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US, Japan strike Trade Agreement on Materials for Electric Vehicle Batteries

In order to improve their battery supply chains and provide Japanese automakers more access to a new $7,500 US EV tax credit, the US and Japan on Tuesday established a trade agreement on the minerals used in EV batteries.

According to senior Biden administration officials, the hastily drafted deal forbids the two nations from adopting bilateral export restrictions on the minerals most essential for EV batteries. Lithium, nickel, cobalt, graphite, and manganese are among the minerals.

The agreement also aims to reduce US-Japanese reliance on China for such materials by requiring cooperation in combating “non-market policies and practices” of other countries in the sector, as well as conducting investment reviews of foreign investments in 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, 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 conditional upon at least 40% of the value of critical minerals being extracted, processed, or recycled in North America or in a country with a U.S. free trade agreement.

Yasutoshi Nishimura, Japan’s trade minister, told reporters in Tokyo that his country was negotiating with the United States to sign the agreement on Tuesday in Washington.

“Securing critical minerals required for their manufacturing is an urgent concern since the demand for electric vehicle batteries is likely to expand dramatically,” Nishimura added.

By the end of this week, the US Treasury is anticipated to specify the sourcing requirements for the EV tax incentives, giving the auto, battery, and renewable energy sectors much-needed direction.

But, when asked if the trade agreement would make batteries, parts, and automobiles sourced from Japan eligible for that portion of the tax credit, the officials stated Treasury would make that decision.

According to Nishimura, the US act’s tax exemption standards should be met by electric vehicles (EVs) produced with minerals that were mined or processed in Japan.

Because it falls under the agency’s authority to negotiate sectoral trade agreements at the executive level, the US officials stated that the US Trade Representative does not intend to request congressional approval for the trade agreement for minerals.

Nonetheless, they asserted that the agreement’s provisions promoting labor rights and recycling in their supply chains for battery minerals would benefit both nations.

According to US Trade Representative Katherine Tai, “Japan is one of our most valued trading partners and this agreement will enable us to deepen our existing bilateral relationship.”

“The United States continues to work with its allies and partners to strengthen supply chains for vital minerals, particularly through the Inflation Reduction Act, so this is a positive development.”

Every two years, the two nations agreed to evaluate the minerals deal and decide if it should be terminated or modified.

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