As global economic pressures mount, the EU has armed itself with a powerful new tool to counter economic coercion. The EU Anti-Coercion Regulation (Regulation (EU) 2023/2675) has been fully in force for about a year (officially entering into force on December 27, 2023) and is poised to shape the EU’s trade defense strategy. Designed to deter and respond to economic coercion by third countries, this instrument is gaining prominence in EU policy discussions. While no formal enforcement action has been taken yet, recent developments suggest that the deployment of this instrument is one of the strategies the EU is considering in order to safeguard its economic sovereignty.

Background

In recent years, the EU and its Member States have faced deliberate economic pressures, such as the trade restrictions China imposed on Lithuania after that country announced it was improving trade relations with Taiwan in June 2021. At the time, however, there was a legislative gap in the EU’s ability to address economic coercion, with existing legal instruments not adequately tackling this issue.

In response to these challenges, the European Commission (the Commission) proposed the Anti-Coercion Regulation in December 2021 as part of its new trade strategy. In particular, the Anti-Coercion Regulation goes beyond traditional trade enforcement mechanisms by enabling the EU to respond directly to coercive economic actions, even in cases where no formal trade dispute exists. In that way, it differs from the Trade Enforcement Regulation (Regulation (EU) No 654/2014), which was also updated in 2021 to allow the EU to impose countermeasures in trade disputes when a third country blocks dispute settlement proceedings. This makes the Anti-Coercion Regulation a uniquely flexible instrument in the EU’s trade defense strategy. It complements other initiatives aimed at enhancing the EU’s economic resilience, such as the European Chips Act and the Critical Raw Materials Act.

Determination of Coercion

Under the Anti-Coercion Regulation, economic coercion exists where a third country applies or threatens to apply a measure affecting trade or investment in order to prevent or obtain the cessation, modification or adoption of a particular act by the EU or a Member State, thereby interfering in the legitimate sovereign choices of the EU or a Member State.¹

The Commission may investigate economic coercion:

• On its own initiative or upon a reasoned request by a Member State; and²
• Normally within a timeline of up to four months.³

The investigation should consider the following factors:⁴

• Severity of coercion and impact on trade or investment relations;
• Pattern of interference or economic pressure by the third country;
• Extent of the encroachment on sovereignty of the EU or EU Member State;
• Legitimacy of the third country’s concerns under international law; and
• Efforts to resolve the issue through diplomatic or legal means.

If the Commission concludes, after examining the third-country measure,⁵ that it indeed constitutes economic coercion, the Commission will submit a proposal to the Council of the EU (the Council) (where EU governments are represented) to adopt an implementing act making a finding to this effect. The Commission may also propose that the Council determine the third country’s obligation to repair any injury caused to the EU by the coercion.

The Council will adopt the proposed implementing act by qualified majority, in principle within a period not exceeding 10 weeks from the submission of the Commission’s proposal.⁶ The Council’s implementing act will be published in the Official Journal of the European Union, and the European Parliament will also be informed.⁷ Upon the Council’s adoption of the implementing act, the Commission will inform the concerned third country and request that it ceases the economic coercion immediately and (depending on the Commission’s proposal) potentially also that it repairs the injury to the EU within a reasonable time frame.⁸

The Commission will also provide an opportunity for consultations to obtain cessation of coercion or to obtain reparations, potentially involving direct negotiations, international adjudication, or third-party mediation.⁹ The Commission, with due consideration for ongoing consultations, can also raise the matter in relevant international forums after consulting the Council.¹⁰

Although the Anti-Coercion Regulation has not yet been applied, as noted above, Bernd Lange, Chair of the European Parliament’s Committee on International Trade (INTA) and Rapporteur for this instrument, estimated that the process from the beginning of the investigation to the imposition of measures might take approximately 6 months, especially given the need to obtain majority Member State support.¹¹

Imposition of Response Measures

If, following these actions, the third country does not cease the economic coercion within a reasonable period and does not repair, where appropriate, the injury caused to the EU, the EU will take response measures. These measures must be:¹²

• Necessary to protect the interests and rights of the EU and its Member States; and
• In the EU interest, considering the proportionality and effectiveness of the response.

The Commission will adopt the response measures through a Commission implementing act on the third country and/or designated individuals or entities connected to the coercing government.¹³ The Commission, when contemplating response measures to be imposed on individuals or entities, must inform the concerned persons, detailing the reasons and measures under consideration, and provide an opportunity for the persons in question to present their observations.¹⁴ The measures will be published in the Official Journal of the European Union, ensuring transparency.¹⁵ The Commission reserves the right to seek relevant information from Member States and review the response measures imposed on individuals or entities if new substantial evidence emerges after their adoption.¹⁶

The date of application of the response measures will be specified in the Commission’s implementing act. Upon adoption of this act, the Commission will call on the third country to negotiate a solution, unless this would undermine the effectiveness of the response measures.¹⁷ The response measures may also be suspended, among other instances, when a mutually agreed solution has been reached.¹⁸

Types of Response Measures Available

The response measures that may be imposed based on the above process are listed and described in general terms in Annex I of the Anti-Coercion Regulation. For each type of measure, the Anti-Coercion Regulation stipulates that the EU may depart from the EU’s corresponding international obligations.

