In an interesting turn of events, China filed a WTO complaint against India over India’s EV and battery subsidies such as in the Production-Linked Incentive (PLI) scheme and EV policy.
According to this Economic Times article,
China has filed a complaint against India in the World Trade Organization (WTO) over New Delhi’s subsidies for electric vehicles (EVs) and batteries. It has alleged that the subsidies violate global trade norms, including the principle of national treatment and constitute import substitution subsidies, which are explicitly prohibited under the multi-lateral trade rules.
These measures unfairly benefit India’s domestic industries and undermine China’s legitimate interests, Beijing said.
“It will be a request to consult ahead of a dispute, not a trade concern in committees,” said an official.
Further, as the article points out,
China has filed similar applications against Turkiye, Canada and the EU.
According to this global times article,
Among the 20 monitored countries and regions, India topped the ranking in the global trade friction index in June, according to a survey released in August by the China Council for the Promotion of International Trade (CCPIT), China’s trade promotion agency.
India also topped the ranking in the trade friction index with China, with trade frictions in electronics industries such as cameras, routers and chips staying at a high level, the CCPIT report showed.
Only last week, China further tightened the regulations for rare earth exports. Since mid-2023, China has shown the intent and willingness to use its dominance in the processing and recycling part of the value chain as a strategic leverage in the face of tariffs and other acts of tech denial from the US.
It added five new elements — holmium, erbium, thulium, europium and ytterbium — to the list of elements under export controls. The Ministry now requires foreign companies to obtain licenses in order to export products containing over 0.1% of any of these elements or made with Chinese technology.
The rhetoric on this from the Chinese side whitewashes much of this, and tends to paint China as a a responsible actor, looking only to maintain a sustainable industrial policy and, of all things, concern for the environment. As this article from the Chinese side reasons,
Beyond the necessary reciprocal responses, this round of rare-earth export controls is driven more by a holistic focus on resource conservation and sustainable development.
About the potential military end-use of these materials,
In the context of turmoil and frequent military conflicts in the world, China has taken note of the important uses of medium and heavy rare earths and related items in the military field. China, as a responsible major country, employs export controls on related items according to the law, in order to better defend world peace and regional stability, and to fulfill non-proliferation and other international obligations.
As an aside, I discuss some of these latest developments with colleague Anushka Saxena for Takshashila’s All Things Policy podcast. Find the episode here.
Now back to the WTO issue.
To repeat, if it was not already clear, it is in the Chinese interest to export to India. A declining economy and low domestic consumption, coupled with geopolitical pressures from the West, will only further force Chinese companies to look for countries such as India that offer a vast, lucrative market. The previously quoted Global Times article mentions the recent launch of Tesla’s Model Y in India, for example.
And in fact, it is in the Indian interest to substitute some of the $100 billion trade deficit with China with investment from the Chinese side, making way for potential job creation, FDI inflows and foreign technology transfer in sectors such as EV that do not have many strategic implications. Given China’s domineering presence in global production networks, it would help the cause of Indian manufacturing to open up some sectors for Chinese investments and manufacturing facilities, following China’s model of a “trade market for technology.”
However, the rare earth restrictions demonstrate that China still represents a global market failure and acts as an unfair player in the global economy. This action shows that the India-China relationship is not friendly, even though political dialogue and engagement are ongoing.
So while the hostile geopolitical environment from the US would make a case for the softening of the India-China posture, the fact that India needs China to make China+1 a reality, the structural strains in the relationship between the two mean that there exists a lot of tentativeness beneath the optics of a diplomatic thaw.
For now, expect more such friction.
My first (non-nuanced) thought as I read this was case of a pot calling the kettle black. :-). Then, I was wondering - this is a complex space , and I don't know enough.