WASHINGTON, March 28 (Portal) – The United States and Japan on Tuesday announced a trade deal on battery minerals for electric vehicles, which is key to strengthening their battery supply chains and giving Japanese automakers broader access to a new $7,500 tax credit granted for electric vehicles.
The quickly negotiated deal prohibits the two countries from imposing bilateral export restrictions on the minerals most critical to EV batteries, according to senior Biden administration officials. Minerals include lithium, nickel, cobalt, graphite and manganese.
The deal also aims to reduce the US and Japan’s dependence on China for such materials by calling for cooperation to combat other countries’ “non-market policies and practices” in the sector and conducting investment reviews of foreign investments in their critical mineral supply chains .
Minerals-focused trade deals are one way the Biden administration hopes to give trusted allies access to the $7,500-per-vehicle EV tax credit in last year’s climate-focused anti-inflation law.
Half of the credit for consumer purchases is reserved for vehicles and batteries assembled in North America, causing significant tensions with the European Union, Japan and South Korea, which fear their car and battery makers are no longer competitive.
The other half of the credit is contingent on at least 40% by value of the critical minerals in the battery being mined or processed in the United States or a US Free Trade Agreement country, or recycled in North America.
Japan is working with the United States to sign the deal in Washington on Tuesday, Trade Minister Yasutoshi Nishimura told reporters in Tokyo.
“With demand for electric vehicle batteries expected to increase significantly, securing key minerals essential to their production is an urgent concern,” Nishimura said.
The U.S. Treasury Department is expected to define procurement requirements for the EV tax subsidy by the end of this week, providing much-awaited guidance for the auto, battery and clean energy sectors.
When asked whether the trade deal would qualify batteries, components and vehicles from Japan for this portion of the tax credit, officials said the decision rested with the Treasury Department.
Nishimura said electric vehicles made with minerals mined or processed in Japan should meet tax exemption requirements under US law.
The US officials said the US Trade Representative does not intend to seek congressional approval for the minerals trade deal because it falls under the agency’s authority to negotiate executive-level sectoral trade deals.
However, they said the deal’s provisions to promote labor rights and recycling in their battery mineral supply chains would help both countries.
“Japan is one of our most valuable trading partners and this agreement will allow us to deepen our existing bilateral relationship,” U.S. Trade Representative Katherine Tai said in a statement.
“This is a welcome moment as the United States continues to work with our allies and partners to strengthen critical mineral supply chains, including through the Inflation Reduction Act.”
The two countries agreed to review the minerals deal every two years, including whether it is appropriate to terminate or amend it.
Reporting by David Lawder, additional reporting by Daniel Leussink in TOKIO; Editing by Edwina Gibbs, Robert Birsel
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