The European Union is working on targeted changes to its €18 trillion ($20.1 trillion) single market to help its domestic companies diversify supply chains away from countries including China, according to people familiar with the plan.

The European Commission, which handles trade matters for the EU, will seek to amend laws related to motor vehicle-type approvals and foreign subsidies, said the people, who spoke on the condition of anonymity. Changes to those rules could better address the economic security risks associated with some imports while reducing regulatory friction for like-minded foreign suppliers and businesses.

The commission will also amend forced labor laws and the trade secrets directive, according to the people. Adjustments to those rules could make it easier for European companies to diversify supply chains within the bloc’s internal market and harder for riskier suppliers to access it.

The changes to the EU’s rules are part of the commission’s strategy to manage economic security risks and tighten loopholes to better protect the bloc’s single market, said the people. The EU’s trade deficit with China reached €360 billion last year and is expected to continue growing. A spokesperson for the commission declined to comment.

The various regulations and directives the EU is set to amend currently establish the conditions under which products and investments from third countries, including China, can access the EU’s single market, while aiming at the same time to maintain an open and rules-based order. The move is part of a broader package of measures the bloc is set to unveil by mid-December.

Other plans for the package include a diversification instrument that will aim to nudge businesses toward alternative supplies. It will identify critical dependencies in goods and services, as well as assess the risks associated with them, followed by options to mitigate and address the challenge through existing or new measures.

The package will also include new powers to rapidly react to any aggressive trade actions. A new instrument would do that by cutting access to the bloc’s single market for select goods and services in ways that are more agile and broader than current options allow.

In parallel, the EU is planning to use safeguard measures to cut imports of products from sectors including chemicals, furniture and machinery from China, Bloomberg previously reported.

The measures, which could take the form of either import caps or tariffs, may be presented as soon as the first quarter of 2027. The commission is seeking to replicate its recent move to restrict the flow of hybrid vehicles into the EU, when it reached an agreement with Beijing to cap imports at 350,000 cars a year from China. That level was deemed high enough to dissuade retaliation.

Safeguard measures allow the EU to restrict products from a sector if there’s been a surge of imports into the bloc.

Finally, the December package will propose a solidarity mechanism outlining options the bloc could pursue in the event of a third country targeting a member state or a group of nations with adverse economic measures, the people said.

Taken together, the suite of measures will form the backbone of the EU’s push to reduce critical dependencies as well as its massive trade deficit with China. Still, dialog with Beijing and seeking negotiated solutions will remain a central component of that drive.

The EU’s trade chief, Maros Sefcovic, is due to take stock of progress and discuss next steps with his Chinese counterparts early next year.

Agreements reached so far would also see Beijing cut tariffs on some auto parts, olive oil and ice cream. The EU is also seeking to improve market access in China and ease export procedures for critical minerals and permanent magnets. Beijing, meanwhile, wants the bloc to ease its export controls and back off probes targeting Chinese imports and investments.