Position
Directorate General Trade: Mechanism to deter and counteract coercive action by non-EU countries
Langtitel, Beispiel: (Arial, 20 Pt, fett)
Referentenentwurf/ Regierungsentwurf
EU Anti-Coercion-Instrument (ACI)
zur Modernisierung der Netzentgeltstruktur
EU-Transparency Register Identification Number: 1771817758-48
Bundesverband der Deutschen Industrie e.V. BDI – Federation of German Industries
Published: 31 03 2022
Summary
Geopolitical adventurism has become a staple of today’s new cycle. The Federation of German Industries (BDI) recognizes with regret that a return to multilateralism and rules-based international relations will not come about simply because this would be factually beneficial to the vast majority of the globe’s public. As representation of the Associations of German Industries we insist that multilateralism is economically and politically the only way to sustainably conduct international relations However, in recent years and weeks, autocratic systems have successfully challenged the liberal world order. Therefore, BDI agrees strongly that the European Union must have the tools to defend its interest in rules-based and, ideally, multilateral economic relations. To reiterate, only multilateral economic relations can sustainably create absolute gains for all parties involved. This is why BDI agrees that there must be a structured and targeted process to impose costs on those who would do away with multilateral principles and otherwise interfere in the legitimate sovereign choices of the European Union or its Member States.
BDI supports the proposal of the European Commission in its endeavor to design a mechanism to deter and counteract coercive action by non-EU countries. The proposal is largely balanced, entails significant opportunities for Member States to interact with the Commission all the while offering an instrument to react, as a true measure of last resort, with counteractions that proportionally return the economic damage illegitimately brought about by countries that would weaponize their interdependence with Europe.
It is important to stress that all measures applied need to be targeted, proportional, temporary and solution oriented. The deployment of the ACI should avoid a further escalation of trade conflicts. To that effect, the BDI has suggestions to improve the proposed regulation. First, the definition should be altered to provide for a more robust protection against future misuse of the ACI. Second, the Commission should formulate deadlines for its actions to strengthen transparency and enhance business readiness. Third, the decisionmaking process should include a provision that ensures the Commission will no adopt implementing acts when the Council cannot deliver an opinion Fourth, the Commission should design a process that involves stakeholders beyond the regular consultation processes. Otherwise, counteractions are likely to have unintentional consequences. Fourth, economic operators should be eligible for compensation. This would alleviate the pressure felt by businesses, facilitate decision-making in the Council and, thereby, strengthen the deterrence of an anti-coercion-instrument.
Bundesverband der Deutschen Industrie e.V Mitgliedsverband BUSINESSEUROPE
Hausanschrift
Breite Straße 29 10178 Berlin
Postanschrift 11053 Berlin
Ansprechpartner
Dr. Nikolas Keßels
T: +49 30 2028-1518
F: +49 30 2018-2518
E-Mail: N.Kessels@bdi.eu
Internet www.bdi.eu
Introduction
TheFederationofGermanIndustries(BDI)welcomesthepublicationofdraft regulation 2021/0406 and positively acknowledges the distinguishing work the European Commission has put into its proposal In keeping with today’s contentious state of affairs in international relations, the Commission has delivered an adequate proposal for an instrument that could be deployed
- In a timely and measured manner;
- Proportionately and in the overall Union interest;
- In cooperation with economic operators to ensure sound evidentiary footing; as well as
- WTO-compliant and invariably in the pursuit of deterring coercive action.
BDI welcomes that the proposed basic act leans onto EU member states. It is the understanding of German Industries that a comitology-based process will require Europeans to develop incrementally and on a case-by-case basis a common understanding about their interests and goals at the interstices of foreign policy and external economic relations. The European Union will face increasing challenges in the next decades and, despite all efforts, Europe remains a long way from having a coherent and effective set of guiding interests in this particular policy field. The Commission’s proposed regulation formulates an adequate process for Member States to find common ground in geoeconomic crises.
BDI supports that the Commission has described a process at the end of which the EU is able to take a plethora of countermeasures. In our view, this is necessary so that coercive action can be properly reciprocated without harming economic activity heretofore unencumbered by a particular geoeconomic conflict.
BDI acknowledges that in order to outline a mechanism that will help Europeans deter economic coercion and incentivize open and rules-based trade, the process involved must necessarily be built so as to allow for situations not yet anticipated. This requires some leeway for interpretation and, consequently, the proposed regulation includes language affording a broad range of potential applications. In the following BDI makes suggestions to improve this process.
1. Definition
Article 2(1) establishes economic coercion as economic measures taken to unduly influence Europeans’ legitimate sovereign policy choices To establish coercion, several conditions must be met. Therefore, economic coercion is defined by, first, economic actions taken with the goal to, second, compel a change in the Europeans’ policy agenda.
