The European Union (EU) flags in front of EU headquarters in Brussels, Belgium. Photo: VCG

From the Foreign Subsidies Regulation to the Carbon Border Adjustment Mechanism, from the Critical Raw Materials Act to the recently proposed revisions to the EU Cybersecurity Act (CSA2) and the Industrial Accelerator Act, the EU has in recent years introduced a dense set of trade and industrial policy tools under the banners of security, sustainability and fairness.

Yet behind these carefully framed narratives, these measures are gradually reshaping the EU market into something markedly different: a system that is increasingly selective, exclusionary and discriminatory in practice – a “non-level playing field” in all but name.

More concerningly, some of these measures appear to go beyond the EU institutions’ legal mandate, politicizing economic governance and bringing security concerns into market access decisions. These risks clashing with the core principles of the WTO system and adding to tensions in China-EU economic relations.

From market logic to political screening

On March 4, 2026, the European Commission unveiled its proposed Industrial Accelerator Act, giving priority to “union origin” products in public procurement, even as divisions persist among member states and criticism has emerged from major trading partners.

The proposal introduces a series of restrictions on foreign investment in sectors such as batteries, electric vehicles, photovoltaics and critical raw materials. The thresholds – targeting third countries with more than 40 percent global capacity in these sectors – are widely seen as disproportionately affecting industries where Chinese firms hold strong global positions.

Analysts have raised concerns that such measures may conflict with key WTO principles, including national treatment and most-favored-nation obligations, and could run counter to the spirit of the Agreement on Trade-Related Investment Measures (TRIMs) and the Agreement on Trade-Related Aspects of Intellectual Property Rights (TRIPs).

Analysis by Chatham House, a UK-based think tank, noted that the “union origin” concept reflects a broader shift toward a “more interventionist” policy approach, amounting in effect to a form of “sophisticated protectionism” toward external partners.

A similar logic is evident in the EU’s latest cybersecurity push. On January 20, 2026, the European Commission proposed revisions to the Cybersecurity Act, aimed at addressing risks from so-called “high-risk suppliers” across 18 critical sectors under the NIS2 framework, such as ICT services, transport and energy. 

Under this approach, risk assessments go beyond technical factors to include so-called “non-technical” considerations, such as a company’s ties to foreign governments. In practice, this has led to restrictions on some Chinese firms taking part in 5G network deployment. Experts say this effectively shifts the basis of assessment – away from how companies perform and toward where they come from. In other words, market access is becoming less about fairness and more about politics.

More strikingly, concerns have also emerged within Europe over the legal boundaries of such measures. In an interview with Euractiv in March, Michel Petite, a French lawyer and of counsel at Clifford Chance, warned that CSA2 could trigger institutional pushback, legal challenges and broader geopolitical repercussions.

Asked whether CSA2 encroaches on member states’ exclusive competence over national security under the Article 4(2) of the Treaty of the European Union (TEU), Petite said such assessments would more naturally fall within foreign and security policy, rather than internal market harmonization, warning that overextending Article 114 of the Treaty on the Functioning of the European Union (TFEU) risks undermining its credibility and upsetting the EU’s balance of competences.

A strategy that risks backfiring

The EU has long championed a rules-based international order, yet its current policy trajectory appears increasingly at odds with the core principles of the WTO system – particularly the principle of non-discrimination, embodied in most-favored-nation and national treatment obligations. 

From a market economy perspective, the EU has long positioned itself as a benchmark for market governance. However, its growing reliance on administrative intervention, targeted industrial policies and exclusionary measures risks undermining these very foundations.

While the stated goal is to enhance industrial competitiveness and supply chain resilience, the EU’s manufacturing challenges are rooted primarily in structural constraints – including insufficient investment in innovation, high energy costs and the incomplete integration of the single market.

The latest data captures the divergence neatly. Manufacturing’s share of EU GDP has declined from 17.4 percent in 2000 to 14.3 percent in 2024, well below the bloc’s target of raising it to 20 percent by 2035. 

These trends show that Europe’s challenge lies less in external competition than in internal structural bottlenecks. In this context, policies aimed at excluding external players are unlikely to address underlying weaknesses. Instead, they risk raising costs, reducing efficiency and weakening incentives for innovation.

China and the EU remain important economic partners with highly complementary strengths. Chinese companies have long operated in Europe in compliance with local laws, contributing to industrial development and providing competitive products and services. Continued cooperation serves the mutual interests of both sides.

However, if the EU continues down this path, it will not be building a more secure market. The more closed the market becomes, the more it risks losing not just its partners, but its own future.