China has initiated a dispute at the World Trade Organization (WTO) challenging India's electric vehicle (EV) subsidy programs, alleging violations of global trade rules. This action arrives as India's EV sector is gaining momentum, bolstered by government incentives exceeding ₹65,000 crore, encompassing consumer subsidies and production-linked incentives (PLIs).
China's Concerns
China, the world's leading EV producer, accounting for over 70% of global EV production in 2024, is concerned that India's incentive structure unfairly favors domestic manufacturers. Specifically, China alleges that India's policies violate the "national treatment" clause under the WTO's General Agreement on Tariffs and Trade (GATT). This principle mandates that imported goods receive treatment no less favorable than that accorded to similar domestic products. Beijing argues that India's local content requirements create discrimination by providing subsidies only to companies meeting domestic manufacturing criteria.
China's complaint targets three Indian programs:
- Production Linked Incentive (PLI) scheme for Advanced Chemistry Cell (ACC) Battery Storage.
- PLI scheme for the Automobile and Auto Component Industry.
- Scheme to Promote Manufacturing of Electric Passenger Cars in India.
These schemes are part of India's "Make in India" initiative, which aims to boost local manufacturing, attract global investment, and reduce import dependence. The PLI schemes offer financial incentives tied to local value addition, essentially rewarding companies that manufacture more in India. To qualify for incentives, companies must meet phased domestic value addition (DVA) targets. For example, the PLI ACC scheme requires firms to achieve at least 25% DVA within two years, rising to 60% within five years. Similarly, the PLI Auto scheme requires pre-approved products to meet at least 50% DVA to be eligible for sales-linked incentives.
China contends that these DVA requirements constitute subsidies contingent upon the use of domestic over imported goods, violating Articles 3.1(b) and 3.2 of the Agreement on Subsidies and Countervailing Measures (SCM Agreement). China also argues that these measures violate the General Agreement on Tariffs and Trade 1994 (GATT 1994) by giving less favorable treatment to imported goods and are inconsistent with the Agreement on Trade-Related Investment Measures (TRIMS Agreement).
India's Perspective
India's EV incentive programs are part of a broader strategy to promote clean mobility, reduce import dependence, and become a global manufacturing hub for EVs and related technologies. The "Atmanirbhar Bharat" (Self-Reliant India) initiative seeks to localize high-value manufacturing and reduce reliance on Chinese supply chains.
WTO Dispute Settlement Process
China's request for consultations with India marks the first step in the WTO's dispute settlement process. This phase allows both countries to discuss their positions and potentially resolve the dispute through bilateral negotiations. If consultations fail to produce a mutually acceptable solution within 60 days, China may request the establishment of a dispute settlement panel. The panel would then examine the evidence and issue a ruling. If either party disagrees with the panel's findings, they can appeal the decision to the WTO's Appellate Body. However, the Appellate Body is currently non-functional, which could lead to a prolonged period without a final resolution.
Potential Implications
If the WTO rules against India, the country may be required to modify or eliminate key subsidy measures, potentially slowing domestic industry development and affecting foreign investment decisions in the Indian EV sector. Conversely, a ruling in favor of India could provide greater latitude for developing nations to pursue climate-aligned industrialization within the WTO framework.
This dispute highlights the growing tensions between countries over national industrial policies that rely on local content requirements to promote self-sufficiency, particularly in high-growth technology sectors. The case could have significant implications for the global governance of the green transition and the balance between industrial policy, climate ambition, and international trade norms.
