Explanatory Memorandum to COM(2021)775 - Protection of the Union and its Member States from economic coercion by third countries - Main contents
Please note
This page contains a limited version of this dossier in the EU Monitor.
| dossier | COM(2021)775 - Protection of the Union and its Member States from economic coercion by third countries. |
|---|---|
| source | COM(2021)775  |
| date | 08-12-2021 |
1. CONTEXT OF THE PROPOSAL
• Reasons for and objectives of the proposal
The aim of the present proposal for a Regulation of the European Parliament and of the Council is to protect the interests of the Union and its Member States by enabling the Union to respond to economic coercion. Economic coercion refers to a situation where a third country is seeking to pressure the Union or a Member State into making a particular policy choice by applying, or threatening to apply, measures affecting trade or investment against the Union or a Member State. The Union response, or its mere availability, aims to dissuade third countries from engaging in economic coercion, in the first place, or to dissuade them from continuing the economic coercion, if economic coercion occurs. As a last resort, the Union may counteract the economic coercion. The Union response may take the form of a broad range of measures, following a determination of an act as coercive, including efforts to enter in consultations with the third country concerned to facilitate an agreed or adjudicated solution, where possible, a variety of countermeasures and international cooperation.
The present proposal aims to remedy a legislative gap to address the evolving issue of economic coercion. The Union currently does not have a legislative framework for acting against economic coercion. None of the existing legal instruments addresses the issue of economic coercion.
At the same time, there is an increasing and significant use of economic coercion by third countries that threatens to undermine the rights and interests of the Union and Member States. The sources of economic coercion are multiple and are of a broad concern.
The European Parliament, the Council and the Commission adopted a Joint Declaration in which they recognised that actions by third countries that seek to coerce the Union or a Member State to take or withdraw particular policy measures were of concern. 1 The Joint Declaration contains the Commission’s commitment to make a legislative proposal for an instrument to deter and counteract economic coercion by the end of 2021 at the latest. The European Parliament and the Council committed to consider the proposal in a timely manner.
The Commission President announced the initiative in her Letter of Intent to the President of the Parliament and President in office of the Council of 16 September 2020 under the heading “An economy that works for people”. The Commission Work Programme 2021 identifies the initiative as a key one for the referenced period.
• Consistency with existing policy provisions in the policy area
The issue of economic coercion features in the Union’s current trade policy agenda. The Trade Policy Review Communication of February 2021 2 aims at shaping a new consensus for an open, sustainable and assertive trade policy in a challenging economic and geopolitical context. It specifically refers to a future Commission proposal for an anti-coercion instrument. The Communication discusses the need to navigate rising global tensions with trade being increasingly weaponised in a geo-economic context while highlighting the interconnected nature of the Union’s economy with third country economies, the need for global cooperation and the need to strengthen the Union’s resilience.
• Consistency with other Union policies
The present proposal is complementary to other, more structural initiatives to enhance the resilience of the Union economic and financial system to various forms of external pressure. The update of the Union Industrial Strategy of May 2021 aims at strengthening the single market’s resilience and at addressing strategic dependencies. 3 This strategy plays a key role in the recovery and the green and digital transitions, as well as in reinforcing the Union resilience supported by robust competition and trade policies. The Vice-President in charge of external relations will ensure consistency with the different areas of the external action within the Commission.
2. LEGAL BASIS, SUBSIDIARITY AND PROPORTIONALITY
• Legal basis
The legal basis for the proposed regulation is Article 207 i TFEU. Article 207 i TFEU provides for the adoption of measures defining the framework for implementing the common commercial policy. Article 207 i TFEU defines the scope of the common commercial policy, which refers to, inter alia, trade in goods and services, and the commercial aspects of intellectual property, foreign direct investment, export policy and measures to protect trade. The initiative is concerned with foreign countries’ measures that take the form of measures affecting trade or investment towards the Union. The initiative provides a response, in the area of the common commercial policy but also in other areas, to foreign countries’ measures of economic coercion. In full compliance with the Treaties, the application of this Regulation shall be consistent with the Union’s overall external policy.
