Countering Economic Coercion Proactively with Real Trade Reforms

In rapid response to the abrupt trade disruptions resulting from Russia’s blockade of the Black Sea—a tactic in its war on Ukraine, the U.S. Agency for International Development (USAID) launched the Agriculture Resilience Initiative (AGRI)-Ukraine. AGRI-Ukraine is critical to supporting Ukraine’s export and agricultural sector needs, which are expected to remain vulnerable to the Russian Federation’s aggression in the months and years to come. Through AGRI-Ukraine, USAID has invested in storage programs that helped Ukrainians pack and stock 502,000 metric tons of grain, reaching over 13,600 farmers with critical inputs such as agricultural and financial services, storehouses, and $48 million in credit via three AGRO-supported finance apps.1  

In neighboring Moldova, USAID similarly took action to address severe export disruptions of Moldovan apples, one of the country’s top exports. Prior to Russia’s invasion of Ukraine, more than 98 percent of Moldova’s apples were destined for Russia. As a result of Moscow’s blockade of the vital port in Odessa and further disruptions to commerce resulting from its invasion of Ukraine, Moldova’s apple harvest was at risk of going to waste—a potential economic loss of around $77 million. Leveraging USAID’s strong relations with European Union partners, the emergency food assistance organization World Central Kitchen, and retailers across the globe, Moldovan growers were able to ship their remaining stock in record time to retailers in Europe, the Middle East, Northern Africa, and Southeast Asia.2   

Economic Coercion is Weaponized Trade 

These important examples demonstrate that when malign powers threaten or actually impose economic costs on a target state with the objective of extracting political concessions, i.e., “economic coercion,”3  their weapon of choice is almost always a trade and investment ban, barrier, or restriction. Fortunately, USAID and other U.S. government agencies stand ready to pre-emptively surge trade capacity building (TCB) mechanisms and activities to counteract targeted or blanket acts of economic coercion, including acts of compulsion resulting from the capture of market share, intimidation of government regulators, and other predatory behaviors that limit market competition, monopolize supply chains, and distort trade.

Economic coercion preys on trade and investment vulnerabilities. Conversely, TCB serves to fortify the economies of our partner countries by institutionalizing more open, transparent, and accountable trade and investment consultation procedures and other good regulatory practices, enabling potential targets of economic coercion to become more resilient to domination by any single trading partner. In addition, transparent, coherent, and streamlined trade procedures enhance public and international confidence in a nation’s governance and serve to attract other foreign investors and international traders, diversifying the national economy’s supply chains and fostering sustainable and broad-based development. 

Building Trade Capacities and Beyond

As recent TCB case studies on Bangladesh (2022) and Vietnam (2020) demonstrate, TCB works to ensure that partner country regulations serve whole-of-government objectives, which keep private sector investors—domestic and foreign—engaged with partner country governments, knowing that more open, predictable, and legitimate processes guarantee that all views may be heard in national policy making. Trade reforms advanced through TCB can serve to transform a government’s very “operating system,” strengthening a country’s resilience to potential economic coercion—no matter its source, specific form, or manifestations, including market discrimination and manipulation orchestrated by foreign state-owned enterprises.4   

In addition to TCB programing, USAID’s trade advisors may also recommend:

Redirecting affected exports: USAID, in cooperation with the U.S. Department of Agriculture’s Foreign Agricultural Service and the U.S. Department of Commerce’s Foreign Commercial Service, may coordinate efforts to help identify alternative supply chain sourcing, redirect affected exports of a coerced partner country toward other markets, provide trade promotion advice, encourage participation in trade missions, and connect to a broader network of international buyers, agents, suppliers and key government contacts.

Temporary tariffs reduction advocacy: USAID may recommend that the United States issue temporary tariff reductions through the Office of the U.S. Trade Representative (USTR)-led interagency Trade Policy Staff Committee mechanism and advocate parallel actions by U.S. allies and other like-minded partners.

Alternative debt financing: USAID technical assistance can promote alternatives to predatory debt financing, including support for public investment planning and implementation, public-private partnerships, and bond issuances.

Initiating WTO dispute settlement proceedings: USAID may advise partner countries, in coordination with the USTR,on pursuing and/or participating with other World Trade Organization Members in dispute settlement challenges against potentially coercive measures taken by other Members, such as discriminatory or arbitrary import licensing, sanitary and phytosanitary measures, or technical barriers to trade. 

USAID trade specialists, entrepreneurship experts, and implementing partners can offer assistance to our partner countries in their efforts on the one hand to assess and reduce their potential vulnerability to economic coercion and on the other facilitate trade, investment, and supply chain diversification. TCB can enhance the competitive position, productivity, and internationalization of businesses of varying sizes, including micro, small, and medium-sized enterprises, as well as women and youth entrepreneurs. Together we can strengthen a partner government’s own government-wide capacities for assessing the trade impacts of its own potentially costly industrial policies, opaque government procedures, and burdensome informal requirements.

Self-help: Two Steps toward Defeating Economic Coercion

Taking steps now to pre-empt potential economic coercion is fundamentally about self-help.  Rationalizing government institutions by first institutionalizing working channels for listening to and taking into account the views of the public, including local and international chambers of commerce, ensures the freer flow of goods and services by preventing unnecessary obstacles to trade. Second, establishing mechanisms for interministerial coordination and peer review among central government bodies helps a partner government eliminate duplicative and burdensome regulation and more closely comply with World Trade Organization obligations. TCB can help lay the foundations for both these basic trade reforms and thereby build business confidence and foster more flexible and durable trade and investment enabling a developing market to withstand and ultimately defy the threats of most any act of economic coercion.

About the author:  Bryan O’Byrne is a Senior International Trade Advisor in the USAID Bureau for Inclusive Growth, Partnerships, and Innovation’s Center for Economics and Market Development

• 1

  “United States, International Community Stands with Ukraine's Farmers to Meet Grain Storage Deficit”

• 2

  “Moldovan Apples Find New Market in Romania: Doors open for country's fruit exporters despite Russian ban”

• 3

  “How China Uses Economic Coercion to Silence Critics and Achieve its Political Aims Globally” Testimony by: Bonnie S. Glaser Director, Asia Program German Marshall Fund of the United States, December 7, 2021.

• 4

  For more information, see: USAID TCB Dashboard at https://tcb.usaid.gov/.