The EU Anti-Coercion Instrument

The EU Anti Coercion Instrument: the short answer

The EU Anti Coercion Instrument (ACI), Regulation (EU) 2023/2675, gives the European Union a legal framework to respond when a third country uses trade or investment measures to pressure the EU or a Member State into a particular policy choice. The Commission examines suspected coercion, the Council determines by qualified majority whether coercion exists, the EU seeks a negotiated solution and, as a last resort, the Commission adopts response measures such as tariffs, import or export restrictions, exclusion from public procurement, restrictions on services, investment or intellectual property rights. The Regulation was published on 7 December 2023 and has applied since 27 December 2023.

For German companies, the Anti Coercion Instrument matters in two ways. First, they may be targets of third-country coercion, for example through import bans, selective customs checks or boycotts, and can provide information to the Commission. Second, they may be affected by EU response measures that restrict their imports, procurement opportunities or licensing arrangements with the third country concerned. This article explains the procedure and what businesses can do.

What counts as economic coercion

Under Article 2(1) of the 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 Union or a Member State, thereby interfering in their legitimate sovereign choices. The Commission and the Council take into account factors such as the intensity, severity, frequency, duration and breadth of the measure, the pattern of conduct of the third country, the extent to which the measure encroaches on an area of EU sovereignty, and whether the third country acts in good faith based on a legitimate concern recognised internationally.

Coercion can take many forms: formal tariffs or import bans, informal measures such as discriminatory inspections, licensing delays, boycott campaigns encouraged by the state, or pressure on companies to take sides in a political dispute. The Anti Coercion Instrument covers both formal and informal measures, provided they can be attributed to the third country.

The procedure step by step

The Council's role at the determination stage was a political compromise: Member States wanted control over the finding that coercion exists, while the Commission adopts the measures through the comitology procedure. The Commission's proposal must set out an indicative period, normally not exceeding six months, for assessing whether response measures are needed (Article 5(1)).

Response measures under the Anti Coercion Instrument

Annex I lists the response measures available. They are broader than in any previous EU trade instrument:

• new or increased customs duties, including beyond the most-favoured-nation level;
• restrictions on imports or exports of goods, including goods subject to export control;
• restrictions on trade in services and on foreign direct investment;
• exclusion of goods, services or suppliers from EU public procurement, or score adjustments in tenders;
• restrictions on the protection or commercial exploitation of intellectual property rights;
• restrictions on banking, insurance, access to EU capital markets and other financial services;
• restrictions on market access under EU sanitary, phytosanitary and chemicals legislation.

Measures can be of general application or target specific natural or legal persons connected or linked to the government of the third country (Article 8(3)). They must be proportionate and not exceed the level of injury to the Union (Article 11(1)). In selecting measures, the Commission must consider their effectiveness, their negative impact on EU actors, including the availability of alternatives for EU importers and users, and the risk of escalation.

Why the EU created the instrument

Before 2023, the EU's trade toolbox was built around WTO dispute settlement and trade defence. These tools work well against dumping, subsidies or violations of trade agreements, but they are slow and ill-suited to measures that are informal, deniable or aimed at political rather than commercial goals. Several episodes in which third countries put pressure on individual Member States through import restrictions and pressure on companies showed that a single Member State could be targeted to influence EU policy as a whole.

The Anti Coercion Instrument responds by treating coercion against one Member State as a concern of the whole Union and by giving the EU a credible, rules-based response. Its recitals stress that the primary objective is deterrence and that response measures are a last resort after engagement. This design reflects the EU's preference for negotiated outcomes and its commitment to international law, including the principles of the UN Charter and of WTO law.

Relationship with WTO and international law

Some response measures listed in Annex I could, in isolation, breach the EU's obligations under WTO agreements, for example tariffs above bound rates. The Regulation therefore expressly contemplates that measures "may amount, as necessary, to the non-performance of applicable international obligations". The EU's position is that such measures are permissible countermeasures under customary international law in response to an internationally wrongful act of the coercing state, provided they are proportionate and aim to induce compliance. Third countries may contest this view, so the use of the ACI carries a risk of legal and political escalation.

