India seeks critical mineral pact with US

India has proposed to the United States to convert their memorandum of understanding in critical minerals into a critical minerals agreement (CMA) that will give the benefits of a free trade agreement to the trade of electric vehicles.

“I have suggested that our critical minerals MoU should be converted to critical minerals partnership agreement and become a beginning point to move towards a free trade agreement (FTA),” comm

Under the US’ Inflation Reduction Act (IRA) of 2022, a certain percentage of critical minerals in EV batteries have to be sourced from the United States or US FTA partners. This is a must if EVs have to qualify for tax incentives, which are given as tax breaks to buyers.

The US Department of the Treasury has designated the CMA as an FTA for the purposes of the EV tax credit. 

This means that even vehicles made in countries with which the US has CMA will be eligible for benefits in the form of tax breaks to buyers of EVs in the US. The US provides tax benefits of up to $7,500 for new EVs.

Japan is the first country to qualify for benefits for its EVs under CMA. The pact between the two countries was signed in March last year. The US is negotiating similar agreements with the United Kingdom and European Union.

An official said the conversion of the MoU into a partnership agreement will give it the status of a trade deal, thereby enabling Indian EV manufacturers to benefit from the electric vehicle tax credit that the US gives under its IRA.

India and US early this month signed an MoU to “expand and diversify critical mineral supply chains” during Goyal’s visit to the country for the 6th ministerial level meeting of US-India Commercial Dialogue. The agreement will leverage complementary strengths and facilitate mutually beneficial development of Indian and US critical minerals exploration, extraction, processing, recycling, and related activities.

The critical minerals covered by CMA that the US has covers cobalt, graphite, lithium, manganese and nickel—all key EV battery inputs.On the possibility of FTA with the US, the minister said the US congress is not very enthusiastic about FTAs with any country. “The US is keen to expand trade partnership with India. What shape and form can be decided after elections,” he added.
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