China alleged that 3 Indian PLI schemes related to EV and battery provide financial benefits to companies operating in India contingent on Domestic Value Addition (DVA).

• The 3 specific PLI schemes challenged are:
  • scheme to incentivise establishment of Giga-scale manufacturing capabilities of ACC batteries;
  • scheme for auto industry, which seeks to buttress the manufacturing of Advanced Automotive Technology (AAT) products;
  • scheme to promote EV manufacturing by attracting global EV manufacturers.
• DVA requirements under these PLI schemes incentivise companies to use domestic goods rather than imported goods are a violation of Agreement on Subsidies and Countervailing Measures (“SCM Agreement”) of WTO under prohibited category.

About SCM Agreement of WTO

• Article 1 defines a subsidy as a financial contribution by a government or a public body that confers a benefit.
• The SCM Agreement creates 2 categories of subsidies: Prohibited and Actionable.
  • Prohibited: 2 categories of subsidies are prohibited by Article 3.
    • First: It consists of subsidies contingent, in law or in fact, whether wholly or as one of several conditions, on export performance (“export subsidies”).
    • Second: It consists of subsidies contingent, whether solely or as one of several other conditions, upon the use of domestic over imported goods (“local content subsidies”).
  • Actionable: They are subject to challenge, either through multilateral dispute settlement or through countervailing action.