• Subsidiarity (for non-exclusive competence)
Article 5 i TEU provides that the principle of subsidiarity applies in areas which do not fall within the exclusive competence of the Union. Article 3(1)(e) TFEU provides that the Union has exclusive competence in the area of common commercial policy. Article 207 i TFEU falls into the category of exclusive competences. Therefore, the question of subsidiarity does not arise insofar as the third countries’ measures of economic coercion and/or the Union response falls under the common commercial policy.
In any event, only an action at Union level would ensure a uniform solution to a problem of concern to the Union as a whole. Member States remain responsible for and are able to act in the defence of their rights under international law. This includes their right to counteract international economic coercion, as long as they do so without taking measures for which the Union is exclusively competent. However, it is not possible for a Member State to put in place national legislation in order to cover economic coercion that is targeted against the Union and not against that Member State. Furthermore, national legislation would not be capable of providing an effective solution in the situation of concern to the Union as a whole or across the Member States. Union action remains the sole option under which the Union can implement its obligation to define and conduct the common commercial policy, and Member States cannot act in that area.
For completeness, it is considered that the added value of an action at Union level lies in the achievement of benefits that cannot be achieved sufficiently, if at all, at Member State level. These benefits relate to deterrence and counteraction against economic coercion by third countries to preserve the Union’s and Member States’ autonomy in policy-making and shield trade and investment from weaponisation.
• Proportionality
The proposal respects the principle of proportionality. The envisaged instrument would be a comprehensive framework for action against economic coercion. Its structures imply restraint in action in order first to try to investigate and resolve issues without resorting to countermeasures (deterrence effect, efforts towards agreed or adjudicated solutions). This instrument explicitly prioritises a non-interventionist approach (agreed solutions versus countermeasures). However, where the need arises, the Union would be able to respond with countermeasures. The selection criteria explicitly include a requirement that any Union response, and in particular countermeasures, must be commensurate to the injury that they respond to in individual cases, in line also with the requirements of international law. The selection criteria further prescribe that collateral damage and administrative burden be as small as possible. Therefore, not only the instrument itself, but also measures adopted under it, would be proportionate. 4
• Choice of the instrument
On the basis of Article 207 i TFEU, it is proposed to empower the Commission to take action on behalf of the Union to respond to third countries in individual cases of economic coercion, including through implementing acts in accordance with Article 291 TFEU, and to supplement the range of possible countermeasures and adapt applicable rules on origin through delegated acts in accordance with Article 290 TFEU. Currently, the Union does not have a dedicated legislative framework to protect the Union's and Member States’ interests in the specific situation of economic coercion. Accordingly, the proposal remedies this gap.
The proposed single and comprehensive legislative instrument best achieves the specific objective of deterring economic coercion, in the first place. Second, it ensures an effective, efficient and swift Union response to individual cases of economic coercion, should economic coercion occur, which is equally important for the deterrence effect. Third, it is the most suitable choice to provide for uniformity of rules and procedures in relation to the Union’s response.
More generally, such a dedicated legislative instrument setting out rules and procedures for Union action corresponds to the Union’s adherence to a rules-based approach, also internationally. It is a signal to international partners that the Union is not willing to accept economic coercion. It highlights the assertiveness and the resilience of the Union, and supports the efforts to ensure open strategic autonomy.
3. RESULTS OF STAKEHOLDER CONSULTATIONS AND IMPACT ASSESSMENT
• Stakeholder consultations
The Commission carried out extensive consultations with stakeholders in relation to the issue of economic coercion, a potential legislative instrument and its possible impact: 5
–on 17 February 2021, it published the inception impact assessment for feedback by stakeholders until 17 March 2021; 6
–on 23 March 2021, it launched an open public consultation on EUSurvey in all EU official languages, for 12 weeks, until 15 June 2021; 7
–on 16 April 2021, an online stakeholder meeting took place;
–throughout March-July 2021, targeted consultations with specific groups took place, including businesses, academia, Member States and governments of third countries; additionally, stakeholders submitted ad hoc input.
