US, Japan Strike Trade Deal on Critical Minerals for EV Batteries

Close on the heels of a similar agreement with the European Union, the United States and Japan have agreed on a trade deal for critical minerals used in clean energy technologies.

The agreement is intended to help Japan meet sourcing requirements for new electric vehicle (EV) subsidies in the U.S. and reduce reliance on China for strategic resources.

The agreement includes refraining from imposing export duties on key rare earth minerals like lithium, cobalt, manganese, nickel, and graphite and sharing information on potential labor violations in the supply chain.

“Today’s announcement is proof of President Biden’s commitment to building resilient and secure supply chains,” said Ambassador Katherine Tai.  “Japan is one of our most valued trading partners and this agreement will enable us to deepen our existing bilateral relationship.  This is a welcome moment as the United States continues to work with our allies and partners to strengthen supply chains for critical minerals, including through the Inflation Reduction Act.”

Earlier this month, the U.S. and EU agreed on immediately beginning negotiations on a deal on critical minerals used in the EV battery supply chain. The EU had earlier criticized the Inflation Reduction Act (IRA) as protectionist.

The U.S.-Japan agreement also aims to address non-market policies and practices of other countries affecting trade in critical minerals and practices regarding reviewing investments in the minerals sector by foreign entities.

The Biden administration is exploring minerals-focused trade deals to grant access to trusted allies to the $7,500 per vehicle EV tax credits established in IRA.

Under the current rules, half of the tax credit for purchasing consumers is reserved for North American-assembled vehicles and batteries. This provision has created significant tension with the European Union, Japan, and South Korea, who fear that their car and battery manufacturers will become uncompetitive.

The other half of the tax credit depends on the critical minerals used in the battery’s production. Specifically, at least 40% of the critical mineral value in the battery must have been extracted or processed in the U.S. or a country with a U.S. free trade agreement or recycled in North America.

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