Daily Management Review

Trade Agreement Between US, And Japan Over Minerals Used In Electric Vehicle Batteries


Trade Agreement Between US, And Japan Over Minerals Used In Electric Vehicle Batteries
U.S. and Japan have reached a trade agreement over minerals used in electric vehicle batteries
The United States and Japan unveiled a trade agreement on electric car battery minerals on Tuesday, which is critical to bolstering their battery supply chains and providing Japanese car makers with greater access to a new $7,500 U.S. EV tax credit.
According to senior Biden administration officials, the quickly negotiated deal forbids the two countries from adopting bilateral export restrictions on the minerals most necessary 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 practices" 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 method the Biden administration intends to provide trustworthy partners 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 customers is allocated for North American-assembled vehicles and batteries, causing substantial consternation in the European Union, Japan, and South Korea, which are concerned that their car and battery manufacturers may be rendered uncompetitive.
The remaining half of the credit is conditional on at least 40% of the value of essential minerals in the battery being harvested or processed in the United States or a country with a free trade agreement with the United States, or recycled in North America.
Japan was collaborating with the US to sign the agreement on Tuesday in Washington, commerce 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 United States Treasury is anticipated to establish the sourcing standards for the EV tax credits by the end of this week, offering much-needed clarification to the auto, battery, and clean energy industries.
When asked whether the trade agreement would qualify Japan-sourced batteries, components, and automobiles for that portion of the tax credit, officials replied it was up to Treasury to decide.
According to Nishimura, EVs built with minerals mined or processed in Japan are expected to meet tax exemption standards under the United States laws.
According to US officials, the US Trade Representative will not seek congressional approval for the minerals trade pact since it comes under the agency's power to negotiate sectoral trade accords at the executive level.
They claimed, however, that measures in the agreement to encourage labor 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 governments agreed to examine the minerals deal every two years to see if it should be terminated or amended.