Extraterritorial Sanctions Mean a Threat For The EU: What Could Be EU’s Reaction?
On December 3, 2020 I posted on LinkedIn and Twitter an EU study on “Extraterritorial sanctions on trade and investments and European responses”. The study focuses mainly on extraterritorial sanctions (so-called “secondary sanctions”) of the U.S.A. The study makes some recommendations how the EU can deal with the threat of U.S. sanctions with extraterritorial effect.
This study triggered some thoughts of mine and I ask whether the community is interested in my thoughts. I was overwhelmed by the reactions – thank you very much. As I promised I am going to share my thoughts on the recommendations in the aforementioned study in a two Part blog post.
Part I
The study recommends:
a) “Voicing the lack of legality of extraterritorial sanctions coherently and – jointly”
That means to trigger – jointly with other states – campaigning against extraterritorial sanctions. Well, this would mean primarily campaigning against the U.S.A. – a NATO-ally for numerous EU countries, the most important and Europe’s security guaranteeing military ally as well as the most important economic partner of the EU’s largest Member state.
Additionally, the study mentions that not just the U.S.A. uses the mechanism of secondary sanctions. It names the People’s Republic of China (China)’s tendency to like the idea of secondary sanctions.
To follow this recommendation would mean in consequence to campaign against two super-powers, which are both important for the EU in diverse aspects.
b) “Bringing a complaint against US measures in the WTO”
The study states: “In view of responses which aim at challenging the legality of the US extraterritorial sanctions, WTO dispute settlement is key and one of the more critical and relevant responses.”
It recommends complaining against the Helms Burton Act, U.S. legislation targeting foreign stakeholders acting in Cuba. The authors of the study hope the WTO arbitration body rules the illegality of secondary sanctions. Such a ruling would give a hint for all other arbitration bodies.
Well, such a hope of ruling is encouraging but vague. Furthermore, the power of the WTO is questionable. We can see it in trade conflicts, most prominently between the U.S.A. v. China and EU v. U.S.A. It should be kept in mind that these trade disputes are not just a question of tariffs. These disputes are initiated by the thinking of power, the economic as well as political dominancy in the world.
We will see whether the Biden-administration will take a different stance on the WTO and its dispute settlement body. Moreover, the stance of a super-power China on WTO and its bodies has to be taken into account.
c) “Encourage and assist EU businesses in bringing claims in international investor-state arbitration and in US courts”
I think this is the most realistic recommendation. Yet, there are plenty of obstacles – especially for small and mid-sized enterprises (SME). Beside the legal ones there are the economic ones.
If the courts and arbitration bodies shall decide on the legality of secondary sanctions, it needs a legal basis for such a decision. I doubt that an U.S. court would recognize the illegality of secondary sanctions on the basis of the principles of international law. Treaties, like state-investor-agreements (BIT), are a handy basis for legal cases. Therefore, I recommend putting arbitration and the legality of secondary sanctions in relation between the EU and any other nation on the table of negotiation for EU’s Free Trade and Investor Agreements (FTA and BIT).
For companies going to court or arbitration means spending lots of money and to bear lots of financial risks. SME can’t bear these costs, financial risks and bearing the diplomatic burdens – especially if the business is depend on the access to the U.S. market. Therefore, the study is fully right by recommending a reimbursement mechanism funneled by the EU and the Member states.
to be continued…
