Wang Li: EU protectionism is impacting its own development future

On May 15th, the Ministry of Justice issued a statement determining that the EU's use of the Foreign Subsidies Regulation (FSR) to investigate Tongfang Weishi constitutes an inappropriate extraterritorial jurisdiction measure, and no organization or individual may enforce or assist in enforcing such measures. FSR is a unilateral tool created by the European Union with a protectionist color in trade. Since its implementation, the EU has frequently used FSR to launch investigations into Chinese companies, which is clearly targeted and discriminatory. It is a typical example of trade protectionism that does not involve extraterritorial jurisdiction under the guise of fair competition and industrial revitalization.

In fact, the Ministry of Commerce has legally recognized in January 2025 that the EU's relevant practices constitute trade and investment barriers, which are aimed at Chinese companies' excessive use of long arm jurisdiction. However, the EU not only failed to correct it, but also went further and further down the wrong path. The EU's arbitrary request for extensive and non essential information within China's borders from Chinese entities is an inappropriate demand imposed on the relevant entities and a clear violation of international law and basic norms of international relations. The announcement released by the Ministry of Justice this time is a specific action to implement the "Regulations of the People's Republic of China on Combating Improper Extraterritorial Jurisdiction of Foreign Countries" in accordance with the law.

Although the FSR grants the EU the power to investigate, evaluate, and punish the investment behavior and subsidy situation of non EU companies, including China, outside its territory, the EU regards the normal support provided by the Chinese government to companies, such as tax incentives and financing facilities, as foreign subsidies that distort the market and launches investigations against Chinese companies based on this. The EU's imposition of the effectiveness of its regional rules on China is a substantial interference in China's internal affairs. Its approach seriously violates the principles of market economy and fair competition, and also damages the healthy and stable development of China Europe economic and trade relations.

The EU's move violates the basic principles of the World Trade Organization (WTO) and tramples on multilateral rules. The WTO's Agreement on Subsidies and Countervailing Measures is the core legal document that regulates global subsidy behavior. The constraint object is the distorted behavior of member governments in trade, especially in goods trade, and it needs to be proven that it has caused substantial damage to the importing country's industry. However, FSR has directly targeted Chinese companies and covered the investment field. Its investigation standards and punishment mechanisms far exceed the WTO framework, which is a blatant challenge to the rules based multilateral trading system. The EU bypassing the WTO and establishing a set of rules beyond the WTO itself is unilateralism and protectionism.

The EU's double standards and selective enforcement have exposed its political motives. Major economies around the world, including the European Union itself, have extensive industrial subsidy policies, but almost all FSR investigations point to Chinese companies. Multiple investigations have been launched targeting industries such as solar energy, wind power, railway locomotives, biodiesel, and electric vehicles in China. The obvious double standards and selective enforcement indicate that FSR is not aimed at maintaining true fair competition, but at suppressing China's strategic emerging industries with competitive advantages, serving the industrial protection and political agenda within the EU.

The definition of "foreign subsidies" is broad and arbitrary, seriously interfering with normal business activities. FSR considers any form of financial assistance obtained by Chinese enterprises from any non EU country, including normal commercial loans provided by state-owned banks, normal transactions between state-owned enterprises, market-oriented investments of government guided funds, etc., as distorted subsidies. This indiscriminate "one size fits all" approach greatly increases the legal risks and compliance costs for foreign companies investing and operating in Europe, forcing them to disclose unnecessary information and undermining normal business trust. The FSR grants the European Commission great discretion, which has also led to issues such as opaque investigations and lack of procedural safeguards. The European Commission may not disclose specific evidence of allegations during the investigation process, which limits the right of companies to defend themselves and may even result in de facto sanctions before being proven guilty. This presumption of guilt based investigation procedure violates the principles of openness and impartiality of the rule of law and infringes upon the basic rights of the companies involved.

In a broader sense, the implementation of FSR not only damages the legitimate rights and interests of Chinese enterprises, but also undermines the market-based and mutually beneficial supply chain cooperation established between China and Europe for decades, and is also impacting Europe's own future development. The high degree of uncertainty it brings will also harm European domestic enterprises and consumers who rely on stable and open supply chains, as well as international investors and businesses who see the instability of the European market and the EU's double standards towards foreign companies. China firmly opposes any form of protectionism and inappropriate extraterritorial jurisdiction. The EU should abide by WTO rules and stop abusing FSR to conduct discriminatory investigations against Chinese companies, otherwise it will ultimately backfire on Europe's own open image and economic interests. (The author is a researcher at the Institute of International Trade and Economic Cooperation, Ministry of Commerce)