The China Chamber of Commerce to the EU (CCCEU) has urged the European Commission not to turn its white paper on foreign subsidies into law, warning of its possible negative impacts. The European Commission said the white paper, released on June 17, seeks to deal with the distortive effects caused by foreign subsidies in the single market by deploying existing and new tools. A public consultation, which aims to help the Commission prepare appropriate legislative moves has ended. The CCCEU, in its feedback to the consultation before the deadline, expressed concerns over possible legal barriers to Chinese companies operating in the EU.

It called on the Commission to “carefully examine the legality, rationality and necessity of adopting new legislative tools on foreign subsidies” and said the white paper should not be turned into legislation. “The legal framework proposed in the white paper to scrutinize foreign subsidies will directly take a toll on non-EU undertakings, including our members, and the EU legislative and business environment they operate in,” said Zhou Lihong, Chairwoman of the CCCEU. She added: “We hope the European Commission will duly and carefully consider our concerns and in the end, reduce business and investment barriers as well as adopt a fair, transparent and non-discriminatory approach toward foreign companies, including Chinese ones.”

The CCCEU said the new legal tools proposed in the white paper lack a clear legal basis under EU treaties, and will overlap with a number of existing EU and member states’ instruments, and produce “double standards” in their enforcement. It said the proposed legal tools could potentially be incompatible with the EU’s obligations to the World Trade Organization (WTO), such as the principles of national treatment, most-favored nation status and non-discrimination.

The CCCEU represents nearly 70 members and Chambers in EU member states, covering about 10,000 Chinese companies in the EU. The CCCEU claimed that the white paper falls short of clarifying key concepts such as the definition and forms of “foreign subsidies”, “leveraging effect” and “material influence”, which it said will “create great legal uncertainties”. It said that the EU should take into consideration businesses’ solidarity efforts in crisis, and proposed “grandfather clauses” to be inserted in possible future legislation, as some Chinese companies’ investments in Europe were a response to invitations by member states in the aftermath of the European debt crisis. “The favorable terms they enjoyed at the time should be legitimately protected and exempted from future scrutiny,” the CCCEU said in a news release. The Chamber set up a task force comprising lawyers, business representatives and EU affairs experts to prepare its response to the public consultation, the China Daily reports.

Meanwhile, German Chancellor Angela Merkel has warned China to do more to open up or risk more restrictions on EU market access. She said that the EU would start limiting Chinese companies’ access to the single market if China does not agree to a major opening up by the end of this year. The European Union last week formally agreed to restrict “high-risk” vendors from building next-generation 5G mobile networks, a move that brings it closer to U.S. policy, advising allies to exclude Huawei, which could have a major impact on the company. “We naturally expect reciprocity for the investment agreement with China. We find that the barriers to entry with regard to China are still too high. This will now be discussed further,” Merkel added. Market access is currently the major stumbling stock in the negotiations to conclude a China-EU investment treaty by the end of the year.

Merkel’s latest comments indicated a tougher stance towards China, since it was the first time she mentioned possible EU countermeasures against China. Chancellor Merkel is expected to chair a mid-November meeting in Berlin of all 27 EU leaders to discuss China. Last week, the EU for the first time lent its support to the “Clean Network” initiative launched by the U.S. to restrict Chinese tech companies and mobile apps, such as video-sharing app TikTok and WeChat, China’s most popular social media platform. China has urged the EU not to participate, but as U.S. Undersecretary of State Keith Krach met EU Internal Markets Commissioner Thierry Breton, the EU said its 5G cybersecurity toolbox shared similarities with the U.S. Clean Network initiative, which was launched in August by U.S. Secretary of State Mike Pompeo. Chinese Foreign Minister Wang Yi said the U.S. is “not qualified” to build a coalition of clean countries “because it is dirty all over itself”.

The EU also “reaffirmed” its classification of China as a partner, strategic competitor and systemic rival – even though China has repeatedly asked the EU to stop using the latter designation, the South China Morning Post reports.