The public consultations revealed the common recognition that economic coercion is increasingly posing a problem for the Union and Member States, which should not be left unaddressed. It showed solid support for the creation of a legislative instrument to address the issue of economic coercion. More specifically, stakeholders attach particular value to the deterrence objective of such an instrument, connecting it with the credibility and effectiveness of the instrument. They prioritise efforts to encourage third countries to stop the economic coercion through non-interventionist measures (such as diplomacy), and predominantly regard the use of countermeasures as a last resort whose collateral damage must be weighed before action. Another area of support is that the triggers for the use of the instrument should be sufficiently broad to cover informal economic coercion, and that in order to ensure an effective response, the Union should be able to choose from a range of options in individual cases. On the other hand, stakeholders referred to the value of international cooperation against economic coercion. The present proposal contains all these elements.
Stakeholder input as regards the existence and evolution of the problem of economic coercion contributed to the justification and design of the proposal. Stakeholders put forward inter alia a number of examples of measures of economic coercion taking place from multiple sources and reported on the negative impact and costs caused by those measures.
At the same time, stakeholders raise possible risks associated with a legislative instrument such as escalation through retaliation and negative consequences for international cooperation, multilateralism and respect for the rules-based order. The impact assessment accompanying the proposal covers these risks and they are duly taken into account in the design of the proposed instrument.
The views are mixed as regards the possible creation of a financial compensation scheme for operators affected by measures of economic coercion – an option which is not included in the proposed instrument as explained in the impact assessment. Roughly half of the respondents across the groups favour such a scheme (mostly businesses), while the other half either disagreed or showed no interest. Businesses in favour also pointed to potential issues, such as the complexity of determining the compensation, budgetary implications and the appropriateness for this instrument.
Finally, a few business associations and public authorities raise the idea of creating a “resilience office” to, amongst other things, investigate cases and manage the new instrument. The impact assessment report explains why this option is not pursued at this stage.
• Collection and use of expertise
In addition to the impact assessment supporting the proposal (discussed below), the Commission carried out the consultation activities described in the preceding section. In-house expertise and input from experts in the field from academia 8 further contributed to the design of the proposal.
• Impact assessment
The proposal is supported by an impact assessment. 9 The Regulatory Scrutiny Board examined the impact assessment and, on 27 September 2021, issued a positive opinion. The Board’s recommendations and an explanation of how they are taken into account are included in Annex 1 to the impact assessment report.
In light of the objectives of the initiative, namely the protection of the interests of the Union and of the Member States from economic coercion, the impact assessment report considered three options. It retained the option of the creation of a new legal instrument that would fill an identified gap in the current legislative framework. The report analysed a number of design parameters for the instrument and options for them, namely: triggers and threshold for action; possible action; selection conditions for countermeasures; decision-making; activating the instrument; and stakeholder involvement. Within this option, the report identified a preferred solution in terms of effectiveness, efficiency and coherence. It discarded the options of no policy change and of a “resilience office” as unsuitable for reasons stated in the impact assessment report.
The preferred option is the basis for the present proposal. Notably, it represents a framework regulation of the European Parliament and the Council allowing action by the Union, in compliance with public international law, with the following main elements:
·A two-step response by the Union. The first step involves deploying non-interventionist measures, such as formally identifying that an act falls within the scope of the instrument and efforts to engage with the third country, with the primary aim being to de-escalate the economic coercion and encourage the third country to end its measures. If this step is not successful, a broad range of possible countermeasures becomes available in the second step, as a last resort. Several criteria would guide the narrowing down of the possibilities in terms of proportionality, the Union’s interest, avoiding or limiting as far as possible collateral costs and administrative burdens.
·A broad scope of possible third-country measures of economic coercion can trigger a Union response including explicit, disguised and silent economic coercion and their variations. A qualitative threshold for action would apply.
·The decision-making process under the instrument falls under the standard framework of delegated and implementing acts, which includes avenues for swift action. Stakeholders should have the opportunity to share their views and data regarding the use of the instrument.
