WTO Establishes Dispute Panel to Probe India's PLI Schemes Following China's Complaint
The World Trade Organization's Dispute Settlement Body (DSB) agreed on February 24, 2026 to establish a dispute panel to examine India's Production Linked Incentive (PLI) schemes for automobiles, advanced chemistry cell (ACC) batteries, and electric vehicles, following a formal complaint filed by China.
China originally filed the complaint in October 2025, alleging that certain conditions embedded in India's PLI schemes discriminate against Chinese goods and exporters, potentially violating WTO trade rules — specifically the Agreement on Subsidies and Countervailing Measures (SCM Agreement) and the GATT 1994.
Bilateral consultations held in November 2025 and January 2026 failed to resolve the dispute, prompting China to request a formal panel.
India's official position is that its PLI schemes comply fully with WTO norms and that the government will strongly defend them at the panel proceedings.
The establishment of the WTO panel marks a significant escalation in India-China trade tensions, coming at a time when India has also imposed steep import tariffs and security-based restrictions on Chinese technology.
WTO Dispute Settlement Mechanism: Structure and Process
The WTO Dispute Settlement Mechanism is the multilateral system for resolving trade disputes between member countries. It is governed by the Understanding on Rules and Procedures Governing the Settlement of Disputes (DSU), which is Annex 2 to the Marrakesh Agreement establishing the WTO (1994). It is considered the "crown jewel" of the WTO system, as it replaces power-based bilateral retaliation with rule-based adjudication.
China's path to the panel — consultations in November 2025 and January 2026, then formal panel request — follows the standard DSU process. The non-functional Appellate Body means any panel ruling cannot be appealed through the traditional route, creating uncertainty about enforcement.
Agreement on Subsidies and Countervailing Measures (SCM Agreement)
The SCM Agreement is the key WTO framework regulating government subsidies and the countermeasures other members can take against them. It defines what constitutes a subsidy, categorizes subsidies by their trade-distorting potential, and establishes rules for when such subsidies are WTO-inconsistent.
Key Details
- Definition of subsidy: A financial contribution by a government that confers a benefit on the recipient — includes direct transfers, tax exemptions, provision of goods/services below market rates, and income support.
- Prohibited subsidies: Export subsidies (conditional on export performance) and import substitution subsidies (conditional on using domestic over imported goods). These are per se WTO-illegal.
- Actionable subsidies: Subsidies that cause adverse effects (injury to another member's domestic industry, nullification of benefits, or serious prejudice). Actionable subsidies are legal but can be challenged if they cause harm.
- Local content requirements: A specific type of import substitution subsidy — requiring beneficiaries to use domestic components — is prohibited under Article 3 of the SCM Agreement and also under TRIMS (Trade-Related Investment Measures) Agreement.
- China's specific allegation: India's PLI conditions allegedly require beneficiaries to use domestic components or exclude Chinese-origin inputs, amounting to import substitution subsidies.
India's PLI schemes offer financial incentives linked to incremental production — a performance-based subsidy. China's challenge likely focuses on local content requirements within PLI conditions, arguing these discriminate against imported inputs from China.
Production Linked Incentive (PLI) Schemes: Design and Strategic Rationale
The PLI scheme was launched by India's central government in March 2020 as a flagship industrial policy initiative under the Aatmanirbhar Bharat (Self-Reliant India) mission. It provides direct financial incentives — calculated as a percentage of incremental sales over a base year — to encourage large-scale manufacturing in strategically important sectors. PLI aims to reduce import dependence, attract global supply chain investments, create employment, and boost exports.
The WTO challenge forces India to defend the design of its PLI conditions — particularly any local content or domestic value addition requirements that may constitute import substitution subsidies. A panel ruling against India could require modifying key features of the schemes.
- WTO panel established: February 24, 2026 (Dispute Settlement Body meeting)
- Complainant: China | Respondent: India
- Schemes under challenge: PLI for automobiles, advanced chemistry cell (ACC) batteries, EV promotion policy
- China's original complaint filed: October 2025
- Bilateral consultations: November 2025 and January 2026 (failed)
- WTO agreements allegedly violated: SCM Agreement, GATT 1994
- India's position: Schemes are fully WTO-compliant; will strongly defend at panel
- Total PLI committed investment attracted (by March 2025): Rs 1.76 lakh crore (~$21 billion)
- PLI disbursements (by March 2025): Rs 21,500 crore (~$2.6 billion)
- Jobs created under PLI: 12 lakh (1.2 million)
- WTO Appellate Body: Non-functional since late 2019 (US blocking appointments)
- SCM Agreement: Prohibits export subsidies and import substitution subsidies (Article 3)