China urges WTO to set up panel in case against India's incentive schemes for auto, battery, EV

Imagine a scenario where a country is trying to boost its domestic manufacturing, create jobs, and reduce reliance on imports. This is precisely what India has been doing through its 'Make in India' initiative and various Production Linked Incentive (PLI) schemes. However, these very efforts have now landed India in a significant trade dispute at the World Trade Organization (WTO) with China, its largest trading partner.

**1. Background Context: India's Push for Self-Reliance**

India's 'Make in India' initiative, launched in September 2014, aimed to transform the country into a global manufacturing hub. This vision was further bolstered by the introduction of Production Linked Incentive (PLI) schemes across various sectors, starting in 2020. These schemes offer incentives to companies, both domestic and foreign, for incremental sales from products manufactured in India. The goal is multi-faceted: attract foreign direct investment (FDI), boost domestic manufacturing capabilities, enhance exports, reduce import dependence, and create employment opportunities. For critical sectors like automobiles, advanced chemistry cell (ACC) batteries, and electric vehicles (EVs), these schemes are particularly vital, as they are seen as future growth engines and crucial for India's energy transition and strategic autonomy. The FAME-II (Faster Adoption and Manufacturing of Electric Vehicles) scheme also plays a role in promoting EVs.

**2. What Happened: China's Challenge at the WTO**

China initiated a dispute at the WTO's Dispute Settlement Body (DSB) against India's incentive schemes for the auto, battery, and EV sectors. China alleges that these schemes violate fundamental global trade rules, specifically by discriminating against imported goods and favoring domestic production. This is a crucial point, as WTO agreements are built on principles of non-discrimination (most-favoured-nation treatment and national treatment). After bilateral consultations between India and China failed to resolve the issue, China escalated the matter by requesting the establishment of a dispute settlement panel. This panel will examine the legality of India's policies under WTO rules, particularly the General Agreement on Tariffs and Trade (GATT) 1994, the Agreement on Subsidies and Countervailing Measures (ASCM), and the Agreement on Trade-Related Investment Measures (TRIMS).

**3. Key Stakeholders Involved**

* **India (Government, Manufacturers, Consumers):** The Government of India is the primary respondent, defending its sovereign right to formulate industrial policy for national development. Indian manufacturers benefiting from PLI schemes are direct beneficiaries. Consumers might see a long-term benefit from a robust domestic industry, though short-term impacts could include higher prices if competition is stifled. India's core interest is to protect its industrial policy and promote domestic growth.

* **China (Government, Manufacturers):** China, as the complainant, represents its manufacturers who feel disadvantaged by India's schemes. Chinese companies are major players in the global automotive, battery, and EV supply chains and seek fair access to the Indian market. China's interest is to ensure a level playing field and prevent what it perceives as protectionist measures.

* **World Trade Organization (WTO):** The WTO, specifically its Dispute Settlement Body, acts as the arbiter. Its role is to interpret and apply WTO agreements to resolve trade disputes, ensuring that member countries adhere to multilateral trade rules. The panel's decision will have significant implications for global trade law and future industrial policies of other nations.

**4. Why This Matters for India: Economic Sovereignty and Global Trade**

This dispute is profoundly significant for India. Economically, it challenges the very foundation of India's 'Make in India' and PLI strategies, which are central to its ambition of becoming a $5 trillion economy. A negative ruling could force India to modify or even withdraw these incentive schemes, impacting planned investments, job creation, and the growth trajectory of critical sectors. Politically, it tests India's ability to balance its developmental goals with its international trade commitments. It also highlights the ongoing trade tensions with China, exacerbated by a substantial trade deficit that India seeks to address through domestic manufacturing. A strong domestic manufacturing base is also seen as crucial for national security and reducing strategic dependencies.

**5. Historical Context: India's Trade Policy Evolution**

Historically, India has navigated a complex path between protectionism and liberalization. Post-independence, India pursued an import-substitution industrialization strategy. The economic reforms of 1991 marked a shift towards greater liberalization and integration with the global economy, leading to India becoming a founding member of the WTO in 1995. However, recent years have seen a renewed emphasis on domestic manufacturing and self-reliance, partly in response to global supply chain disruptions (e.g., during the COVID-19 pandemic) and geopolitical shifts. This dispute reflects the tension between a country's legitimate right to foster domestic industry and the WTO's rules designed to prevent protectionism.

**6. Future Implications: A Precedent-Setting Case?**

The outcome of this dispute will have far-reaching implications. If the WTO panel rules against India, it could set a precedent for other countries using similar industrial promotion schemes. India might be compelled to amend its PLI schemes or face retaliatory measures from China. Conversely, if India successfully defends its policies, it could provide a template for developing nations to design incentive programs without violating WTO rules. The case will also highlight the ongoing debate about the relevance and effectiveness of the WTO's dispute settlement mechanism, especially given the current impasse in appointing members to its Appellate Body. This could influence how countries design future industrial policies and how trade disputes are resolved globally.

**7. Related Constitutional Articles, Acts, or Policies**

While no direct constitutional article specifically governs WTO disputes, India's economic policies, including 'Make in India' and PLI schemes, are rooted in the Directive Principles of State Policy (DPSP) under Part IV of the Constitution. Articles like **Article 38 (State to secure a social order for the promotion of welfare of the people)**, **Article 39 (certain principles of policy to be followed by the State)**, and **Article 43 (living wage, etc., for workers)** implicitly support state intervention for economic development and industrial growth. The executive power of the Union to enter into international agreements and treaties, including those establishing the WTO, is derived from **Article 73** read with **Article 253 (Legislation for giving effect to international agreements)**. Domestically, the **Foreign Trade (Development and Regulation) Act, 1992**, provides the legal framework for India's foreign trade policy. Internationally, the dispute hinges on India's adherence to WTO agreements like **GATT 1994**, **ASCM**, and **TRIMS**.