And which leading country is going to go for allowing other countries to distill their models?

If your country doesn't have any leading models, why not legalize distillation, either explicitly or implicitly?

(Chinese labs famously distilled American models, and that seems to be going well for them. They now have a competitive industry, home-grown talent choosing not to leave, and they now can truly compete without distillation).

It doesn’t have to be the leading countries, if the EU allows it, it is good enough to create a market for distilled models