For businesses, this means that EU response measures could remain in force for a period even if the third country challenges them, and that retaliation by the third country against EU exports is a realistic scenario to plan for. Contracts and investment decisions should account for the possibility of a cycle of measures and counter-measures.

The Union interest test

Response measures may only be adopted if they are in the Union interest (Article 9). The Commission considers the interests of the Union and of Member States, including those of upstream and downstream industries, consumers, SMEs and workers, and the broader EU policy objectives. This test is where business input matters most. A measure that would hurt EU manufacturers more than the third country, for example by cutting off inputs without alternatives, is unlikely to meet it.

The Anti Coercion Instrument also allows the Union to request reparation for injury caused by the coercion. If the third country refuses, response measures can be maintained until the injury is repaired, subject to proportionality.

Use and deterrence

The Anti Coercion Instrument was designed first and foremost as a deterrent: its existence should make coercion less attractive. Since 2023 it has featured prominently in public debate about trade tensions, including in discussions about tariffs imposed or threatened by major trading partners. Whether the Commission opens an examination in a particular case is a political as well as a legal decision, and the instrument's procedural steps mean that response measures would take months rather than weeks.

The ACI sits alongside other EU tools: trade defence instruments against dumping and subsidies, the Enforcement Regulation (EU) No 654/2014 for implementing WTO and bilateral trade rights, the Foreign Subsidies Regulation, the International Procurement Instrument and export controls. It does not replace the EU Blocking Statute, which protects EU operators against specific extraterritorial laws but does not authorise countermeasures.

What the Anti Coercion Instrument means for German companies

German companies are exposed in both directions. As potential victims of coercion, they should document third-country measures that appear politically motivated, such as sudden customs delays, inspections, licence refusals or exclusion from tenders, and consider informing the Federal Ministry for Economic Affairs and Energy and the Commission. As potential collateral damage of EU response measures, they should map dependencies on the third countries most likely to be involved and prepare contingency plans.

Contract and compliance implications

• Change-in-law clauses. Supply contracts with suppliers or customers in countries at risk should address new EU tariffs or import restrictions as well as third-country measures.
• IP licences. Licences with counterparties in third countries should consider the possibility that EU measures restrict the exploitation of IP rights.
• Procurement. Bidders using third-country suppliers should be aware that procurement-related response measures could exclude or penalise such supplies.
• Investment. Planned investments from or into the third country may face additional restrictions.

Governance inside the company

Because coercion episodes develop quickly and are politically sensitive, companies benefit from a clear internal process: a small team from legal, trade compliance, government affairs and supply chain that monitors developments, documents third-country measures, decides on communication with authorities and evaluates the impact of proposed EU measures. Board members should be briefed early, since decisions on supply, pricing and market presence may need to be taken under time pressure. Documentation gathered in this way is also valuable later, for example in insurance claims, contract disputes or claims for reparation if the third country is asked to repair the injury.

Illustration: a hypothetical third country restricts imports of German agricultural machinery after a Member State adopts a policy it opposes, while officially citing technical standards. Affected German exporters provide data on lost sales and the timing of the measures to the Commission. If the Council determines that coercion exists and negotiations fail, the Commission may impose tariffs on selected imports from that country, after consulting businesses on which products can be replaced from other sources.

How TRW & Co helps with the Anti Coercion Instrument

We advise German companies and associations affected by third-country coercion or EU countermeasures. We help document and present evidence of coercion to German authorities and the Commission, prepare submissions in Commission consultations on the Union interest, review supply, licence and distribution contracts for change-in-law risks and advise on interactions with sanctions, export controls and trade defence measures. Our work connects with our export control and sanctions and antitrust and foreign trade practices. See also our insights on US tariffs and contracts and China's export controls and countermeasures. To discuss your exposure, contact us.