EU seeks to deter economic coercion with new trade defence

The European Commission set out plans on Wednesday to retaliate against countries that put economic pressure on EU members to change their policies, while stressing the main purpose was deterrent.

The proposal is designed to counter an increased spillover of geopolitical tensions into trade. European Union member states have accused the administration of former US president Donald Trump and China of using trade as a political tool.

“At a time of rising geopolitical tensions, trade is increasingly being weaponised and the EU and its member states becoming targets of economic intimidation. We need the proper tools to respond,” European Commissioner for Trade Valdis Dombrovskis said in a statement.

“With this proposal we are sending a clear message that the EU will stand firm in defending its interests.”

On hearing a complaint, the Commission would need to determine whether a third country’s economic measure was designed to coerce the EU or one of its members to change policy.

A current pre-occupation is the economic pressure Lithuania is facing after letting Taiwan set up a de facto embassy there.

China downgraded diplomatic relations with the small Baltic state and officials there say Beijing has also imposed blocks on its exports and pressured companies in third countries not to do business with it.

After establishing economic coercion, the Commission would seek to negotiate with the third country or seek mediation or cooperation from other partners before taking action.

The Commission would then have a wide range of counter-measures at its disposal, including tariffs on goods or services, withholding EU funding, or restrictions on access to EU procurement tenders or to research programmes.

The counter-measures should be proportionate and designed both to lead to the third country halting its initial measures and to cause the least damage to the EU economy.

The proposal still needs approval from the European Parliament and EU governments, some of whom are sceptical about a measure they see as potentially protectionist and prone to lead the bloc into tit-for-tat trade wars.

It would add to an armoury of trade measures that include screening of foreign investment, limits on firms benefiting from foreign subsidies and curbs on public procurement for businesses of countries that do not open up their markets.