The US and Japan enter into a trade agreement on electric car battery minerals

WASHINGTON, March 28 (Reuters) – The United States and Japan on Tuesday announced a trade deal on electric car battery minerals that is key to strengthening their battery supply chains and giving Japanese automakers wider access to a new $7,500 U.S. tax credit for electric cars.

The hastily negotiated agreement prohibits the two countries from imposing bilateral export restrictions on the minerals most critical to electric car batteries, according to senior Biden administration officials. The minerals include lithium, nickel, cobalt, graphite and manganese.

The agreement also aims to reduce US-Japanese dependence on China for such materials by requiring cooperation to combat “non-market policies and practices” by other countries in the sector and to conduct investment reviews of foreign investments in their critical mineral supply chains.

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

Half of the credit for buying consumers is reserved for North American assembled vehicles and batteries, a source of significant tension with the European Union, Japan and South Korea, which worry that their car and battery makers will be made uncompetitive.

The other half of the credit is conditional on at least 40% of the value of critical minerals in the battery having been mined or processed in the United States or a country with a US Free Trade Agreement or recycled in North America.

Japan was working with the United States to sign the deal in Washington on Tuesday, Trade Minister Yasutoshi Nishimura told reporters in Tokyo.

“As demand for batteries for electric vehicles is expected to grow significantly, securing key minerals necessary for production is a pressing issue,” Nishimura said.

The US Treasury Department is expected to define purchase requirements for tax subsidies for electric vehicles by the end of this week, providing long-awaited guidance to the auto, battery and clean energy sectors.

But when asked whether the trade deal would qualify batteries, components and vehicles from Japan for that part of the tax credit, the officials said that was up to the finance ministry.

Nishimura said electric cars made with minerals mined or processed in Japan are expected to meet requirements for tax exemptions under US law.

The U.S. officials said the U.S. Trade Representative does not intend to seek congressional approval of the minerals trade deal because it falls under the agency’s authority to negotiate executive-level sectoral trade agreements.

But they said provisions in the deal to promote labor rights and recycling in their battery mineral supply chains would help both countries.

“Japan is one of our most valued trading partners, and this agreement will enable us to deepen our existing bilateral relationship,” US 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 countries agreed to review the mineral agreement every two years, including whether it is appropriate to terminate or amend it.

Reporting by David Lawder, additional reporting by Daniel Leussink in TOKYO; Editing by Edwina Gibbs, Robert Birsel

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