Syllabus: Bilateral, regional and global groupings and agreements involving India and/or affecting India’s interests
Context
- China filed a complaint with WTO against India alleging subsidies under the PLI scheme violate WTO law.
- Complaint concerns three specific PLI schemes: ACC batteries, auto sector, Electric Vehicles production.
PLI Scheme Overview
- Launched in 2020 to give fillip to Indian manufacturing through financial incentives.
- Provides incentives based on incremental sales to strategic industries bolstering global value chains.
- Integrates medium, small-scale industries through backward linkages into industrial production process.
Three Challenged PLI Schemes
- ACC batteries: incentivize giga-scale manufacturing capabilities in India for advanced chemistry cells.
- Auto industry: buttress manufacturing of Advanced Automotive Technology (AAT) products including vehicles/components.
- EV manufacturing: promote by attracting global EV manufacturers to India for production.
China’s Allegations
- PLI schemes provide financial benefits contingent on Domestic Value Addition (DVA) discriminating against imports.
- Auto sector PLI: requires 50% DVA as eligibility condition for financial benefits.
- ACC batteries PLI: beneficiary must ensure 25% DVA as salient feature requirement.
- DVA requirements incentivize domestic goods over imported goods discriminating against Chinese goods.
WTO Subsidies Law
- Legal Framework
- Subsidies and Countervailing Measures (SCM) agreement regulates industrial subsidies under WTO framework.
- Article 1 SCM: defines subsidy as financial contribution by government/public body conferring benefit.
- Subsidy must be specific to constitute actionable violation under WTO legal provisions.
- Subsidy Categories
- Prohibited subsidies: export subsidies and Import Substitution (IS) subsidies forbidden by definition.
- IS subsidies (Article 3.1(b)): contingent upon using domestic goods over imported goods discriminatorily.
- Financial contribution conditional on using domestic/locally produced goods constitutes prohibited IS subsidy.
- Other Violations
- IS subsidy breaches Article III.4 GATT (national treatment obligation) treating imports less favorably.
- Violates Article 2.1 TRIMs Agreement: prohibits trade-related investment measures inconsistent with national treatment.
- Local content requirements incentivizing domestic goods constitute proscribed TRIM under WTO law clearly.
India’s Defense
- DVA milestones don’t automatically translate to local content requirements in PLI schemes.
- Value addition occurs multiple ways, not just through domestic goods use requiring complex analysis.
Dispute Resolution Process
- First step: consultations between India and China for amicable resolution attempt.
- If unsuccessful, three-member ad hoc WTO panel adjudicates dispute through formal proceedings.
- Appellate Body incapacitated since December 2019; appeals postpone adjudication indefinitely maintaining status quo.