The categories of measures listed in Annex I are as follows:

1. Customs Duties: Imposition of new or increased customs duties, reestablishment of customs duties, or additional charges on import/export of goods.
2. Import/Export Restrictions: Introduction or escalation of restrictions on the import/export of goods, including on goods subject to export controls, through quotas, licenses, or other measures.
3. Trade Restrictions: Implementation of restrictions on trade in goods, including measures affecting transiting goods or internal measures applying to goods.
4. Public Procurement Measures: Measures affecting the right to participate in public procurement, such as exclusion of goods, services, or suppliers from the coercing third country, or imposition of score adjustments on tenders.
5. Trade in Services: Imposition of measures affecting trade in services.
6. Foreign Direct Investment: Measures affecting the access of foreign direct investment to the EU.
7. Intellectual Property Rights: Imposition of restrictions on the protection or commercial exploitation of intellectual property rights of rights holders from the coercing third country.
8. Financial Services: Imposition of restrictions on banking, insurance, access to EU capital markets, and other financial service activities.
9. Chemicals Legislation: Introduction or escalation of restrictions on placing goods covered by EU chemicals legislation on the EU market.
10. Sanitary and Phytosanitary Measures: Introduction or escalation of restrictions on placing goods covered by EU sanitary and phytosanitary legislation on the EU market.

When considering response measures affecting the granting of authorizations, registrations, licenses, or similar rights for commercial activities, the Commission will:

1. First, consider response measures affecting procedures initiated after the entry into force of the response measures in question.
2. Then, if no such response measures are available, consider response measures affecting procedures that have started but not yet been completed upon the entry into force of the measures in question.¹⁹

If neither type of response measure is available, the Commission may, in exceptional circumstances, consider other response measures. These response measures must not place a disproportionate burden on EU upstream/downstream industries, final consumers in the EU, or national regulatory processes, while ensuring effectiveness.

Additionally, when selecting response measures, the Commission should consider the level of EU harmonization and prefer measures applied EU-wide or in subject matter areas with extensive EU legislation. Response measures will not interfere with administrative decisions based on the evaluation of scientific evidence.²⁰

In any case, when the Commission is considering response measures, it should take into account the EU interest. The recitals of the Anti-Coercion Regulation also stress that the Commission should prioritize measures that would, among other things, not have a disproportionate impact on legal certainty and predictability for economic operators, and not impose disproportionate administrative complexity and costs.²¹

Implications for Businesses

With the Anti-Coercion Regulation now in force and the EU strengthening its trade defense measures, businesses engaged in international trade should take proactive steps to assess risks, build resilience, and be ready to adapt to the evolving regulatory landscape:

• Assess Exposure to Economic Coercion: Companies of third countries that have a history of using economic pressure against the EU or are currently considering such steps should assess the potential risk of EU response measures, such as reduced access to the EU market, customs duties, or other restrictions. Similarly, EU companies having trade relationships with such third countries should evaluate their supply chain dependencies. Businesses operating in strategic sectors – such as technology, energy, and critical raw materials – should be particularly attentive.
• Monitor EU Policy Developments: As mentioned above, the Anti-Coercion Regulation is gaining prominence in EU policy discussions as a potential tool to safeguard the EU’s economic sovereignty. Businesses should therefore track any announcements that could impact their operations. Engaging with industry associations and trade bodies can provide early insights into potential regulatory actions.
• Supply Chain and Investment Resilience: Companies should consider diversification strategies to reduce reliance on single-country suppliers, particularly in politically sensitive markets. Developing alternative sourcing options and ensuring contract flexibility can help mitigate disruptions.
• Engage with EU Authorities and Legal Advisors: Businesses that could be affected by economic coercion or potential EU countermeasures should engage with EU institutions early to ensure their interests are considered. As mentioned above, the Anti-Coercion Regulation entails a lengthier legal and political process before the imposition of a response measure. Seeking legal guidance early on can help companies navigate regulatory risks and compliance requirements and ensure that their position is considered in that process.

How Can WilmerHale Help?

WilmerHale has extensive experience advising clients on international trade and regulatory matters, including EU trade defense instruments. Our team has a deep understanding of the substantive issues presented by the Anti-Coercion Regulation and extensive experience in the intersection of similar legislation with international trade regulations as well as in the interpretation and application of international rules, including those of the World Trade Organization.

With the entry into force of and increased EU focus on the Anti-Coercion Regulation, companies are facing complex decision-making processes that involve political and strategic considerations. Our team is highly experienced in helping stakeholders assess potential risks, and navigate the evolving regulatory landscape, ensuring that you make informed and well-considered choices to protect your business.

WilmerHale is also actively involved in policy debates surrounding the EU’s Anti-Coercion Regulation and similar proposals in other jurisdictions, giving us valuable insights into the regulatory landscape. We can assist you in making representations to the EU institutions or to national authorities during the development of implementing acts for the Anti-Coercion Regulation, allowing you to voice any concerns and seek solutions before final response measures are adopted.

For further information, please contact a member of our European team or a member of our trade team in the United States.