Anti-Coercion Instrument

assessment of third-country subsidies in public procurement contracts. The European Commission should be exclusively responsible for evaluation and decision-making. This would ensure the coherence of decisions and also enable synergy effects through the expertise of the European Commission in state aid law.

In addition to the proposed preventive control – i.e., the ex-ante control of individual, specific public procurement contracts – it should also be possible to look retrospectively at the general conditions of competition in procurement markets with regard to the extent to which they are influenced by thirdcountry subsidies. Specific measures, such as the issuance of guidance or recommendations, should also be provided for. If a subsequent analysis shows that a specific company receiving third-country subsidies has repeatedly negatively influenced competition among bidders, it should also be possible to exclude this company from future public procurement contracts. Moreover, we propose a special presumption in the scope of application of the third module: Companies from countries that have neither signed the WTO Agreement on Government Procurement nor a free trade agreement with the EU containing provisions on public procurement should be presumed to receive competition-distorting third-country subsidies in case of participation in public procurement in the EU.

Anti-Coercion Instrument

In September 2020, the President of the European Commission sent a letter of intent to the President of the European Parliament and the German Council Presidency outlining the Commission's work plan for 2021. In the context of a newly strengthened economy, an "instrument to deter and counteract coercive actions by third countries" was mentioned.

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Extraterritorial sanctions, but also measures against European companies abroad or tariff barriers against imports from the EU, are now increasingly economic symptoms as a result of the economic manifestation of geopolitical disputes. German industry welcomes the plan to counter this trend by creating a reactive instrument to deter and counteract geo-economic measures. Geo-economics is understood here as the pursuit of geopolitical goals by economic means.

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Status quo

This overlapping of political and economic relations is not new, but incidents are becoming more frequent. Just a few years ago, it was taken for granted that the economic interests of EU Member States and their foreign policy goals could be separated clearly. Accordingly, the European Union's options for deterring economic coercion and responding with its own measures have, so far, been very limited. To date, only the anti-boycott regulation, also known as the blocking statute, exists as a procedure to ward off extraterritorial influence of third countries on European companies.

7 Ursula von der Leyen, Maroš Šefčovič, State of the Union – Letter of Intent to President David Maria Sassoli and to Chancellor Merkel, 16 September 2020, <https://ec.europa.eu/info/sites/info/files/state_of_the_union_2020_letter_of_intent_en.pdf>. 8 Geopolitics and geo-economics are increasingly used as concepts. Often, there is a lack of analytical separation of the concepts that describes intelligibly how they relate to each other. Without this separation, however, it remains unclear how the intertwining of international politics and global economics creates negative externalities for economic operators. A common definition of geo-economics that is clearly distinguishable from geopolitics comes from Robert D. Blackwill, Jenniver M. Harris, „War by Other Means, Geoeconomics and Statecraft“, Cambridge, London: The Belknap Press of Havard University Press, p. 20: „The use of economic instruments to promote and defend national interests, and to produce beneficial geopolitical results; and the effects of other nations’ economic actions on a country’s geopolitical goals.”

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Regulation (EC) 2271/96 was enacted in response to the 1996 U.S. Cuban Liberty and Democratic Solidarity Act (Helms-Burton). Under its Section III, this law allows U.S. citizens to sue foreign companies in U.S. courts for the use of property expropriated after the revolution. Helms-Burton consequently does not provide for sanctions as they have been widely discussed after the United States exited the Joint Comprehensive Plan of Action (JCPoA) also known as the nuclear treaty with Iran. Through the blocking statute, the EU wanted to ensure that such court rulings from third countries would neither be recognized nor enforced in Europe. 9 It was the EU's intention to dissuade the U.S. from using Section III of Helms-Burton through the blocking statute and have it suspended by presidential decree instead.10 As a matter of fact, all U.S. presidents have shown a willingness to do so until the spring of 2019.

The EU activated the blocking statute regardless of Helms-Burton when the United States withdrew from the JCPoA in May 2018.11 The EU included U.S. Iran sanctions in the annex of the blocking statute. However, these U.S. sanctions differ significantly in their extraterritoriality from the provisions of Section III of the Helms-Burton Act. Today as a result of these secondary sanctions, natural and legal U.S. persons are prohibited from doing business with, for example, banks that in turn continue relations with sanctioned individuals or entities. However, since any reputable financial institution must refinance in U.S. dollars, such sanctions are akin to exclusion from economic life.

Originally conceived as a remedy to U.S. court rulings, the European anti-boycott regulation was not designed to effectively address comprehensive financial sanctions. Among the general public, the regulation was largely seen as a symbolic act, both then and now.12 There is therefore need for action.