The benefits of the preferred option are considerable. They arise in the first place from the deterrence effect at the level of the scope of application, broadly capturing measures of economic coercion, as well as at the level of the range of measures, which allows for a calibrated and effective response. A successful deterrence effect will result in no or limited use of the instrument, in the best-case scenario. Benefits also arise from the two-step process that prioritises a non-interventionist approach (agreed solutions versus countermeasures), and openness to engage with the third country, but also from the ability to quickly respond with countermeasures, where necessary for the protection of the interests of the Union and its Member States. No significant costs arise from the existence of the instrument, as such. Potential varying costs may arise from the use of the instrument in individual cases, in particular if the Union deploys countermeasures. Any costs would be taken into account in the design of the particular measure. The impact of the preferred option on different categories of stakeholders is set out in Annex 3 to the impact assessment report.
In the present proposal, some elements are further developed. The proposal elaborates the decision-making process in comparison to the description of the preferred option. It specifies the conferral of implementing and delegated powers on the Commission for the respective actions under the instrument and provides for detailed rules and procedures of decision-making. It refines the range of countermeasures. It focuses on the prospects of international cooperation by establishing a distinct procedural step for that purpose.
• Fundamental rights
The proposal is coherent with the Union’s human rights policy and consistent with the Charter of Fundamental Rights. The existence of the instrument itself would positively affect fundamental rights, in accordance with the Union’s positive obligation to protect the rights of its citizens against infringements from other sources, in this case foreign governments, when the existence or use of the instrument can make a contribution towards deterring their acts of economic coercion which could negatively affect those rights. Where the use of the instrument results in restrictions that affect fundamental rights because they restrict the freedom to engage in international trade or investment as part of the freedom of professional activity, the right of property including intellectual property or other fundamental rights including equal treatment, this would be a legitimate action by the Union under the Charter of Fundamental Rights. This is because this action would be taken in conformity with the requirements that the action be taken on the basis of a proper legal basis, by the competent authorities, in pursuit of a legitimate objective, and in line with the principle of proportionality.
4. BUDGETARY IMPLICATIONS
The adoption of the instrument will not have any direct budgetary implications for the European Union beyond the administrative budget of the Union. The administration of the instrument, in particular the gathering of information, conduct of investigations, preparation of determinations, efforts at agreed solutions, preparing Union response measures and monitoring of any economic coercion entails a substantial administrative burden for the Commission, in particular, but not exclusively, for the Directorate-General for Trade. The extent of that burden will depend on the frequency of economic coercion to which the Union and the Member States are subject and the extent of the use of the instrument. Whilst it is hoped that the presence of the instrument will lead to a reduction in measures of economic coercion, there is no such guarantee. It is estimated that the operation of the instrument will require five full-time equivalent posts.
5. OTHER ELEMENTS
• Implementation plans, monitoring, evaluation and reporting arrangements
The Commission services will monitor the functioning of the instrument, including engaging with stakeholders to monitor their experiences and views regarding the impact of the instrument. They will collect data on third countries’ measures as well as on the Union response considered and adopted.
The proposal provides for a review as regards the functioning and application of the instrument, with reporting obligations to the European Parliament and the Council.
• Internal coordination
The Directorate General for Trade will manage the functioning of the instrument, under the responsibility of the Commissioner responsible for Trade whilst ensuring a collegiate process within the Commission. The European External Action Service will support the High Representative in her/his function, as Vice-President of the Commission, to coordinate the Union’s external action within the Commission. Union delegations under the authority of the High Representative will exercise their functions as external representatives of the Union and assist, as relevant, in fact-finding and external dialogues.
• Detailed explanation of the specific provisions of the proposal
Article 1 defines the subject matter of the proposed Regulation, that is an effective protection of the interests of the Union and its Member States from certain third-country measures, which is the general objective of the instrument. It further sets out that a Union action would be permitted to that end, and that the protection is to be achieved through deterrence, or having the third country end its measures, or counteraction. Article 1 also recalls, consistent with the EU Treaties, that any action taken under the Regulation must comply with international law.
Article 2 establishes the scope of application. The first paragraph sets out the situation in which the Regulation applies, notably where two cumulative conditions related to the third-country’s action are met. The second paragraph further guides the Commission in determining the existence of economic coercion in any concrete case, by referring to a number of considerations related to the third-country measure and conduct.
