The EU Anti-coercion Instrument (ACI)

Cesar Guerra
7 November 2023 by
Cesar Guerra

By Cesar Guerra 

Once upon a time, the multilateral trading system was nothing but the General Agreement on Tariffs and Trade (GATT). Back then, fixing trade disputes was almost meaningless. The dispute settlement system had no teeth. Therefore, there were few incentives for GATT Members to start a complaint because even if countries were found guilty of applying a measure against the agreed rules, they would not comply with the findings of a panel. The application of non-conforming measures would go on while just taking note of the result. Retaliation by the complaining country was not allowed. Cases against the EU on bananas and apples or against the US on grape/wine growers concluded during the time of GATT prove this point. 

One of the key changes with the establishment of the World Trade Organization was a new system to resolve disputes that incorporated the incentives to retaliate if a member would not comply with the findings of the panel of experts. The big players, including the US and the EU, agreed to play with by these new rules. An Appellate Body was created to ensure the rulings were consistent with the spirit of the Agreements as the new system needed an unbiased guardian to watch that the teeth were employed fairly. 

Long story short, the US wasn’t happy with the power granted to the WTO Appellate Body and demanded more freedom to apply domestic measures without being bothered by third countries’ complaints. Therefore, the US decided to boycott the system. 

The EU has been playing the honest broker role by engaging the US to find solutions. In the meantime, the EU established the MPIA to keep the system working for those members who sign up for it as a substitute for the Appellate Body. However, the dispute settlement system will continue to be broken unless the US were to change its mind and engages in the designation of Appellate Body members.  

The threats launched by China and the US proved that the EU could not rely on the WTO to protect their economic interests. The EU was under internal pressure to swiftly react against alleged (or not so alleged) illegal tariffs on steel and aluminum imposed by the US using national security concerns or the obstruction of Lithuanian exports to the Chinese markets for establishing closer ties with Taiwan. 

The ACI is to be implemented by the EU in December 2023. The objective is to use this instrument as a deterrent for third countries targeting the EU and its member states. Dialogue is expected to play a key role before, as a last resource, the EU adopts countermeasures in the form of: 

  • increased tariffs 
  • import or export licenses 
  • restrictions on trade in services 
  • access to foreign direct investment or public procurement.  

The fact that the EU has created an instrument like this says a lot about the times we are living in. In normal circumstances, when a country applies or threatens to apply a measure that affects trade or investment decisions, the WTO guarantees a procedure through a fair, neutral, and well-structured process to define whether such measure is compatible with trade commitments. The complainant may apply retaliatory measures if the claims presented are confirmed only after findings and ratification of an Appellate Body if needed. 

The Commission will now decide on cases under the ACI –more specifically a new unit in DG TRADE-, and therefore, if measures are consistent with the international legal framework and apply countermeasures, disregarding the regular procedures established in the WTO dispute settlement mechanism. This could be seen as a deviation from the current multilateral rules, but the trade world has changed significantly in the last decade. The question is whether the EU will take on the US as the first case to be launched under the ACI for pushing the EU to accept a WTO-inconsistent deal on steel and aluminum that affects EU companies.