seeking to obtain from the Union or from Member States or other countries particular acts;

(c) the extent to which the third-country measure encroaches upon an area of the Union’s or Member States’ sovereignty;

(d) whether the third country is acting based on a legitimate concern that is internationally recognised;

(e) whether and in what manner the third country, before the imposition of its measures, has made serious attempts, in good faith, to settle the matter by way of international coordination or adjudication, either bilaterally or within an international forum.’

Should the Commission find that these conditions are fulfilled, and fail to persuade the third country to withdraw its offensive measure, the EU may respond in different ways. One response could be for the EU to impose trade or investment restrictions that, by themselves, would violate WTO obligations. However, the Commission reasons that such an illegality would not arise, since these acts would be reprisals, which (though otherwise unlawful acts) are authorized as countermeasures in response to a violation of international law (see Article 52(3) of the ILC Articles on State Responsibility).

Does economic coercion violate international law?

Under public international law in general and the UN Charter in particular, the only form of coercion that is prohibited outright is the use of armed force (or, under certain circumstances, the threat thereof). However, there is a more general prohibition of coercion contained in the principle of non-intervention. Developing countries far more frequently argued that Art. 2(4) UN Charter itself, which provides that all members ‘shall refrain (…) from the threat or use of force against the territorial integrity or political independence of any state, or in any other manner inconsistent with the Purposes of the United Nations’, encompassed economic coercion. This position culminated in the seminal UN General Assembly Resolution on Friendly Relations of 1970, which stipulated that ‘[n]o State may use or encourage the use of economic political or any other type of measures to coerce another State in order to obtain from it the subordination of the exercise of its sovereign rights and to secure from it advantages of any kind’.

In its often-cited Nicaragua judgment of 1986, while not referring to any General Assembly Resolution, the International Court of Justice left open the possibility that other methods of coercion than military force might be prohibited. But in that case the Court held that even a trade embargo imposed by the United States on Nicaragua did not breach the customary law principle of non-intervention. In other words, economic coercion does not easily violate international law; this depends very much on the circumstances (Jamnejad & Wood (2009) 371).

The Commission would seem to have taken this lesson on board. It does not posit that any economic measure through which a third country seeks to influence a policy choice of the EU or a Member State will elicit an EU response. The exacerbating circumstances listed in the Anti-Coercion Instrument suggest that only instances of grave economic coercion will provoke the EU into action. Such a limited scope of application for the Anti-Coercion Instrument not only makes sense from the point of view of international law. This is also sensible politically. Most countries, and especially developing ones, should not worry that they will become the target of the Anti-Coercion Instrument. The context should make it clear that this is an instrument notably to deter its bigger trading partners from interfering heavy-handedly with the EU. The Proposal’s accompanying materials, however, create some ambiguities.

Mixed signals and self-interest

Some aspects of the Commission’s presentation send mixed signals: not all illustrations of economic coercion are convincing. For example, in its Impact Assessment (p. 12), the Commission refers to a situation in December 2019, when ‘Indonesia “silently” blocked imports of spirits, wine and dairy products from the EU in response to the EU’s regulatory treatment of palm oil as fuel for transportation. With respect to alcohol, Indonesian authorities either refused to grant import licences, or granted partial licences for non-EU products only. The situation started to improve in quarter 4 of 2020; however, only 40% of requested import amounts for 2020 were granted. As a result, EU exports of beer, wine, vermouth and sprits fell by over 60% (€5.9 million) in 2019 and were still 30% less than the pre-ban value in 2020.’ Even if it is accepted that international law has evolved since the Nicaragua-judgment of 1986 (when the ICJ did not see a complete trade embargo as meeting the threshold for prohibited economic coercion), a policy of refusing import licences for products that make up only a small proportion of EU exports and that was moreover only fully in place for approximately one year, does not meet a high threshold of economic coercion.

There is another consideration which the Commission did not address in its presentation. The EU and its Member States use economic pressure themselves to influence the policies of other countries. For instance, the EU conditions trade aid (GSP+) on third countries adopting policies favoured by the EU in such areas as environmental, labour or human rights protection. Such conditional aid, especially when it is withdrawn, has been strongly criticized by beneficiary countries. Once the Anti-Coercion Instrument is adopted, these countries could be tempted to frame their complaints about EU pressure as instances of economic coercion, by reference to the EU’s own parameters. Even if countries on the receiving end of EU pressure would not be in a position to take countermeasures, their accusations of economic coercion based on the Anti-Coercion Instrument’s own definition would reflect negatively on the EU. As a result, the EU has a self- interest to raise the bar on objectionable economic coercion rather high.

Separating countermeasures under international law from WTO-related remedies

Without much debate the traditional assumption has long been that any trade restriction taken by a WTO member is covered by WTO law. To the extent such a restriction violates a WTO obligation, a justification derived from public international law would allegedly not be recognized in WTO law (Marceau & Wyatt (2010) 74). There is no WTO ruling to this effect, however. Moreover, the counterargument has been made (Kuijper (2008) 706), that if a trade restriction was imposed as a countermeasure against an illegal act under public international law, it would extinguish the illegality of this restriction under WTO law (Bronckers & Gruni (2021) 43). With its Anti-Coercion Instrument-proposal the Commission now subscribes to this view.

For example, when Australia called for an independent inquiry into the origin of the COVID-crisis, China made its displeasure known through various trade restrictions on Australian products, such as antidumping duties on barley imports. Australia chose to challenge China’s trade measures through the initiation of WTO dispute settlement proceedings. Yet in its Impact Assessment (p. 15), the European Commission took pains to point out that WTO disputes can only deal with the WTO-inconsistency of the measures in question, not the separate infringement of general international law that lies in the coercive act and intention. The French government just took a similar position regarding China’s comprehensive trade embargo on Lithuania in response to Lithuania’s naming ‘Taiwan’ in a trade mission: a WTO dispute would only address the breach of WTO law, not the coercive nature of China’s measures.

Policy-wise, the fundamental weaknesses in WTO dispute settlement (lengthy proceedings without any possibility for interim relief; impractical and costly remedies without regard for past injuries (Bronckers & Baetens (2017)) undercut a ‘maximalist vison’ of WTO law when countering foreign economic coercion. Excluding countermeasures against foreign coercion from WTO disciplines would also be in keeping with the WTO’s diminishing role overall. The world is turning towards a more unilateral economic order (Chaisse & Dimitropoulos (2021)) and the EU needs to be adequately equipped to handle its challenges. When narrowly interpreted, the Anti-Coercion Instrument fits that bill.

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