Economic Coercion as Foreign Policy – How to Respond
However, the definition fails to provide for the motive with which coercive action is taken. Given the notoriously political nature driving the abovementioned fact patterns, a positive identification of such motivation would be hard to provide After all, geoeconomics – the pursuit of geopolitical goals by economic means – fails to easily lend itself to the precision required from a regulation. It should, nevertheless, matter why a foreign government takes economic measures against the Union or its Member States. When the Commission examines certain economic measures deployed up by third countries, it should be clear that such an examination focusses on third-country behavior driven by goals other than economic policy.
Use and Strengthen Dispute Settlement
As a matter of course, not all measures might be appropriately responded to using the ACI The BDI, therefore, strongly supports the process described inArticle5oftheproposal. ItisimportantthattheEUstrengthensitscapacity to address and resolvepotential politico-economic conflicts belowthethreshold of deploying the ACI The EU has established a myriad of cooperative agreements with many international partners. With its enforcement regulation, the EU has even decided to form an international coalition of likeminded countries supporting the currently dysfunctional WTO appellate body The EU should conclude trade agreements with like-minded partners and, thereby, continue to address controversial issues by way of consultation and international arbitration, first The ACI should only be deployed – as the Commission has emphasized multiple times – as a measure of last resort.
Preventing Misuse
It is BDI’s understanding that most scenarios, in which a potential misuse of the ACI could be envisioned, are covered and forestalled by Article 2(2) as well as the Union Interest Test that is featured eight times within the draft
EU Anti-Coercion-Instrument (ACI)
regulation. What is more, werecognizethat the EU has long beena champion of free trade and a rules-based international trading order.
But, leveraging trade and business relations to attain otherwise political goals is becoming more prominent around the globe and within Europe as well. Without recognizing anon-economicmotivebehindeconomic coercion,BDI is concerned that contentious economic policy choices by the EU could be pursued in the future by deploying the ACI as a reactionary tool in an escalating economic dispute the EU might have initiated
In light of the above, the Federation of German Industries proposes to add a third criterion. Article 2 (1) [Scope] would then read as follows:
“This regulation applies where a third country:
- interferes […]
- by […] measures affecting trade or investment
- and where such measures can be reasonably linked to a non-economic foreign policy agenda by the respective third country.”
We also petitionthe Commissionto provide thegeneral public with scenarios or case descriptions of how an anti-coercion-instrument might be deployed in the future.
2. Deadlines
In its proposal, the Commission has refrained from specifying deadlines up until which it would make decisions. Instead, the only indication of when decisions are made and for how long these would stand in emergency cases is given because as a basic act the regulation would be structurally linked to Regulation (EU) 182/2011.
The abovementioned leeway certainly should have a place in the time management that the Commission and the Member States chose in addressing economic coercion. Particularly Articles 5 and 6 rely on procedures in which Europeans should not be pressed for time.
However, Articles 3 and 4 should be more precise regarding the time frame that Member States and the public can expect from the Commission. The language used already indicates that the Commission intends to do its utmost
to facilitate a timely response And while it certainly makes sense that the Commission would act as fast as possible, BDI proposes that there should be a maximum time allotted to the Commission for convening all relevant facts.
Therefore, BDI proposes that the Commission give clear indications of:
- When it will start examination procedures and that the Commission will inform through publication in the Official Journal of the European Union;
- When it will inform stakeholders about consultations;
- And at what point the Commission will notify the respective third country of its decision.
Actions that postdate engaging (1) with the respective third country, (2) potential international partners, and (3) the wider network of international fora as well as adjudication mechanisms should not be put on a time-axis. It is BDI’s understanding that with the Commission adopting an implementing act the ensuing course of action is already limited by the procedure laid down in Article 15.
3. Decision-Making Procedures
With regard to Article 15 of the Regulation, BDI is concerned that the decision-making process fails to address the overall difficulty of a legal instrument at the interstices of external economic relations and foreign policymaking BDI unequivocally supports that DG Trade has taken up the portfolio and written the draft proposal under Article 207 TFEU. It is clear that Europe should react economically to geoeconomic pressure. While the goals pursued by coercing non-EU countries might be political, the Commission and the Council must treat the economic measures directed against Europe as the genuine trigger for countermeasures.
