The United States and Japan have reached an agreement that will allow electric vehicles (EVs) using metals processed in Japan to qualify for tax incentives in the US.
The deal aims to “facilitate trade, promote fair competition and market-oriented conditions for trade in critical minerals, advance robust labour and environmental standards, and cooperate in efforts to ensure secure, transparent, sustainable, and equitable critical minerals supply chains”, according to the Office of the US Trade Representative.
Under the deal, both countries are prohibited from enacting bilateral export restrictions on the minerals most critical for EV batteries, including lithium, nickel, cobalt, graphite and manganese.
The agreement will also allow electric vehicles made from metals processed in Japan to qualify for tax credits under President Joe Biden’s Inflation Reduction Act. The Act will allow households to receive up to $7,500 (£6,140) in tax credits to buy an electric car or $4,000 (£3,275) for a used one.
Under the bill, half of the credit for purchasing consumers is reserved for North American-assembled vehicles and batteries. The other half of the credit is contingent on at least 40 per cent of the value of critical minerals in the battery having been extracted or processed in the US or a country with a US free trade agreement or recycled in North America – a requirement that has received criticism from US allies including Japan and the European Union (EU).
The new trade deal will allow EVs made with battery minerals mined or processed in Japan to meet the requirements to qualify for the second half of the US tax credits, according to reports.
“Today’s announcement is proof of President Biden’s commitment to building resilient and secure supply chains,” said US trade representative Katherine Tai.
The US-Japan deal is an effort by both parties to reduce the two countries’ dependence on China for critical minerals. The deal states that collaboration is required to combat “non-market policies and practices” of other countries in the sector.
The agreement builds on the 2019 US-Japan Trade Agreement and aims to “strengthen and diversify critical minerals supply chains and promote the adoption of electric vehicle battery technologies”, officials have said.
“As we expect a significant increase of demand for EV batteries going forward, securing critical minerals indispensable for their production is a pressing task,” Japanese foreign Minister Yoshimasa Hayashi told reporters.
“The deal is aimed at establishing resilient supply chains through cooperation between Japan and the United States, as well as like-minded countries, by strengthening cooperation to secure sustainable and fair supply chains for those critical minerals,” he said.
The two countries agreed to review the minerals agreement every two years, including whether it is appropriate to terminate or amend it.
The Biden administration is currently said to be negotiating a similar agreement with the European Union, which had claimed the Inflation Reduction Act would break World Trade Organisation (WTO) rules and threatened to retaliate to protect EU manufacturers.