The United States and Japan said Tuesday that the two countries have reached an agreement on reinforcing supply chains of minerals vital in producing electric vehicle batteries.
The agreement will allow Japanese companies to receive EV tax breaks if critical minerals from the United States or countries with which it has free trade agreements are used in the cars' batteries, the two governments said.
The deal is part of a larger effort by the administration of U.S. President Joe Biden to strengthen its economic security by diversifying procurement sources of important materials among allies and like-minded countries, as well as to counter China's growing influence in high-tech sectors.
The accord means that Japan will be treated as equivalent to an FTA partner in relation to the five minerals, including cobalt, lithium and nickel.
"Today's announcement is proof of President Biden's commitment to building resilient and secure supply chains," U.S. Trade Representative Katherine Tai said in a statement. "Japan is one of our most valued trading partners, and this agreement will enable us to deepen our existing bilateral relationship."
Japan's Economy, Trade and Industry Minister Yasutoshi Nishimura said that it is critical to ensure the stable procurement of minerals needed for the production of EV batteries at a time when EV demand is expected to grow sharply.
"The agreement is aimed at building resilient supply chains in cooperation with the United States, as well as like-minded nations, to secure critical minerals indispensable to the production of EV batteries," Nishimura said at a press conference in Tokyo before the announcement.
He added the two countries were expected to sign the deal soon.
The agreement includes a mutual commitment to refrain from imposing export tariffs on crucial minerals and, apparently with China in mind, to deal with non-market practices, as well as violations of labor rights, according to the Office of the U.S. Trade Representative.
The U.S. Treasury Department is expected to release details associated with the tax incentives later this week.
Japan, which has no FTA with the United States, and many European countries had protested about being excluded from joining the American Clean Vehicle Credit scheme.
The Inflation Reduction Act, which Biden signed into law in August last year, offers tax credits of up to $7,500 on purchases of electrified vehicles that come off North American assembly lines when a certain amount of battery-critical minerals used to produce them are sourced or processed domestically, or from free trade agreement countries.
The deal will help Japanese manufacturers compete on a more level playing field against rivals in countries such as South Korea, which has an FTA with the United States.
The United States currently has free trade agreements in force with 20 countries, including Australia, Canada and Mexico, according to the Office of the USTR.
The USTR said that the agreement with Japan will be reviewed by the two countries at least once within two years of the accord entering into force.
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