Nevertheless, it should be acknowledged that with the proposal for an AntiCoercion-Instrument we as Europeans find ourselves in unchartered waters. Proposing ACI under Article 207 TFEU has consequences on how the Member States are involved when the Commission wants to act. Overall, we agree that decision should be taken by majority and BDI explicitly rejects any format relying on Member States to find a consensus thereby giving individual Member States veto power. Given, however, the challenging trade-offs for MemberStates andthe resolvenecessary for Europeto project its willingness
to act, it is the position of German Industries that the basic act should provide a clause in relation to Article 5(4b) of Regulation (EU) 2011/182: when the Council is unable to deliver an opinion the Commission should not adopt the draft implementing act in question.
4. Involving the Business Community in the Union Interest
Article 11 is designed so that an economic view will be informing the Commission’s design of any countermeasures – except for Article 11(6) – before such measures are implemented. Even in the case of an immediately applicable implementing act, the Commission is obliged to hold what is called a targeted consultation of relevant stakeholders. It is the position of the BDI that only a structured consultation practice can effectively connect economic stakeholders and political decision-makers. Without such information, any Union Interest Test would otherwise be likely to err on the side of governments rather than the Union as a whole.
When it comes to the Union Interest Test, BDI suggests that measures to increase transparency would strengthen both the ACI as a foreign economic policy tool as well as the process through which EU Member States define their common interest at the interstices of foreign and economic policy. It is therefore the view of the BDI that the Commission should publish its reasoning and themethodology behind its definition oftherespective Unioninterest either on a case-by-case basis or as a set of generally applicable criteria
Regarding the consultative practice of the Commission, it is the view of German Industry that there should be a continuous outreach-mechanism or outreach-effort informing the Commission about both the ramifications of economic coercion by non-EU countries as well as potential externalities of countermeasures. Such a mechanism should accompany the entire position finding procedure of the Commission and the Council. To clarify, such a mechanism should not serve to circumvent regular consultation procedures. It is, however, very likely that geoeconomic conflict will often require swift action. At the same time, such action cannot be decisive if the Commission is unableto establish whichsectorssuffer from economiccoercion and which sectors would have to bear the cost of anti-coercive countermeasures.
Therefore, BDI proposes that the Commission seeks input on an ongoing basis from European and national business associations already while
examining actions suspected to qualify as economic coercion under Article 3. In the absence of an EU Resilience Office or an inter-institutional resilience committee, the Commission could design and convene when necessary an expert commission with delegates from European business and industry to provide a transparent and structured setting. Signaling that action under Regulation 2021/0406 is being considered, such a mechanism would also enable concerned economic operators to hit the ground running when swift and decisive action requires expedited consultation procedures.
5. Compensation
Geoeconomic conflict weaponizes interdependency by specifically targeting business relationships for the purpose of pursuing geopolitical goals. In more abstract terms, Geoeconomics surrenders the economic logic of absolute gains for a power-centered logic of relative gains. It should be clear that liberal-democratic market economies will not be able to withstand economic pressures to thedegreethatautocraticregimes will beable ignorethematerial needs of their publics. Economic operators in liberal-democratic market economies will often have to foot the double bill of losing market share while still taking part under competitive market conditions elsewhere This has direct and detrimental effects on wealth and employment in both the economic sectors concerned as well as for the wider society.
When it is economic operators who face the music of geoeconomic dispute through economic coercion and/or countermeasures, German Industry insists that a mechanism should be designed through which the externalities of geoeconomic dispute can be kept to a tolerable level. BDI proposes a compensation mechanism because
- compensation ensures that businesses exposed retain some level of predictability enabling them to look for market opportunities elsewhere;
- compensationwouldmakeiteasierforpotential countermeasurestopass a Union Interest Test and, therefore, support Commission and Council in balancing the multitude of at times opposing policy goals and interest;
- compensation would clearly signal to non-EU countries contemplating coercive measures that the pressure intended to alter and frustrate Europe’s legitimate sovereign policy choices will entail prohibitive costs.
EU Anti-Coercion-Instrument (ACI)
About BDI
BDI conveys the interests of German industry to political decision-makers and provides support for business enterprises engaged in global competition. BDI has at its disposal a widely branching network in Germany and Europe, in all important markets and in international organizations. BDI strategically flanks international market openings. And, it offers information and economic policy consultations for all industry-related topics. BDI speaks for 40 trade associations and more than 100,000 enterprises with around 8 million employees. Membership is voluntary. 15 organizations in the regional states represent the interests of industry at the regional level.
Imprint
Bundesverband der Deutschen Industrie e.V. (BDI) Breite Straße 29, 10178 Berlin www.bdi.eu
T: +49 30 2028-0
Contact
Matthias Krämer
Head of Division
External Economic Relations +49 30 / 2028 - 1562 m.kraemer@bdi.eu
Dr. Nikolas Keßels
Senior Manager
External Economic Relations +49 30 / 2028 - 1518 n.kessels@bdi.eu
BDI Document No.: D 01538