The European Union’s geoeconomics tool box just got bigger: The Anti-Coercion Instrument (ACI), the EU’s latest tool to defend itself in the current geoeconomic environment, was signed on November 22, 2023 and came into force in late December. Thus, 2024 will be the first time the EU has the capacity to directly counter economic threats by third powers with its own joint measures. But how does this instrument fit into the EU’s overall pursuit of an “open strategic autonomy,” favoring multilateral cooperation?

In the present environment, trade and investment relationships are increasingly instrumentalized to achieve strategic goals in a coercive manner. In seeking to carve out its space in an intensifying US-China rivalry, the EU has in recent years proven eager to reconsider how it can use its own economic and regulatory force to shape the world in its own vision. Through its increasing use of sanctions, export controls, and tariff-mechanisms such as the Carbon Border Adjustment Mechanism (CBAM), Europe is slowly but surely stepping up its assertiveness in the realm of geoeconomics.

This recognition of the EU’s own geoeconomic strengths has also led to greater concerns about potential European weaknesses and insufficient capacity to defend itself. The EU has hence enlarged its defensive toolbox, including an investment screening mechanism, the international procurement instrument, the anti-subsidy regulation, and now the ACI, which has been two years in the making and is designed to counter economic coercion against the EU and its member states.

A Unique Connection

What’s noteworthy about it is that the ACI is the first formal instrument to connect two EU policy fields relevant to the geoeconomic agenda: the realm of trade, handled in the EU’s Common Commercial Policy (CCP) under the auspices of the European Commission, with the realm of the EU’s Common Foreign and Security Policy (CFSP), set by unanimous vote by member states in the Council of Ministers. Even if the ACI is formally rooted in the CCP and legally builds on the internationally recognized prohibition of interference in “sovereign choices” by the EU or its member states, the instrument can be seen as a major step in expanding the European Commission’s competency into the field of security policy.

How does this instrument work in practice? The novel ambition to better connect trade and security policies required lawmakers to invent a hitherto unknown institutional balancing act, which includes different tasks, deadlines, and obligations for the commission and the council: Based on a commission proposal (formulated after an initial investigation period, in which the commission can also seek confidential exchanges with both government and businesses), it is up to the member states to decide, via a qualified majority vote, whether a certain action by a third state against the EU or a member state counts as an act of economic coercion or not. If so, the commission is first asked to solve the conflict politically by reaching out to the state accused of coercive behavior.

If no solution is found, the commission can impose anti-coercion measures, which include prohibitions relating to trade, investment, financial services, intellectual property rights, or access to EU funding. Member states experts can, in the framework of the so-called comitology procedure and again on the basis of a qualified majority vote, still oblige the commission to withdraw the proposed measures at this late stage. If EU countermeasures are eventually adopted, they should only stay in place as long as the coercion is pursued.

Beyond applying the logic of EU trade policy to matters of coercion by other powers, traditionally being a question for foreign and security policy, the ACI was also designed to overcome a well-known obstacle to EU action when it comes to executing a common foreign and security policy: the condition of unanimity. In CFSP decisions, e.g., on sanctions, the EU requires the unanimous consent of all 27 member states. Especially when it comes to sanctioning Russia for its brutal war of aggression against Ukraine, some member states—Hungary in particular—have threatened to veto EU decisions and acted as spoilers.

In the case of the new ACI, member states representatives will go through two qualified majority votes before the commission can impose countermeasures against a third state. This is crucial for the ACI’s effectiveness, as the EU is now in possession of an instrument to counter possible threats to its economic security without having to rely on the unanimous consent of all EU governments.

Reality Check

Put another way, the ACI expands the authority of the commission into international security affairs while giving member states a mandate to determine what counts as economic coercive aggressions against the EU and whether the proposed countermeasures are appropriate. The question is, will it work? A few considerations highlight the challenges ahead:

The primary objective of the ACI is deterrence, which has been repeatedly underscored by EU policymakers. This means that the instrument will be successful if it does not need to be applied. But who has the economic and political power to pressure the EU or individual member states economically, either because of their sheer size or because of their strong economic interdependence with the EU. Besides the major economic players China and the United States, this could include countries that hold leverage over the EU in certain economic sectors—such as India, Russia, or Turkey.

