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21-10-2024
Bureau Report + Agencies
NEW DELHI: 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),” commerce and industry minister Piyush Goyal told reporters on Saturday.
Under the US’ Inflation Reduction Act (IRA) of 2022, 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 a 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.
An agreement was signed two weeks ago to cooperate on strengthening supply chains in the two countries for lithium, cobalt and other critical minerals used in electric vehicles and clean energy applications.
“Priority areas of focus include identifying equipment, services, policies and best practices to facilitate the mutually beneficial commercial development of US and Indian critical minerals exploration, extraction, processing and refining, recycling and recovery,” Commerce said.
Goyal, speaking at a Center for Strategic and International Studies in Washington after the signing, described the MOU as a multi-dimensional partnership that would include open supply chains for materials, technology development and investment flows to promote green energy.
He said the US and India would also need to include third countries in their engagement, including mineral-rich countries in Africa and South America.
The MOU, which media reported was in the works on Monday, falls far short of a full critical minerals trade deal that would allow India to benefit from the $7,500 US electric vehicle tax credit.
