EU Enforcement Regulation

▪ Could such a fund perhaps also provide financial assistance to support companies that fall victim to extraterritorial sanctions through no fault of their own - i.e. without any previously foreseeable sanction risk (example: JCPoA)?

▪ The availability of information for state actors is central to the design and implementation of a reactive anti-coercion instrument. Here, anonymity is a necessary prerequisite for economic operators to share sensitive information. Against this background, consideration should be given to how this confidentiality can be made legally secure. Separation from the requirements of the blocking statute is certainly one of the sufficient conditions in this context. The question therefore arises whether a single European body – an EU resilience office – should collect information on how businesses are affected by extraterritorial sanctions and, in turn, process this data for the protection of economic operators for European measures.

Measures to protect against extraterritorial economic constraints and to enforce geo-economic interests are largely new territory for Europe. The common market and EU foreign trade thrive on open trade. An explicitly horizontal industrial policy – also known as economic order policy or Ordnungspolitik – is one of the cornerstones of our social prosperity and should not be sacrificed to the trend of geopolitical kerfuffle. This makes it all the more important for the EU to find a sensible balance that incentivizes rules-based trade, deters geo-economic escalation, leverages the EU’s economic weight when necessary, and provides for corporate protection. Only in this balance can Europe retain its strategic interdependence with the world.

EU Enforcement Regulation

The EU Enforcement Regulation allows the EU under certain conditions to withdraw or suspend concessions made in international trade agreements or to introduce new restrictions (such as tariffs or quotas) in order to protect the Union's trade interests. The original prerequisite for such measures was, among other things, a completed WTO dispute settlement procedure: No measures could be taken without a final WTO ruling.

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Status quo

Due to the blockade of the WTO Appellate Body14 the European Commission on December 12, 2019, presented an amendment to the EU Enforcement Regulation to provide the EU legal framework for enforcing EU rights under the WTO Agreement even if the interim review mechanism (Multi-party interim appeal arbitration arrangement, MPIA)15 is not available and the blocked appellate body prevents the conclusion of the WTO dispute settlement. The aim is to prevent the EU's trading partners from using the paralysis of the Appellate Body to their advantage by undermining the international, rules-

13 European Parliamentary Research Service, Review of EU Enforcement Regulation for Trade Disputes, 20 July 2020, <https://www.europarl.europa.eu/RegData/etudes/BRIE/2020/652021/EPRS_BRI(2020)652021_EN.pdf>. 14 Since December 11, 2019, the Appellate Body (AB) of the World Trade Organization's dispute settlement mechanism is no longer able to act, as the United States are preventing the necessary replacement of AB members. This means that WTO dispute settlement cases cannot be brought to a final conclusion. Even with the election of Joe Biden as the new U.S. President, it is not clear whether and when the United States will abandon this blockade. 15 The MPIA is an independent, two-tier dispute settlement system based on WTO law that was created in the wake of the WTO Appellate Body blockade. In addition to the EU, more than 20 other WTO members have joined. The MPIA is to be available until the WTO Appellate Body is able to function again.

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based trading system. It also aims to address similar problems under bilateral and regional trade agreements. The updated enforcement regulation entered into force in February 2021.

Therefore, countermeasures will be possible if the dispute settlement panel of the WTO or of a bilateral or regional free trade agreement has ruled in favor of the EU, but the other party blocks the further dispute settlement process. This agreement extends the scope of the Regulation to trade in services and certain aspects of intellectual property (trademarks, designs, geographical indications), thus allowing the use of trade policy measures in these areas. The regulation also provides for the Commission to investigate treaty violations in the area of sustainable development as well as market access violations and, where appropriate, to take enforcement action when permitted by the basic trade agreements.

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Recommendations

For German industry the top priority is open and rules-based world trade. The preferred framework for this is and remains the World Trade Organization. German industry therefore welcomes the fact that the European Commission is pushing hard for reform of the WTO and for independent and binding dispute settlement. Only if international rules are enforced can we prevent the law of the strongest. Only if there are orderly procedures for enforcing rules can escalating trade conflicts be avoided. When trading partners block agreed rules and independent arbitration procedures, the EU must be able to respond in terms of multilateral rules and principles. In doing so, the Union interest must be taken into account in a balanced way, with the aim of preventing protectionism at home and around the world.

Against this background, the BDI supports the adaptation of the EU Enforcement Regulation:

▪ The amendments ensure, in line with the EU's internal rules and with international law, that the EU can take effective action against third country breaches of law despite the WTO dispute settlement blockade and possible dispute settlement blockades in other trade agreements.

▪ The EU must be able to react quickly and proportionately when European companies are affected by clear violations of international agreements by a third country.

▪ By extending the scope of the enforcement regulation to services and intellectual property rights, the EU is closing its own legal gaps and increasing its ability to respond appropriately to breaches of rules by third parties. In doing so, care must be taken to ensure that the measures are in line with the Union interest, do not create unnecessary bureaucracy, and contribute to strengthening international law, particularly in the area of intellectual property rights.

▪ Sustainable development agreements in trade agreements should be binding and enforced where possible. BDI supports the EU's approach, which relies on incentives (including consultation procedures, transparency, civil society participation in monitoring, naming and shaming, etc.) and support when it comes to enforcement. BDI remains critical of the enforcement of sustainability chapters of

FTAs. The CTEO should also not be able to take action on the basis of the enforcement regulation beyond the set of rules laid down in free trade agreements.

16 European Parliament, Stronger EU powers in trade disputes, 11 November 2020, <https://www.europarl.europa.eu/news/en/press-room/20201105IPR90923/stronger-eu-powers-in-trade-disputes-trade-meps-back-rule-revision> (accessed 25 November 2020).

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