Recommendations

For German industry, coercive economic measures are fundamentally unacceptable. It is therefore welcomed that the European Commission is addressing the issue of extraterritoriality and intends to develop instruments to enable Europe to respond effectively, robustly and appropriately to geo-economic coercion in the future. Some points have to be considered:

▪ In its discussions on appropriate measures to protect its interests, the EU should not lose sight of its economic policy objectives: an open Europe that remains connected to partners around the world through rules-based global trade. Here, a balancing of the Union interest should be part of the

9 To underscore their opposition to extraterritorial laws, European policymakers also formulated the possibility of a clawback under Article 6 of the EU anti-boycott regulation. This article enables affected Europeans to compensate for damages caused by lawsuits before U.S. courts. For this purpose, assets of the plaintiffs in Eu-ropa are to be seized and sold. See also: Vaughan Lowe, “Helms-Burton and EC Regulation 2271/96“, in: The Cambridge Law Journal 56 (2), July 1997, p. 250. 10 Jeffrey Lewis, “The Institutional Problem-Solving Capacities of the Council: The Committee of Permanent Representatives and the Methods of Community”, in: Max-Planck Institut für Gesellschaftsforschung (MPIfG) Discussion Paper 98/1, February 1998, p. 32. 11 This was linked to the rapid reinstatement of extraterritorial U.S. sanctions against Tehran, which had originally secured the conclusion of the nuclear agreement in conjunction with its European partners. At the heart of these sanctions was, and still is, the intention to make it almost impossible for companies to do business by threatening financing banks with exclusion from the U.S. dollar zone. See also: BDI, Iran Sanctions: U.S. Withdrawal from the JCPoA - BDI Position on the Reintroduction of U.S. Economic and Financial Sanctions against Iran, July 2018, <https://english.bdi.eu/publication/news/iran-sanctions-u-s-withdrawal-from-the-jcpoa/>. 12 Mathias Brüggmann, „EU-Schutzmechanismus gegen Trumps Iran-Sanktionen wird zum Fehlschlag“, in: Handelsblatt, 28 January 2019, <https://www.handelsblatt.com/politik/international/blocking-statut-eu-schutzmechanismus-gegen-trumps-iransanktionen-wird-zum-fehlschlag/23917690.html?ticket=ST-2751322-UGIpb5urHspyDWYkPpTI-ap5> (accessed 9 January 2021); Deutsche Welle, „Interview Anahita Thoms – EU-Blockade gegen US-Sanktionen, wie wirksam?“, in: Deutsche Welle, 18 May 2018, <https://www.dw.com/de/eu-blockade-gegen-us-sanktionen-wie-wirksam/a-43844483> (accessed 8 February 2021); Niklas Dummer, „Interview Laura von Daniels SWP – Die Nachteile der US-Sanktionen überwiegen heute die Vorteile des US-Geschäfts“, in: Wirtschaftswoche, 19.5.2018, <https://www.wiwo.de/politik/europa/us-wirtschafts-expertin-die-nachteileder-us-sanktionen-ueberwiegen-heute-die-vorteile-des-iran-geschaefts/22583752.html> (eingesehen 7.2.2021); Vaughan Lowe, “Helms-Burton and EC Regulation 2271/96“, in: The Cambridge Law Journal 56 (2), July 1997, S. 250.

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triggering mechanism. Only then will such an instrument generate tangible and sustainable benefits for companies.

▪ Since the very adoption of an anti-coercion instrument will lead to reactions from third countries, it should be embedded in a uniform EU foreign policy. This is all the more important if, as the Commission is currently considering, the instrument is based on Article 207 TFEU. A consensus of the

EU Member States, for example after the conclusion of an implementing act, should help to ensure that the Union also speaks with one voice in the event counteractions have to be applied.

▪ An anti-coercion instrument seems particularly appropriate if it can be coherently integrated into a larger EU foreign policy strategy. Clearly, the deterring effects of an anti-coercion instrument and the prevention of geo-economic conflicts should be a priority for the EU. In areas of potential conflict, the EU should advance targeted and strategic dialogue processes with international partners. Only if designated as a reactive tool can an anti-coercion-instrument provide for the necessary stability and predictability in conflict situations.

▪ It is important for the EU to develop a political strategy that goes beyond reactive measures. That is, the EU should purposefully pursue a policy of strategic interdependence based on three principles: strengthen incentives, enable deterrence, protect economic operators.

– To create incentives, the EU should expand and further integrate its single market. The capital market and banking union are particularly important aspects to that effect. The pursuit of a digital

Euro, as already initiated by the ECB, should be continued. This measure will have an indirect impact on the attractiveness of the European currency – a decisive factor, since so far, the euro has lagged far behind the U.S. dollar as an international means of payment. The EU should also support invoicing in euros. For some transactions, such as in the energy sector, there is often no de facto need to use other currencies. Furthermore, the industrial base and technological competence must be strengthened through a comprehensive industrial strategy. Investments for infrastructure and network-based growth (energy, digitization, mobility) should strengthen Europe's attractiveness as a market and could usefully be integrated into Europe's connectivity strategy.

– Deterrence should not only generate counter-pressure but should be guided by multilateral principles. Countermeasures should, on the one hand, serve to enforce short-term and specific interests. At the same time, they must be embedded in a legitimate and international order. Thus, it is important that countermeasures are WTO-compliant and in line with the principles of international law.

– Protection of economic operators must not be limited to defensive measures. The EU has made a first, albeit unsuccessful, attempt to do this when it established INSTEX as a clearing house.

Further options should be considered and shaped into a coherent strategy that provides practical support services in a concrete and short-term manner. The following questions should, therefore, be considered further:

▪ Can payment channels and financial messaging services be made more resilient through international agreements?

▪ Should a European sovereignty fund be established, for example, to Europeanize the system of export credit financing? Or should such a fund support especially those projects that serve the strategic interest of the Union?

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