The idea of forming an alliance for economic defence akin to NATO has been floating around for a while. But it has never had as good an opportunity to gain traction as it does now. G7 countries are experiencing an unprecedented moment of unity and, with surprising swiftness, have imposed the strongest ever economic sanctions regime on Russia – in response to its war on Ukraine. British Foreign Minister Liz Truss has explicitly called for the group to act as an “economic NATO”, by committing to defend allies that are targeted by aggressive regimes.
European leaders and commentators are right to acknowledge the importance of coordinated economic defence. But NATO and its collective defence commitment is not quite the right analogy for future geo-economic policies. The EU instead needs a sanctions doctrine – a framework to set out the goals, means, and risks of the use of defensive economic measures. The world has entered a period that will define the next global trade order. The EU should act to shape this order before it is drawn deeper into the vortex of economic warfare.
The classic NATO formulation of military defence is territorial. In contrast, economic defence is centred on networks. Retaliatory economic measures can create costs in sectors different from those a country initially targeted. This invariably opens up a second front in an economic war – which, in a NATO-style economic alliance, would lead to difficult questions about burden-sharing and compensation, as it would concern private companies rather than the military. Such an alliance would also struggle to create coherent accession criteria, which might exclude states that had recently fallen prey to economic coercion or include states that had used it against members of the alliance. And it would be hard to identify a trigger for collective action if its members followed different principles – let alone whether it should focus on unfair trade practices or broader political goals as well.
Nonetheless, European policymakers have compelling reasons to codify rules on when and why they resort to economic sanctions. These measures have become much more than a tool for limited coercion or for signalling disapproval of a certain policy. Sanctions now often define the rules of engagement with the global financial system – and they may have the same effect on trade. But greater restrictions on the global financial and trade order could contribute to long-term instability unless policymakers have a common understanding of the purpose of these measures and the risks they involve. This is the only way to prevent open societies and economies that are dependent on free trade from eroding the environment they have benefited from for so long – and from imposing increasing costs on others.
Therefore, the EU should formulate a common sanctions doctrine. It should define the goals, capabilities, and thresholds for applying sanctions, as well as techniques for lifting them. The doctrine should include a framework for analysing the collateral damage caused by sanctions. Although this issue is often neglected in assessments of coercive economic measures, sanctions can have a severe impact on civilians in the long term without achieving any of the intended policy outcomes. Another problem is that policymakers sometimes cannot lift sanctions when – because the measures were either unrealistic or inadequately defined – they fail to achieve their goals. According to most estimates, sanctions achieve some of their objectives between 30 per cent and 40 per cent of the time (although this depends on various conditions).
A sanctions doctrine would improve the European Union’s policymaking process and provide its global partners with clarity about the measures it would implement in certain conditions. Like a military doctrine, it could help prevent escalation. The EU should draw on the ample research literature on the use of sanctions, along with other sources of expertise, to devise an evidence-based doctrine.
The union is currently debating an anti-coercion instrument, which would be the world’s first such measure for collective economic deterrence. Therefore, the EU is already much further along in the process of institutionalising its approach to economic retaliation than any other state or group of states. The public debate on the instrument shows that the issue of when to apply it is highly complex – and that, at the moment, this is only at the EU level and purely for deterrence. As such, before attempting to involve a bigger group of states, the EU will first need to clarify its own sanctions goals and honestly assess the potential and limitations of sanctions in a broader doctrine.
The EU’s internal market, technological strength, and commitment to open trade mean that it has huge geopolitical potential. But the union will need to understand the strengths and weaknesses of economic coercion before it can fulfil this potential on a global scale.
The European Council on Foreign Relations does not take collective positions. ECFR publications only represent the views of their individual authors.