USA And Japan Announce Trade Agreement For Battery Mineral Trade

The United States and Japan announced a trade agreement on electric vehicle battery minerals on Tuesday, which is critical to strengthening their battery supply chains and providing Japanese automakers with greater access to the new $7,500 U.S. EV tax credit.

According to senior Biden administration officials, the quickly negotiated agreement prohibits the two countries from enacting bilateral export restrictions on the minerals most critical for EV batteries. Lithium, nickel, cobalt, graphite, and manganese are among the minerals.

The agreement also aims to reduce the United States' and Japan's reliance on China for such materials by requiring collaboration to combat "non-market policies and practises" of other countries in the sector, as well as conducting investment reviews of foreign investments in their critical minerals supply chains.

Minerals-focused trade agreements are one way the Biden administration hopes to give trusted allies access to the $7,500 per vehicle EV tax credits included 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, causing considerable consternation in the European Union, Japan, and South Korea, which are concerned that their car and battery manufacturers will be rendered uncompetitive.

The other half of the credit is conditional on at least 40% of the value of critical minerals in the battery being extracted or processed in the United States or a country with a free trade agreement with the United States, or recycled in North America.

The United States Treasury is expected to define the sourcing requirements for the EV tax credits by the end of this week, providing much-needed guidance to the auto, battery, and clean energy industries.

When asked whether the trade agreement would qualify Japan-sourced batteries, components, and vehicles for that portion of the tax credit, officials said it was up to Treasury to decide.

The officials stated that the USTR does not intend to seek congressional approval for the minerals trade agreement because it falls under the agency's executive authority to negotiate sectoral trade agreements.

They claimed, however, that provisions in the agreement to promote labour rights and recycling in their battery mineral supply chains would benefit both countries.

"Japan is one of our most valued trading partners and this agreement will enable 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 supply chains for critical minerals, including through the Inflation Reduction Act."

The two countries agreed to review the minerals agreement every two years to determine whether it should be terminated or amended.