NEW DELHI
: China has escalated its trade challenge against India at the World Trade Organization (WTO), seeking the establishment of a dispute settlement panel over New Delhi’s production-linked incentive (PLI) schemes for automobiles, batteries and electric vehicles, arguing that they discriminate against imported goods by tying incentives to domestic value addition.
In a communication circulated by the WTO on 16 January, Beijing said that consultations held with India in November 2025 and January 2026 failed to resolve its concerns, prompting it to formally request a panel under WTO dispute settlement rules. The request is expected to be taken up at the next meeting of the WTO’s Dispute Settlement Body on 27 January.
The case sharpens trade tensions between India and China at a time when New Delhi is using industrial policy to reduce import dependence and build domestic manufacturing scale. A WTO ruling against India could force changes to PLI design across sectors, potentially reshaping how emerging economies balance localization goals with global trade commitments.
PLI under fire
The dispute targets three flagship schemes rolled out by India under its broader ‘Make in India’ strategy: the PLI scheme for Advanced Chemistry Cell (ACC) battery storage, the PLI scheme for automobiles and auto components, and the scheme to promote manufacturing of electric passenger cars in India.
As per the WTO paper reviewed by mintChina has argued that incentives under these programs are conditional on the use of domestic over imported goods through domestic value addition requirements. Beijing claims this violates India’s obligations under the General Agreement on Tariffs and Trade (GATT), the Agreement on Subsidies and Countervailing Measures (ASCM), and the Trade-Related Investment Measures (TRIMs) agreement.
In its filing, China said that India’s PLI scheme for advanced chemistry cell batteries, notified in June 2021 with an outlay of ₹₹18,100 crore, requires beneficiary firms to meet phased domestic value addition targets—starting at 25% within two years and rising to 60% within five years.
These thresholds, China argued, effectively link the eligibility for, and quantum of, subsidies to the use of domestically produced inputs, amounting to prohibited import-substitution subsidies under WTO rules.
Beijing has also challenged India’s electric passenger cars scheme, introduced in March 2024 to attract global EV manufacturers. The scheme allows approved companies to import fully built electric cars at a reduced customs duty of 15% for a limited period, subject to investment commitments and local manufacturing milestones.
Approved applicants are required to achieve 25% domestic value addition by the third year and 50% by the fifth year—conditions that China says discriminate against imported goods and breach national treatment obligations.
As per the WTO paper, China has argued that while the schemes are presented as industrial policy measures to build domestic capacity and reduce import dependence, their design and operation have the effect of nullifying or impairing benefits accruing to China under WTO agreements. It has therefore sought the establishment of a panel with standard terms of reference to examine the measures in detail.
India has not yet issued a formal response to the panel request. In earlier WTO disputes, however, New Delhi has defended its production-linked incentive programs as being consistent with global trade rules and necessary to address structural gaps in manufacturing, particularly in strategic sectors such as electric mobility, batteries and renewable energy technologies.
