China Takes Trade Fight with India to WTO, Seeks Dispute Panel
China has escalated its trade dispute with India. It formally asked the World Trade Organisation to establish a dispute settlement panel. This move targets New Delhi's incentive programs for automobiles, batteries, and electric vehicles. Bilateral consultations between the two nations failed to resolve the issue.
Consultations Fail, Prompting Formal WTO Action
In a communication to the WTO, China stated that consultations held on November 25, 2025, and January 6, 2026, did not yield a solution. This failure prompted Beijing to seek the establishment of a formal panel. The request was dated January 16.
"China therefore requests the Dispute Settlement Body to establish a panel to examine this matter," the communication said. It added that the request should be on the agenda for the next Dispute Settlement Body meeting scheduled for January 27 in Geneva.
The Core of China's Complaint Against India
The dispute originates from a complaint China filed in October last year. Beijing alleges that conditions under India's Production Linked Incentive schemes violate global trade rules. Specifically, China claims the measures discriminate against Chinese goods.
Beijing argues that India's policies are contingent on using domestic goods over imported products. This, China says, unfairly targets goods of Chinese origin. According to the complaint, these measures appear inconsistent with several WTO agreements.
The cited agreements include:
- The Subsidies and Countervailing Measures Agreement
- The General Agreement on Tariffs and Trade 1994
- The Trade-Related Investment Measures Agreement
China has pointed to three specific Indian programs in its complaint:
- The Production Linked Incentive scheme
- The National Programme on Advanced Chemistry Cell Battery Storage
- The PLI Scheme for the Automobile and Auto Component Industry
- The Scheme to Promote Manufacturing of Electric Passenger Cars in India
WTO Process and Broader Trade Context
Seeking consultations is the first step in WTO dispute settlement rules. When consultations fail, the complainant can request a panel to rule on the matter. Both India and China are founding members of the WTO.
This dispute unfolds against a complex trade backdrop. China remains India's second-largest trading partner. However, the relationship is heavily skewed. Recent data highlights the imbalance.
In the 2024-25 fiscal year, India's exports to China fell by 14.5 per cent. They totaled USD 14.25 billion. Meanwhile, imports from China rose by 11.52 per cent to USD 113.45 billion. This widened the trade deficit to a staggering USD 99.2 billion.
Strategic Motivations Behind the Move
China's action aligns with its push to expand overseas sales of electric vehicles. Domestic overcapacity and intense price wars are squeezing profits for Chinese manufacturers. Companies like BYD are aggressively looking at markets in Asia and Europe.
This expansion faces hurdles. The European Union, for instance, has imposed a 27 per cent tariff on Chinese EV imports. Against this global backdrop, China is challenging policies it sees as barriers in the Indian market.
India, for its part, has rolled out a series of policy measures to boost domestic manufacturing. Key initiatives include:
- The PLI ACC Battery Storage scheme approved in May 2021 with an outlay of Rs 18,100 crore.
- The PLI scheme for automobiles and auto components launched in September 2021 with Rs 25,938 crore.
- A policy cleared in March 2024 to attract global EV manufacturers to set up production in India.
The WTO panel process, if initiated, is not swift. It could take several months to conclude. This formal step marks a significant escalation in trade tensions between the two Asian giants. The outcome could influence future industrial policy and trade relations in the region.