Articles 3, 4 and 5 establish a first set of steps with regard to the Commission’s actions under the Regulation that start with an examination, leading to a determination of the existence of economic coercion, followed by possible engagement with the third country concerned. This set of steps reflects the preferred approach of only adopting response measures when necessary and aims at dissuading the third country from continuing with its economic coercion without having to resort to countermeasures.
·First, the Commission would examine the third-country measure in question in light of the conditions under Article 2 i (Article 3), and would be guided by the criteria outlined in Article 2 i, on its own initiative or when relevant information is brought to its attention.
·Second, the Commission would determine whether the conditions of economic coercion are fulfilled, via a Commission decision (Article 4). The Commission may inform the third country in question ahead of the determination, in order to give it an opportunity to respond. In any event, the Commission would communicate any affirmative determination to the third country in question and request that the economic coercion cease and, where appropriate, that any injury be repaired.
·At the same time, the Commission would be ready to engage, on behalf of the Union, with the third country concerned with a view to obtaining the cessation of the economic coercion (Article 5). The Commission would also raise the matter in any relevant international forum in order to increase the chances of a cessation of the economic coercion.
Article 6 introduces a step of engagement in international cooperation on the matter with other third countries affected by the same or similar measures of economic coercion. The aim remains the cessation of the economic coercion, but also the promotion of a multilateral solution.
Articles 7, 8, 9, 10 and 11 concern the second, and last, set of steps, that is the resort to the Union response measures. This set of steps is characterised by a more interventionist approach. It is optional and would only apply where the third country does not cease the measures of economic coercion following the first set of steps. While the aim is to counteract the economic coercion, the underlying objective is for the Union response measures to induce the third country to cease its economic coercion, in line with international law.
·Article 7 defines the conditions for the resort to Union response measures, which must be present for the Union to proceed, sets out the steps to be taken for the Commission to adopt an implementing act to introduce such measures and to deal with related events, including issuing notices for related events. There would be the possibility of adoption of immediately applicable implementing acts to accommodate the need for urgency, where justified. Article 7 refers to the available measures of Union response.
·Article 8 provides that the Commission may designate natural or legal persons subject to conditions and procedural guarantees and apply measures to them.
·Article 9 sets out selection and design criteria for the Union response measures and envisages that such measures would be selected and designed based on the available information, taking into account the determination of the measures of economic coercion and the Union’s interest. Article 9 i provides that certain such measures can be applied on an intra-Union basis. This will be possible in particular as regards Union response measures available pursuant to points (d) to (l) of Annex I.
·Article 10 introduces the procedures, criteria and conditions for the amendment, suspension and termination of Union response measures. The Commission would act via implementing acts, and via immediately applicable implementing acts in urgent cases. Article 10 i underlines that the Commission would continuously assess the matter after the imposition of Union response measures.
·Article 11 introduces the procedure for an information gathering in relation to the adoption, amendment, suspension and repeal of Union response measures. The procedure is optional before a suspension and repeal since such actions would involve the lifting of Union response measures. In the event of urgency, the Commission would seek information and views from affected stakeholders in a targeted manner, to the extent possible and needed.
Articles 12, 13, 14 and 15 are supporting horizontal provisions. Article 12 provides for the rules on treatment of confidential information. Article 13 refers to the applicable rules of origin and nationality for goods, services, investments and intellectual property rightholders which are relevant to determining the Union response measures. Articles 14 and 15 provide for the conditions and procedures applicable to the exercise of delegated and implementing powers conferred on the Commission, respectively, in addition to other provisions.
Article 16 establishes an obligation on the Commission to evaluate any adopted Union response measures shortly following their termination. It also establishes a review and reporting obligation on the Commission as regards the functioning of the proposed instrument and sets an appropriate timeframe.
Article 17 sets out the date of entry into force of the Regulation and that the Regulation would be binding in its entirety and directly applicable in all Member States.
Annex I lists the possible Union response measures. The Commission may amend this list by adding other available measures, via a delegated act, subject to conditions.
Annex II sets out the rules of origins and nationality for goods, services, investments and intellectual property rightholders. The Commission may amend those rules via a delegated act, subject to conditions.
This proposal is accompanied by a Communication from the Commission to the European Parliament and Council setting out the actions that could be taken by the Commission, within its powers, when Union response measures are required.