Thursday

3rd Dec 2020

Opinion

The German mayor now facing US sanctions over Nord Stream

  • The small Baltic port town of Sassnitz, on Germany's coast (Photo: Sassnitz.de)

Donald Trump or Joe Biden on 3 November, the US will continue to weaponise international trade and economic sanctions to achieve its political goals or advantage American companies - and China is just getting started in using economic blackmail to further its global dominance.

US sanctions, once directed at terrorists or persons from "rogue states", including Iran and North Korea, now target European businesses and state officials.

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  • Mayor Frank Kracht would never have anticipated being treated like a terrorist or dictator for holding political office in the port town of Sassnitz (Photo: WDR)

Take mayor Frank Kracht for example.

He would never have anticipated being treated like a terrorist or dictator. Certainly not for holding political office in the German seaside town of Sassnitz, or for being responsible for the city's port on the Baltic Sea.

He now faces sanctions from a bipartisan coalition in the US Congress, opposed to the deepening economic ties with Russia and European dependence that the project allegedly represents.

So are local companies if they continue to work on the Nord Stream 2 German-Russian pipeline. The port at Sassnitz, heavily dependent on the project, might not survive the economic headwinds.

Many argue that Nord Stream 2 is a flawed project, or oppose its construction outright. They may have good reasons for holding such views.

But even for Nord Stream critics, it's unlikely they'd support extraterritorial threats against state officials or businesses, especially from a country that claims to be a close ally of Europe.

And even Nord Stream critics have to face the fact that this is only one example of Washington's use of economic blackmailing.

In September, the Trump administration imposed measures on the chief prosecutor of the International Criminal Court (ICC), Fatou Bensouda, to deny her access to any bank account or credit card – simply because she was investigating alleged US war crimes.

While a longer-running dispute, on aircraft subsidies, intensified last year when Washington imposed $7bn [€5.9bn] in tariffs on European imports – to the detriment of wine, cheese and olive oil producers, from France, Italy and Spain.

Worryingly, the US is not alone in this behaviour.

First US, then China

China has also used the threat of punitive tariffs on German car exports as a method of strengthening Huawei's pitch to build the country's 5G infrastructure.

It also threatened to curb medical supplies to the Netherlands, in April, to force it to reconsider changing the name of its Taiwan office.

Its treatment of countries, including Canada and Australia, which have "misbehaved" in Beijing's eyes, shows that it might soon take even tougher measures to coerce European policy.

For European businesses, the picture gets worse.

Export controls, from both China and the US, could be used to control Europe's trade with unrelated third countries. Re-export rules mean that EU-based businesses have to request authorisation from Beijing or Washington to export their goods to specific markets.

These constraints on the export of European products can apply because a small number of upstream products in their supply chain originally came from these countries.

Europe's options, in the face of this extraterritorial pressure, are scant. However, there is scope to bolster its arsenal.

Europeans could create a European Export Bank (EEB) to enable trade that US financial sanctions seek to curb.

The centrality of the US dollar and the US financial system to trade and project finance means that EU companies and institutions are often vulnerable, even when they are not explicitly involved in EU-US trade.

This would give EU member states a comparable source of support and mean that, in any dispute with the US or China, they would be "too big to sanction".

It would also free Europe of its dependence on the dollar, and could facilitate trade with countries, such as Russia, which would hitherto invoke hostility from Beijing and Washington.

Digital currency could give Europe greater freedom in the medium term, too, and reduce dependency on the US financial system. Following the lead of China, which is developing a highly advanced digital currency that will bring transaction partners into its payment network, the European Central Bank (ECB) could establish its own payment infrastructure for a digital euro.

This would reduce the risk of comprehensive disclosure of transaction data and increase Europe's sovereignty in payment infrastructure.

It's also time Europeans learned the true financial impacts of economic aggression by China and the United States.

A regular EU report could calculate the cost and disadvantages imposed on European companies and analyse the exact percentage of Europe's market share that is lost to global competitors, such as China, as a result of a unilateral sanctions policy.

Europe could then levy fees on Chinese or US companies on the European market to correct the market distortion.

The reality is that, in an increasingly divided world, Europe can no longer stand aside as third countries aggressively dictate policy, pursue its member states, and undermine leading figures from international organisations, such as the ICC.

In these circumstances the EU, and its individual members, should be prepared to develop and utilise new, and potentially more confrontational, options for the defence of their market.

Author bio

Jonathan Hackenbroich is a policy fellow for economic statecraft at the European Council on Foreign Relations (ECFR), and the head of ECFR’s Task Force for Protecting Europe from Economic Coercion.

Disclaimer

The views expressed in this opinion piece are the author's, not those of EUobserver.

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