China’s complaint against India at WTO

Source: The post “China’s complaint against India at WTO” has been created, based on “China’s complaint against India at WTO” published in “The Hindu” on 30 October 2025. China’s complaint against India at WTO.

UPSC Syllabus: GS Paper -2-Effect of Policies and Politics of Developed and Developing Countries on India’s interests

Context: Recently, China filed a formal complaint against India at the World Trade Organisation (WTO), alleging that India’s Production-Linked Incentive (PLI) Scheme violates WTO subsidy rules. China claims that the scheme offers prohibited subsidies that are contingent on the use of domestic inputs rather than imported goods, thereby breaching global trade norms. The case raises critical questions about the compatibility of India’s industrial policy with international trade law and the space available for developing countries to pursue self-reliant growth strategies.

What is the PLI Scheme?

1. The PLI Scheme, launched in 2020, aims to transform India into a global manufacturing hub by offering financial incentives to firms based on incremental production and sales within the country.
2. The scheme covers multiple sectors and seeks to:

• Enhance domestic manufacturing capabilities,
• Integrate Indian industries into global value chains, and
• Promote innovation, employment, and exports.

1. The three specific PLI components challenged by China include:

• Advanced Chemistry Cell (ACC) Battery Manufacturing – to promote giga-scale battery production,
• Automobile and Auto Component Manufacturing – to boost EV adoption,
• Electric Vehicle (EV) Manufacturing – to attract global EV makers.

What is China’s Complaint?

1. China alleges that India’s PLI schemes violate WTO obligations by linking subsidies to domestic value addition (DVA) and the use of locally sourced goods.
2. For instance, under the auto sector PLI, companies must achieve a minimum of 50% domestic value addition to qualify for financial benefits.
3. China contends that such local content requirements discriminate against imported goods, violating the National Treatment Principle under Article III:4 of GATT 1994 and Article 2.1 of the TRIMs Agreement.
4. It argues that these conditions constitute prohibited subsidies under Article 3.1(b) of the Subsidies and Countervailing Measures (SCM) Agreement, as they are contingent upon the use of domestic over imported goods.

Relevant WTO Provisions

1. General Agreement on Tariffs and Trade (GATT) 1994 – Article III:4: Mandates equal treatment between domestic and imported products.
2. Trade-Related Investment Measures (TRIMs) Agreement – Article 2.1: Prohibits investment measures inconsistent with national treatment, such as local content requirements.
3. Subsidies and Countervailing Measures (SCM) Agreement – Articles 3 & 5

• Classifies subsidies into prohibited, actionable, and non-actionable
• Prohibited subsidies are those tied to export performance or the use of domestic goods.

1. China, therefore, argues that India’s PLI falls into the “prohibited” category, as it may distort trade and disadvantage foreign manufacturers.

India’s Defence

1. India maintains that its PLI incentives are not contingent on domestic sourcing in a manner that violates WTO rules.
2. The value addition criteria are part of broader national industrial performance metrics and do not directly impose local content requirements.
3. India argues that industrial subsidies are a legitimate policy tool for development, recognised under WTO rules for developing countries.
4. The scheme intends to boost competitiveness, innovation, and employment, not to discriminate against foreign products.
5. India also highlights the precedent of similar subsidy programs in advanced economies, for instance, U.S.A. Inflation Reduction Act (IRA) and the EU’s Green Deal Industrial Plan, both of which provide large-scale industrial subsidies.

Challenges

1. Legal Vulnerability – If the WTO panel rules in China’s favour, India might have to revise or withdraw certain parts of the PLI scheme.
2. Industrial Policy Constraints – A ruling against India could restrict its policy space for future industrial strategies aimed at self-reliance.
3. Precedent Risk – Successive complaints from other WTO members could undermine India’s incentive-based industrial model.
4. Diplomatic Tensions – The case may escalate trade tensions with China, already strained due to geopolitical disputes.
5. Weak WTO Enforcement – With the Appellate Body non-functional since 2019, dispute resolution might be delayed, leaving the issue unresolved for years.
6. Investor Uncertainty – Ongoing disputes may create ambiguity for firms investing under the PLI scheme, affecting investor sentiment.
7. Balancing Developmental and Trade Commitments – India faces the challenge of maintaining developmental policy autonomy while complying with global trade rules.

Way Forward

1. Robust Legal Defence – India must prepare a strong legal argument emphasising that the PLI scheme rewards output and performance, not domestic sourcing.
2. Policy Calibration – The government may refine eligibility criteria to avoid any direct link between subsidies and local content.
3. Diplomatic Negotiation – Engage in constructive consultations with China and other WTO members to seek a diplomatic resolution.
4. Global Alliance for Reform – India should ally with developing and emerging economies to advocate for reform of WTO subsidy rules, ensuring greater policy space for developmental support.
5. Transparency and Notification – India must regularly notify WTO bodies about its schemes and maintain transparency to strengthen its credibility.
6. Encouraging Self-Sufficiency Through Competitiveness – Focus on innovation, infrastructure, and skill development so that domestic industries become globally competitive without heavy reliance on subsidies.
7. Strategic Communication – India should actively project that its industrial incentives aim at sustainable growth and global supply chain integration, not protectionism.

Conclusion: China’s complaint against India at the WTO is a test case for reconciling developmental industrial policy with global trade disciplines. While India’s PLI scheme has been crucial for boosting domestic manufacturing and energy security, it must be aligned with WTO principles to avoid disputes and maintain international credibility.  The challenge lies in balancing Atmanirbhar Bharat objectives with multilateral trade commitments. By defending its policies with clarity, engaging diplomatically, and leading the call for modernising WTO subsidy frameworks, India can safeguard both its economic sovereignty and global trade legitimacy.

Question: What is China’s complaint against India at the WTO regarding the Production-Linked Incentive (PLI) Scheme? Discuss the relevant WTO provisions, associated challenges, and the way forward for India.