US-EU Cooperation on Sanctions More Difficult Than Export Controls, FDI, Panelists Say
While the U.S. and the European Union should continue to collaborate on export controls and investment screening efforts, cooperation on financial sanctions may be more difficult and may not be feasible in some cases, panelists said. Any trade or investment restrictions that rely on financial market leverage will be more difficult for the EU to implement, they said.
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“We’re not New York, we don't we don't have Wall Street's clout, strength and weight,” said Agatha Kratz, associate director of the Rhodium Group, a research firm. “And so using that as a lever in our relationship with China is just harder from a European point of view.”
Kratz, speaking during a Dec. 1 event hosted by the Atlantic Council, said the U.S. and the EU need to focus on coordinating their export restrictions and foreign direct investment screening, which she said have mostly been developed “unilaterally and autonomously on both sides of the Atlantic.” Kim Jorgensen, a European Commission official, said the discussions on those topics in the U.S.-EU Trade and Technology Council (see 2111290014) have been encouraging so far, adding that both sides are “certainly converging.”
But like Kratz, Jorgensen expressed less optimism about sanctions coordination. “This is, of course, an area where it has been difficult,” he said, adding that EU measures don’t carry the same power as U.S. extraterritorial sanctions.
Jorgensen also pointed to what he said are important differences between the EU government and the U.S. government. While the White House has “much more leeway” on national security issues and Congress has more authority over trade, he said the EU functions in reverse. “The commission has more leeway on trade … but national security remains a member state competence, and therefore it just takes a longer time and it's much more difficult and cumbersome,” he said. “We cannot expect our tools to be exactly the same. We have different legal systems and traditions.”
Kratz added that the EU may simply be less willing than the U.S. to impose certain sanctions that target China’s military, such as the U.S.’s ban on investments in Chinese military companies (see 2106030067). “This is one place where we didn't think the EU would be engaged or would be motivated to move more towards that,” she said.
But she added that the EU should find other tools to impose penalties and increase transparency among Chinese companies, which can help EU businesses and governments identify which firms are controlled by Beijing or receive subsidies. “I think that's one area where it would be extremely constructive to try and find a common approach,” Kratz said, “where we can force a little bit more of that transparency on Chinese companies.”
She said this coordination between the U.S. and the EU would not only translate into more effective trade policies, but it would also limit the compliance burden for multinational companies that are already struggling to adhere to multiple sets of trade regulations and restrictions. Kratz also said it would prevent companies in one country from “being overly favored by a looser regulatory framework around them.”