In instances where the EU or an individual member state might become subject to acts of economic coercion, member states will most likely consider very carefully whether and how to retaliate. Given that the EU and its members continue to have a strong interest in keeping global markets and value chains open, there might only be very few instances in which the use of targeted trade or investment countermeasures will be seen as a viable step to tackle a critical run-in with another major global economic power. This opens the risk that other international players might test the EU’s willingness and ability to respond to smaller instances of economic coercion and, ultimately, call the EU’s deterrence bluff.

In other words, the countermeasures of the ACI will in all likelihood not come into play in most cases where the EU is subjected to economic coercion, but only in cases where the stakes are very high indeed. And the determination of whether the stakes are high enough will, de facto, often primarily be decided by two EU capitals: Berlin and Paris. Given the EU’s “double majority rule” (55 percent of EU member states representing at least 65 percent of the total EU population), it is deemed difficult to organize a qualified majority if Germany and France are not on board. Even if only one of them were on board, alliances with other major member states such as Italy, Spain, or Poland could also be enough to form a counterweight to a QMV decision.

Another possible impediment to the EU’s forceful use of its new tool might prove to be the novel institutional balancing act it encapsulates. Contrary to EU sanctions provisions, which ultimately can be adopted within days (as shown in the EU’s response to the Russian full-scale military invasion of Ukraine in February 2022) because they require only one final decision by the council, the ACI’s multi-staged process carries the inherent risk of becoming a victim of classic inter-institutional EU quarrels. Although it is formally the commission that reports an initial suspicion of economic coercion to the council, even this first step will likely only happen after strong informal inter-institutional deliberations.

Member states have previously proven unhappy with too independent actions by the commission in the geoeconomic realm. The presentation of the European Economic Security Strategy (EESS) in June 2023 serves as a case in point. It was strategically presented by the commission only a few days before the European Council was to discuss the issue at a summit meeting. But while the EESS included a lengthy passage on the politically contentious issue of outbound investment screening, the heads of states and governments in the European Council did not take the bait; the issue was only mentioned briefly and indirectly in the summit conclusions.

What to Expect in 2024?

For all these reasons, 2024 is unlikely to see many occasions where the ACI will be applied, especially against larger countries like China or the United States.

First, a too strong focus by the EU on countering economic coercion might be met with questions from both international partners and adversaries. The recent European appetite for increasing its use of both offensive and defensive geoeconomic measures will solidify foreign accusations against the EU of itself being a practitioner of economic coercion. This running with the hare and hunting with the hounds—i.e., condemning economic coercion while allegedly using it against others—might lead to accusations of engaging in double standards. In a rapidly changing global economic order, where the EU is searching for new global partners, such allegations will be taken seriously in Brussels—and serve as a reminder for policymakers to carefully weigh the benefits and costs of engaging in the geoeconomic game.

Second, EU member states might be very hesitant to trigger the ACI, despite the aforementioned use of QMV, if the threat is not reflective of a common European policy. The instrument was not least shaped in reaction to China’s coercion of Lithuania, whose companies in late 2021 experienced a sudden decreased access to the Chinese market after the Lithuanian government allowed the opening of a Taiwanese representative office in Vilnius (departing from the “traditional” European approach to welcoming representative offices of Taipei). Although EU member states formally supported the idea that Lithuania should be assisted against the coercion of China, informal questions were raised as to whether Vilnius’s “provocation” of Beijing was politically savvy and hence a reason for creating further economic confrontations with China. Similar questions will undoubtedly reoccur should Lithuania or other member states become subject to economic coercion by major powers because they engaged in political in-fights that are not reflective of a joint EU policy.

With the ACI, the EU has created a necessary step to bridge the traditionally separated fields of trade and security policies more effectively. However, so far it seems unlikely that the ACI will be used against major powers. More likely some weaker countries might be targeted in some instances. But it looks like a good insurance policy should new geoeconomic storms hit Brussels.

Kim B. Olsen* is research follow at the Geopolitics, Geoeconomics, and Technology Center at the German Council on Foreign Relations (DGAP).*

Claudia Schmucker* is director of the Geopolitics, Geoeconomics, and Technology Center at the German Council on Foreign Relations (DGAP).*