WASHINGTON, March 28 (Reuters) – The United States and Japan on Tuesday announced a trade deal on battery minerals for electric vehicles that is essential to strengthening their battery supply chains and giving Japanese automakers wider access to a new $7,500 US EV tax credit.
The swiftly negotiated agreement prohibits the two countries from imposing bilateral export restrictions on the minerals most critical to EV batteries, senior Biden administration officials said. The minerals include lithium, nickel, cobalt, graphite and manganese.
The deal also aims to reduce US-Japanese reliance on China for such materials by requiring cooperation to combat “non-market policies and practices” of other countries in the sector and conducting investment assessments of foreign investment in their critical mineral supply chains.
Mineral-focused trade deals are one way the Biden administration hopes to give trusted allies access to the $7,500 per vehicle EV tax credits in last year’s climate-focused Inflation Reduction Act.
Half of consumer buying credit is reserved for North American-assembled vehicles and batteries, a source of significant tension with the European Union, Japan and South Korea fearing their car and battery makers will become uncompetitive .
The other half of the credit is contingent upon at least 40% of the battery’s value of critical minerals being mined or processed in the United States or a country with a free trade agreement with the U.S. or recycled in North America.
Japan worked with the United States on Tuesday to sign the agreement in Washington, Commerce Secretary Yasutoshi Nishimura told reporters in Tokyo.
“As demand for electric vehicle batteries is expected to grow significantly, securing key minerals essential to their production is an urgent issue,” said Nishimura.
The U.S. Treasury Department is expected to define procurement requirements for the electric car tax subsidies by the end of this week, providing long-awaited guidance for the auto, battery and clean energy sectors.
But when asked if the trade deal would allow Japanese batteries, components and vehicles to qualify for that portion of the tax credit, officials said the decision was up to the Treasury.
Nishimura said EVs made with minerals mined or processed in Japan were expected to meet tax-exempt requirements under US law.
The US officials said the US Trade Representative does not intend to seek congressional approval for the mineral trade deal because it falls under the agency’s authority to negotiate sectoral trade agreements at the executive level.
But they said provisions in the deal to promote labor rights and recycling in their battery minerals supply chains would help both countries.
“Japan is one of our most valued trading partners and this agreement will allow us to deepen our existing bilateral relations,” US trade envoy 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 agreement every two years, including whether it is appropriate to terminate or amend it.
Reporting by David Lawder, additional reporting by Daniel Leussink in TOKYO; Edited by Edwina Gibbs, Robert Birsel
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