EU Musketeer Oath Against Coercion
Trade wars 2.0 are unhinged and decadent
The message from Brussels is: We are prepared for trade wars, and let us show you our weapons, president-in-waiting Trump. EU’s new Anti-Coercion Instrument for protecting the EU and its Member States from third countries’ economic coercion entered into force on 27 December 2023. It is by nature country-agnostic, but it was obviously intended to be used against China, exemplified by the case when the China put pressure on Lithuania after it opened a Taiwanese Representative Office in 2021, banning import of certain products from Lithuania until the EU intervened.
Photo by Road Ahead on Unsplash
EU is not being confrontational, far from, but it is a fact that EU together with G7 has been preparing for the situation, should an incoming American administration want to use tariffs for political purposes. There are appropriate answers and safeguards in place, and it was even on the agenda of the last G7 meetings. USA agreed to the measures, but Trump seems to ignore it, at least for now while he can still seek to save face by propping up his campaign rhetoric for one last time, perhaps.
The White House statement on what came out of the G7 meeting in May 2023. Excerpt from May 20, 2023 - G7 Leaders’ Statement on Economic Resilience and Economic Security:
Addressing economic coercion
The world has encountered a disturbing rise in incidents of economic coercion that seek to exploit economic vulnerabilities and dependencies and undermine the foreign and domestic policies and positions of G7 members as well as partners around the world. We will work together to ensure that attempts to weaponize economic dependencies by forcing G7 members and our partners including small economies to comply and conform will fail and face consequences. We express serious concern over economic coercion and call on all countries to refrain from its use, which not only undermines the functioning of and trust in the multilateral trading system, but also infringes upon the international order centered on respect for sovereignty and the rule of law, and ultimately undermines global security and stability.
Using tariffs to put pressure on Denmark, Greenland, Panama and even Canada in a sovereignty conflict is the very definition of economic coercion. Using it to pump up an issue to become a security conflict is not just coercion, it is decadent foreign policy that can only be seen as an attempt to harm both parties in the conflict as well as World security and peace.
EU is ready to activate the ‘Musketeer oath’ of the EU inner market. It is the economical warfare version of NATO’s famous Article 5 that stipulates an attack on one member is considered an attack on all members. It is based on two simple premises.
EU Single Market
EU lives by the very simple and strong line of thought that trade is good and free trade is the best for all participants. Unlike the Mercantilist and monopolist thinking that preceded liberal economy, open market access is about growing the cake, not just fighting over how to slice up the existing cake. Creating a single market for EU and open borders is one of the greatest achievements of the community. It means that trade between member countries is not hindered by barriers such as tariffs.
The single market has one border to the outside World, where trade is regulated by international law and possibly trade agreements with other countries and organizations. If USA wants to put a tariff on goods from a EU member country, it applies to all member countries. The customs papers say ‘Origin: EU’, anyway. So if USA wants to impose a tariff on certain imports from, say, Denmark, this tariff must be applied to all such imports from any EU country, as well.
Since it is impossible to distinguish by country of origin within the EU, the USA can try to single out a product or some products that are predominantly produced in a certain country instead. For instance, USA has a long standing restriction on cheese made with raw milk. It’s clearly a niche, but France and a few other EU countries make excellent raw milk cheeses that cannot be imported to USA. Maybe the new administration will change US policy on raw milk. In the first Trump trade war, EU was hit by aluminium and other materials tariffs. EU retaliated with specific tariffs on Harley-Davidson motorbikes and Bourbon Whiskey that obviously were aimed at certain regions. The whole thing ran out of steam.
Musketeer Oath
A united EU will apply the musketeer oath that the EU member states entered into a little over a year ago with the aim of deterring third countries from tyrannizing countries in the union. It was originally aimed at China, which has been much more covertly and subtly involved in hitting certain exports, but can just as well be used on allies such as USA, even if it was not intended to be.
Trump is threatening to break rules that have been in place since WWII, such as the World Trade Organization (WTO) riles that were established in 1995 as a replacement for the GATT agreement (General Agreement on Tariffs and Trade) from 1947. The purpose is to facilitate trade in goods and services and create a stable framework for producers, exporters and importers. However, during his first presidency, Trump blocked the WTO's Appellate Body from getting new judges, thus effectively paralyzing it.
There is a loophole in the WTO rules so that a country can refer to national security. Trump has done this before. He can and will probably declare a national security interest, and then he can argue that he is allowed to do more or less whatever he wants. But national security must be taken honestly and sincerely, cannot be interpreted as anything. Otherwise, partner will just see it as simply and deliberately braking the rules.
A conflict with EU or any member country will lead to conflict that could ultimately cause the US to withdraw completely from international cooperation on trade in the WTO. If it leads to a lawsuit that Trump inevitably will lose, he may use it as a chance to withdraw from the WTO.
The EU Regulation on Anti-Coercion
The Regulation (EU) 2023/2675 of the European Parliament and of the Council of 22 November 2023 on the protection of the Union and its Member States from economic coercion by third countries defines the conditions for when to take united action against outside offenders. Point 15 out of 37 of the preamble reads:
Coercion is prohibited and therefore a wrongful act under international law when a country deploys measures such as trade or investment restrictions in order to obtain from another country an action or inaction which that country is not obliged to perform under international law and which falls within its sovereignty, and when the coercion reaches a certain qualitative or quantitative threshold, depending both on the objectives pursued and the means used. The Commission and the Council should take into account qualitative and quantitative criteria that help in determining whether the third country interferes in the legitimate sovereign choices of the Union or a Member State and whether its action constitutes economic coercion which requires a Union response.
Among those criteria, there should be elements that characterise, both qualitatively and quantitatively, notably the form, the effects and the aim of the measures which the third country is deploying. Applying those criteria would ensure that only economic coercion with a sufficiently serious impact or, where the economic coercion consists in a threat, that only a credible threat, falls under this Regulation.
In addition, the Commission and the Council should examine closely whether the third country pursues a legitimate cause, because its objective is to uphold a concern that is internationally recognised, such as, among other things, the maintenance of international peace and security, the protection of human rights, the protection of the environment, or the fight against climate change.
"I am delighted that the Anti-Coercion Instrument has now entered into force, and I thank the co-legislators for their work and commitment to make it happen. This critically important tool sends a clear signal that the EU rejects economic coercion by third countries, and will be more assertive in defending our legitimate rights and interests. It is an important building block for the EU’s economic security and that of our Member States. The ACI provides an assurance of resilience and stability in an increasingly unstable world." Valdis Dombrovskis, Executive Vice-President and Commissioner for Trade - 27/12/2023