China Takes India to WTO Over PLI Schemes, Flags Local Content Rules
China has escalated a major trade challenge against India at the World Trade Organization. Beijing formally requested the establishment of a dispute settlement panel on January 16, 2026. This move targets India's production-linked incentive schemes for automobiles, batteries, and electric vehicles.
The Chinese government argues these PLI programs discriminate against imported goods. They claim the incentives are tied to domestic value addition requirements, which breaches international trade rules.
Failed Consultations Lead to Formal WTO Action
Consultations between China and India in November 2025 and January 2026 failed to resolve the disagreement. This failure prompted Beijing to take the formal step of requesting a WTO panel. The Dispute Settlement Body is expected to consider this request at its next meeting on January 27.
This case heightens existing trade tensions between the two Asian giants. India has been actively using industrial policy to reduce import dependence and build domestic manufacturing capacity. A negative WTO ruling could force significant changes to how India designs its PLI schemes across multiple sectors.
Three Key Schemes Under Scrutiny
The dispute specifically challenges three flagship Indian initiatives:
- The PLI scheme for Advanced Chemistry Cell battery storage
- The PLI scheme for automobiles and auto components
- The scheme to promote manufacturing of electric passenger cars
China contends that incentives under these programs are conditional on using domestic goods over imports. Beijing alleges this violates India's obligations under several WTO agreements, including the General Agreement on Tariffs and Trade and the Agreement on Subsidies and Countervailing Measures.
Detailed Allegations on Domestic Value Targets
In its filing, China pointed to specific domestic value addition targets. For the advanced chemistry cell battery scheme, notified in June 2021 with an outlay of ₹18,100 crore, beneficiary firms must meet phased targets. These start at 25% within two years and rise to 60% within five years.
China argues these thresholds effectively link subsidy eligibility and amount to the use of domestically produced inputs. They claim this amounts to prohibited import-substitution subsidies under established WTO rules.
The electric passenger cars scheme, introduced in March 2024 to attract global EV manufacturers, also faces criticism. While it allows approved companies to import fully built electric cars at a reduced 15% customs duty, it sets local manufacturing milestones. Approved applicants must achieve 25% domestic value addition by the third year and 50% by the fifth year.
China asserts these conditions discriminate against imported goods and breach national treatment obligations. Beijing argues that while presented as industrial policy, the schemes' design impairs benefits China should receive under WTO agreements.
India's Position and Broader Implications
India has not yet issued a formal response to this specific panel request. However, in previous WTO disputes, New Delhi has consistently defended its PLI programs. The Indian government maintains these incentives are consistent with global trade rules and necessary to address structural gaps in manufacturing.
Officials often highlight the strategic importance of sectors like electric mobility, batteries, and renewable energy technologies. This case could reshape how emerging economies balance localization goals with their international trade commitments. The WTO's decision will be closely watched by other nations employing similar industrial policies.
