Context:
• China has filed a WTO dispute complaint challenging India’s Production-Linked Incentive (PLI) schemes, alleging they violate multilateral trade rules by mandating Domestic Value Addition (DVA) that discriminates against foreign—especially Chinese—goods.
Key Highlights
- China Challenges India at WTO
- China has initiated a formal complaint under the WTO Dispute Settlement System.
• Targets India’s PLI schemes for:
– ACC (Advanced Chemistry Cell) Batteries
– Automobile & Advanced Automotive Technology (AAT)
– Electric Vehicle (EV) manufacturing
- Core Allegation: DVA Requirements
- China claims India’s incentives are linked to Domestic Value Addition, giving preference to domestic components over imported ones.
• Argues this discriminates against Chinese producers.
- SCM Agreement & Subsidy Rules
- WTO’s Subsidies and Countervailing Measures (SCM) Agreement prohibits subsidies that distort competition.
• China alleges India’s PLI scheme amounts to a prohibited import-substitution subsidy.
Significance
- India’s PLI Scheme — Strategic Industrial Policy
- Launched in 2020 to boost manufacturing in high-tech, strategic sectors.
• Offers financial incentives based on incremental sales.
• Aims to:
– Build giga-scale ACC battery capacity
– Promote AAT components
– Attract global EV manufacturers to India
- China’s Legal Argument at WTO
- Claims DVA-linked subsidies violate:
– GATT Article III.4 (national treatment obligation)
– TRIMs Agreement Article 2.1 (prohibits measures favoring domestic goods)
• Says India’s scheme incentivizes domestic goods over imported goods → equivalent to Import Substitution (IS) Subsidy.
- WTO Dispute Process
- Begins with consultations between India and China.
• If unresolved → moves to WTO panel adjudication.
• Due to the Appellate Body’s paralysis, a final resolution may be delayed if the decision is appealed.
- India’s Likely Position
- India may argue PLI supports capacity creation, innovation, and global competitiveness, not import substitution.
• India has consistently defended its PLI schemes as WTO-compliant, similar to industrial policies adopted by the EU, US, Korea, Japan.
Mains-Oriented Analysis
GS-2: International Relations | GS-3: Economy
- Strategic Significance of the Dispute
• Reflects rising economic rivalry between India and China.
• China aims to weaken India’s industrial ascent in sectors like EVs, batteries, and auto components. - Legality of India’s Industrial Policy
• At the intersection of subsidy regulation and industrial sovereignty.
• Balancing policy space with WTO obligations is a key challenge for developing economies. - Impact on India’s Manufacturing Ambitions
• A ruling against India could:
– Disrupt PLI operations
– Slow EV and battery ecosystem growth
– Impact India’s role in global supply chains
• But PLI could also be defended as non-trade distorting, focused on innovation and scale. - Larger Global Context
• US, EU, Korea, China—all offer large industrial subsidies (e.g., US IRA, EU Green Industrial Plan).
• WTO subsidy rules increasingly clash with modern industrial policy. - Diplomatic & Economic Options for India
• Strong legal defence under SCM and GATT exceptions.
• Engage in consultations to prevent escalation.
• Leverage growing consensus on reforming WTO subsidy rules.