China escalates trade dispute, challenges India’s EV policies at WTO

China has moved the World Trade Organisation (WTO) to set up a dispute settlement panel against India, escalating a trade dispute over New Delhi’s incentive schemes for automobiles, batteries and electric vehicles (EVs). The request follows the failure of bilateral consultations to resolve the issue.

Beijing first raised concerns in October last year, alleging that conditions under India’s Production Linked Incentive (PLI) schemes discriminate against imported goods, including those from China.

Consultations were held on November 25, 2025, and January 6, 2026, but did not result in a mutually agreed solution. In a communication dated January 16, China formally requested the WTO’s Dispute Settlement Body (DSB) to establish a panel and asked that the matter be placed on the agenda of its next meeting scheduled for January 27 in Geneva.

What is China objecting to?

China argues that certain Indian measures are contingent on the use of domestic goods over imported ones, effectively disadvantaging foreign manufacturers. Beijing claims these measures appear to be inconsistent with India’s obligations under the WTO framework, specifically the SCM Agreement, GATT 1994 and the TRIMs Agreement.

What do these WTO agreements mean?

• SCM Agreement (Subsidies and Countervailing Measures): Governs how governments can grant subsidies. It prohibits incentives that are explicitly linked to export performance or require the use of domestic goods instead of imports.
• GATT 1994 (General Agreement on Tariffs and Trade): Forms the backbone of global trade rules, mandating non-discrimination and equal treatment of imported and domestically produced goods.
• TRIMs Agreement (Trade-Related Investment Measures): Bars investment measures that distort trade, including local content requirements tied to incentives.

China contends that India’s incentive-linked localisation requirements breach these principles.

Schemes under scrutiny

China’s complaint refers to multiple programmes, including the Production Linked Incentive scheme, the National Programme on Advanced Chemistry Cell (ACC) Battery Storage, the PLI scheme for the automobile and auto component industry, and the scheme to promote the manufacturing of electric passenger cars in India.

EV push behind the dispute

The challenge comes at a time when Chinese automakers are seeking overseas markets amid excess capacity and intense price competition at home. India’s rapidly growing auto and EV market is viewed as a key opportunity by Chinese manufacturers.

According to data from the China Passenger Car Association (CPCA), Chinese companies exported around 2.01 million pure electric and plug-in hybrid vehicles in the first eight months of the year, marking a 51 per cent year-on-year increase. However, Chinese EV exports are facing resistance in several regions, including the European Union, which has imposed tariffs of up to 27 per cent on Chinese-made EVs.

India–China trade context

China remains India’s second-largest trading partner, but the trade imbalance has widened further. In 2024-25, India’s exports to China declined 14.5 per cent to USD 14.25 billion, while imports rose 11.52 per cent to USD 113.45 billion, pushing the trade deficit to USD 99.2 billion.

India’s policy stance

The Indian government maintains that its incentive schemes are aimed at strengthening domestic manufacturing and reducing import dependence, rather than targeting any specific country. The ACC battery PLI scheme, approved in May 2021, has an outlay of ₹18,100 crore, while the PLI scheme for automobiles and auto components involves ₹25,938 crore. In March 2024, the Centre also approved a policy to attract global EV manufacturers to set up production in India.

If the WTO panel is constituted, it will examine whether the challenged measures are consistent with global trade rules, a process that could take months and carry significant implications for industrial policy and EV trade.

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