(Yicai) May 22 -- Chinese representatives have expressed China's concerns over the European Union's proposed revision to its Cybersecurity Act and the new Industrial Accelerator Act to the World Trade Organization, warning that the bills risk violating the organization's rules, according to an authoritative source.

The draft revision of the Cybersecurity Act allows the EU to designate certain countries as posing cybersecurity risks based on "arbitrary" and non-technical criteria, the source told Yicai, citing the representatives as pointing out at a WTO meeting held from May 20 through yesterday. Companies labeled as "high-risk suppliers" could be excluded from the EU market across 18 information technology-related sectors, they added.

The move could violate the WTO's most-favored-nation and national treatment clauses, the representatives noted, adding that invoking the national security exception lacks sufficient justification.

If the draft is passed and Chinese suppliers are forced to be replaced, the EU could face economic losses of EUR367.8 billion (USD427.2 billion) over five years, putting severe pressure on various industries, including energy, telecoms, logistics, and manufacturing, according to a joint report by the China Chamber of Commerce to the EU and accounting giant KPMG.

Regarding the IAA, the representative said that the act links public subsidies and support measures to EU rules of origin by requiring products, such as electric vehicles and related components, to be assembled within the EU and to contain a high proportion of EU-sourced raw materials.

The local materials requirements may constitute import substitution subsidies, which are prohibited under the Agreement on Subsidies and Countervailing Measures, the representatives stressed. They may also violate the national treatment obligations stipulated in the General Agreement on Tariffs and Trade 1994 and the Agreement on Trade-Related Investment Measures if foreign companies are forced to use domestic raw materials to access subsidies or enter the market.

In addition, investment screening provisions that make procurement from EU suppliers a condition for approval discriminate against foreign investors, they pointed out.

The EU response at the meeting was that the IAA is still in the legislative proposal stage and remains subject to further revisions, according to the source.

China's Ministry of Commerce submitted formal comments on the two bills to the European Commission on April 17 and April 24. It suggested that the EU remove provisions regarding "countries posing cybersecurity concerns" and "non-technical risks" from the draft, and remove or substantially modify the criteria for designating "high-risk suppliers" and related restrictive measures.

China will be forced to take countermeasures if the EU insists on advancing the legislation and treating Chinese firms in a discriminatory manner, the ministry noted.

Editor: Martin Kadiev