Suggested resolution:

Change in 5.2 [lex.phases] paragraph 5 through 7 as follows:

5. For a sequence of two or more adjacent string-literal preprocessing tokens, a common encoding-prefix is determined as specified in 5.13.5 [lex.string]. Each such string-literal preprocessing token is then considered to have that common encoding-prefix. 6. Adjacent Then, adjacent string-literal preprocessing tokens are concatenated (5.13.5 [lex.string]).

7. 6. Each preprocessing token is converted into a token (5.10 [lex.token]).

7. The resulting tokens constitute a translation unit and are syntactically and semantically analyzed as a translation-unit (6.7 [basic.link]) and translated. ...

Merge phases 5 and 6, because both deal with the same contiguous sequences of string literals. Then, move the conversion of pp-tokens to tokens into a new phase 6.