WASHINGTON: The United States (US) and Japan on Tuesday announced a trade deal on electric vehicle battery minerals that is key to strengthening their battery supply chains and granting Japanese automakers wider access to a new $7,500 US EV tax credit.
The swiftly negotiated agreement prohibits the two countries from enacting bilateral export restrictions on the minerals most critical for EV batteries, according to senior Biden administration officials. The minerals include lithium, nickel, cobalt, graphite and manganese.
The deal also aims to reduce US-Japanese dependence on China for such materials by requiring collaboration to combat “non-market policies and practices” of other countries in the sector and on conducting investment reviews of foreign investments in their critical minerals supply chains.
Minerals-focused trade deals are one way that the Biden administration hopes to open up access for trusted allies to the $7,500 per vehicle EV tax credits in last year’s climate-focused Inflation Reduction Act.
Half of the credit for purchasing consumers is reserved for North American-assembled vehicles and batteries, a source of considerable tension with the European Union, Japan and South Korea, who worry that their car and battery makers will be rendered uncompetitive.
The other half of the credit is contingent on at least 40% of the value of critical minerals in the battery having been extracted or processed in the United States or a country with a U.S. free trade agreement or recycled in North America.
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Japan was working with the United States to sign the agreement in Washington on Tuesday, trade minister Yasutoshi Nishimura told reporters in Tokyo.
“As the demand for electric vehicle batteries is expected to grow significantly, securing important minerals essential for their production is an urgent issue,” Nishimura said.
The US Treasury is expected to define sourcing requirements for the EV tax subsidies by the end of this week, providing eagerly awaited guidance to the auto, battery and clean energy sectors.
But asked whether the trade agreement would qualify Japan-sourced batteries, components and vehicles for that part of the tax credit, the officials said that determination was up to Treasury.
Nishimura said that EVs made with minerals mined or processed in Japan were expected to meet tax exemption requirements under the US act.
