EU Needs Better Protection Against Chinese Sanctions, Researchers Say

The EU needs to better diversify its trading partners and reform its anti-coercion instrument to protect itself from Chinese sanctions, Hinrich Foundation researchers said in a report this week. The EU also should establish a new multilateral economic security office to study and better respond to sanctions and trade restrictions imposed by third countries, the report said.

Europe needs to improve its ability to protect itself from China restrictions partly because of Beijing’s actions to sanction Lithuania, which had shown support for Taiwan involvement in the World Health Organization, the report said. China last year imposed “its most comprehensive sanctions regime against an individual country to date” against Lithuania, and that should be viewed as a “test case of future economic coercive measures against other EU member states that push back against China’s geo-strategic interests like the isolation of Taiwan.” The sanctions against Lithuania “signal a shift” in China’s coercion strategy, the report said, and could lead to Beijing more frequently using its trade restrictions as its economy continues to grow.

“Beijing is fine-tuning its strategies in a deeply worrying trajectory,” the report said. “China could easily take similar actions against other countries that seek closer ties with Taiwan.”

EU countries need to “hone and build up” defenses to potential Chinese sanctions, the report said, including through more trade diversification. European countries should start to cement more trade relationships with emerging economies, the report said, especially for its industries that are most dependent on exporting to China.

The EU also needs to reform its anti-coercion instrument, the think tank said. The EU first proposed the tool last year (see 2112090032) to respond to unfair economic and trade practices, but the tool needs to be “more applicable to current and future challenges” posed by China, the report said. The tool doesn’t allow the EU to respond to secondary economic sanctions or other types of “pressure” placed on European companies, the think tank said, including the Chinese sanctions imposed on Lithuania. The EU should reform the tool to allow the bloc to “respond to Beijing’s coercion in legal gray zone areas, particularly in the form of indirect pressure through supply chains.”

Europe also needs to update the anti-coercion tool's decision-making mechanism, the report said. The tool currently allows a qualified majority of EU member states to stop the European Commission from imposing certain countermeasures against a third country, the report said, but it also should include a procedure that allows a majority of EU member states to approve a countermeasure.

The EU also could better respond to Chinese sanctions and economic coercion by creating a joint office between the European Commission and the North Atlantic Treaty Organization to “address economic security issues,” the think tank said. This “Resilience Office for Economic Security” would analyze economic coercion by third countries and stay in “close contact with EU institutions as well as NATO member states to address the systemic challenges posed by China’s economic coercion.”

The new office also would help formalize many of the multilateral measures imposed against Russia for its invasion of Ukraine, the report said, including sanctions and export controls. “This new joint office could formalize that cooperation and ensure that countries like the United Kingdom, Canada, and the United States are also brought into key discussions related to economic coercion,” the report said.