The United States and Japan have struck a trade deal on critical minerals used in the production of electric vehicle batteries. The agreement is meant to reduce both countries’ dependence on countries like China for critical minerals, senior Administration officials told reporters.
In a related move, the Treasury Department published proposed content rules for the critical minerals content required for eligibility for the electric vehicle tax credits in the Inflation Reduction Act.
Key Congressional lawmakers from both political parties chided the Administration, blasting the Administration for negotiating a trade deal without Congressional approval, echoing comments made to US Trade Representative Katherine Tai during hearings before the two trade committees last week.
“It’s clear this agreement is one of convenience,” Senate Finance Committee Chairman Ron Wyden (D-Ore) and House Ways and Means Committee ranking Democrat Richard Neal (Mass) said in a joint statement. “As we warned Ambassador Tai last week, the Administration does not have the authority to unilaterally enter into free trade agreements. Human rights, environmental rights, and economic opportunity are all closely interwoven, and had the Administration wanted to include meaningful labor or environmental protections in this agreement, they would’ve engaged Congress.”
According to a joint fact sheet, the deal “supports workers and businesses in both countries’ electric vehicle sectors and sets standards for other economies to emulate.”
House Ways and Means Committee Chairman Jason Smith (R-Mo) complained that the agreement will result in the Administration handing out “US taxpayer dollars to foreign nations and risk American jobs solely to advance its radical ‘green’ energy agenda."
The United States currently is negotiating a similar agreement with the European Union. European Commission Executive Vice President Margrethe Vestager said on Thursday that she is optimistic that an electric vehicle battery minerals trade agreement can soon be reached with the U.S. that is similar in substance to Washington's deal this week with Japan, according to Reuters.
Vestager told reporters in Washington that European Union and U.S. negotiators are working on legal frameworks that would be different from the Japan deal. “And that is what has been holding up things, but we are quite optimistic that we can reach an agreement about the same sort of substantial scope as the Japanese,”
Japan, the EU and South Korea have been complaining that their EV auto and battery manufacturers would be discriminated against by the tax credit for electric vehicles included in last year’s Inflation Reduction Act.
The Agreement establishes several new commitments and areas for joint cooperation regarding electric vehicle battery critical minerals supply chains between the United States and Japan, including those related to:
Content Rules for Tax Credit
Treasury Friday announced the proposed “30D” tax credits for electrical vehicles as provided in the Inflation Reduction Act, specifying content requirements for batteries and battery materials.
The Notice of Proposed Rulemaking (NPRM) provides clarity and certainty to manufacturers on the Inflation Reduction Act requirements that vehicles eligible for the clean vehicle credit undergo final assembly in North America and do not exceed a Manufacturers Suggested Retail Price of $80,000 for a van, pickup truck, or sport utility vehicle, or $55,000 for any other vehicle.
To be eligible for a $7,500 credit, clean vehicles must meet sourcing requirements for both the critical minerals and battery components contained in the vehicle. Vehicles that meet one of the two requirements are eligible for a $3,750 credit.
To meet the critical mineral requirement and be eligible for a $3,750 credit, the applicable percentage of the value of the critical minerals contained in the battery must be extracted or processed in the United States or a country with which the United States has a free trade agreement, or be recycled in North America—as mandated by the Inflation Reduction Act.
To meet the battery component requirement and be eligible for a $3,750 credit, the applicable percentage of the value of the battery components must be manufactured or assembled in North America—as mandated by the Inflation Reduction Act.
In addition, starting in 2025, battery minerals cannot come from a “foreign entity of concern,” mainly China and Russia. Battery parts cannot be sourced in those countries starting in 2024; minerals can’t come from those countries in 2025
Sen. Joe Manchin (D-WV) negotiated the terms in the new law that require battery sourcing in North America. In January, he introduced the American Vehicles Security Act of 2023 (S.63), which would compel Treasury to a strict interpretation of tax credit eligibility.
“The IRA is first-and-foremost an energy security bill, and the EV tax credits were designed to grow domestic manufacturing and reduce our reliance on foreign supply chains for the critical minerals needed to produce EV batteries,” said Mr. Manchin introducing the bill.
Friday Mr. Manchin said “It is horrific that the Administration continues to ignore the purpose of the law which is to bring manufacturing back to America and ensure we have reliable and secure supply chains. American tax dollars should not be used to support manufacturing jobs overseas.”
Other observers were sanquine. “We now know the EV tax credit playing field for the next year or so. March 2023 was as good as it gets.,” notes John Bozzella, president and CEO of the Alliance for Automotive Innovation. “How many EVs meet all those requirements and qualify for the full $7,500 credit now? My best guess: few of the 91 models currently for sale. Some EVs will certainly qualify for a partial credit. “Given the constraints of the legislation, Treasury’s done as well as it could to produce rules that meet the statute and reflect the current market.”
Additional information about the clean vehicle credit is available here. Treasury and the IRS will consider public comments and feedback before issuing final rules.
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