The United States and Japan sign a trade agreement on electric vehicle battery minerals

WASHINGTON (Reuters) – The United States and Japan on Tuesday announced a trade deal on electric vehicle battery metals that is key to boosting battery supply chains and giving Japanese automakers broader access to a new $7,500 tax credit.

The quickly negotiated agreement prohibits the two countries from enacting bilateral export restrictions on minerals most important for electric vehicle batteries, according to top Biden administration officials. Metals include lithium, nickel, cobalt, graphite, and manganese.

The deal also aims to reduce U.S.-Japanese dependence on China for such materials by requesting cooperation to combat “non-market policies and practices” of other countries in the sector and conducting investment reviews of foreign investments in critical mineral supply chains.

Minerals-focused trade deals are one way the Biden administration hopes to unlock access for trusted allies to the $7,500-per-vehicle tax credits in last year’s climate-focused inflation reduction act.

Half of the credit for consumer purchases is reserved for vehicles and batteries assembled in North America, a major source of tension with the European Union, Japan and South Korea, who fear their auto and battery makers are becoming uncompetitive.

The other half of the credit is pledged to at least 40% of the value of the critical metals in the battery that have been mined or processed in the United States or a US FTA country or recycled in North America.

Japanese Trade Minister Yasutoshi Nishimura told reporters in Tokyo that Japan is working with the United States to sign the agreement in Washington on Tuesday.

“Since the demand for electric vehicle batteries is expected to grow exponentially, securing the critical minerals necessary for their production is an urgent issue,” said Nishimura.

The US Treasury Department is expected to outline requirements for sources of tax benefits for electric vehicles by the end of this week, providing eagerly awaited guidance for the automotive, battery and clean energy sectors.

But when asked if the trade agreement would qualify batteries, components and vehicles sourced from Japan for that portion of the tax credit, officials said the decision was up to the Treasury Department.

Nishimura said that electric vehicles made from minerals mined or processed in Japan are expected to meet tax-exempt requirements under US law.

US officials said the USTR does not intend to seek congressional approval for the minerals trade agreement because it falls under the agency’s authority to negotiate sectoral trade agreements at the executive level.

But they said provisions in the agreement to promote workers’ rights and recycling in battery metal supply chains would help both countries.

“Japan is one of our most valuable trading partners, and this agreement will enable us to deepen our existing bilateral relationship,” US Trade Representative Catherine Taye 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 have agreed to review the minerals agreement every two years, including whether it is appropriate to terminate or amend it.

(Reporting by David Lauder; Additional reporting by Daniel Lysink in Tokyo; Editing by Edwina Gibbs, Robert Purcell

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