The Treasury Department on Friday released details of tax credit requirements for electric vehicles, including granting Japan a status on par with having a free trade agreement with the United States.
Under the rules to take effect on April 18, although the two countries have no FTA, Japanese EVs will be eligible for U.S. tax incentives even if critical battery minerals are processed in Japan as long as such vehicles are assembled in North America.
The credits are aimed at promoting the administration of President Joe Biden's goal of making 50 percent of all new cars and light trucks sold in the United States by 2030 electrified vehicles. The new rules, meanwhile, will be introduced to help boost the domestic industry and reduce reliance on China for battery supply chains.
As part of efforts to fight climate change, Biden signed the Inflation Reduction Act in August last year, which offers consumers buying qualified EVs to receive a tax credit of up to $7,500.
To fully benefit from the tax program, vehicles need to meet various complicated sourcing requirements. Japan, which had argued the law is unfair to Japanese manufacturers, signed a trade deal with the United States earlier this week on critical EV battery minerals, including cobalt, lithium and nickel.
With China's increasing economic influence apparently in mind, Japan and the United States agreed on the need to reinforce supply chains of minerals essential in producing EV batteries among allies and like-minded countries.
The bilateral deal that led to the relaxation of some requirements associated with the tax breaks includes a mutual commitment to refrain from imposing export tariffs on crucial minerals.
Despite the relaxation, the U.S. government still keeps the condition that EVs must be assembled in North America to be eligible for the credits, making it harder for European, Japanese and South Korean automakers to compete with their American rivals.