The governments of Japan and the US have reached an agreement regarding strengthening the supply chains of critical minerals that are essential for manufacturing rechargeable batteries for electric vehicles (EV). The agreement will cover 5 ore types, namely cobalt, graphite, lithium, manganese and nickel. Under the agreement Japan and the US will strengthen the cooperation between the 2 countries in the areas of trade, environment and labor related to the supply chain, from the mining at mines to the smelting and processing of ores. Due to the signing of the agreement, it is expected that rechargeable batteries assembled with battery materials exported from Japan will be eligible for tax incentives provided by the US Inflation Reduction Act (IRA). The agreement will also lead to strengthening the supply chains for rechargeable batteries for Japan and the US, such as by diversifying the supply sources of critical minerals.
In terms of the US Inflation Reduction Act, batteries need to meet 2 conditions to be eligible for tax incentives provided for EV, namely ‘a certain percentage of battery components must be manufactured or assembled within North America’ and ‘a certain percentage of the critical minerals included in the batteries must be collected or processed by the US or a country with which the US has signed a free-trade agreement, or must be recycled within North America’. In relation to the above-mentioned condition regarding critical minerals including battery materials, since Japan has not signed a free-trade agreement with the US, until now batteries that include battery materials exported from Japan were not eligible for tax incentives, and some have raised concern that this will negatively affect the Japanese rechargeable battery industry’s competitiveness.
However, the aforementioned concerns are expected to be alleviated since it is predicted that the recent signing of the agreement will lead to Japan being handled as having a similar status with countries that have signed free-trade agreements with the US, and that this will be outlined in the ‘guidance related to conditions for battery components and critical minerals’ to be announced by the US government in the near future.
The global competition to acquire critical minerals including cobalt and lithium has become fierce due to rising demand caused by the use of electric vehicles spreading at an increasingly faster pace. For certain ore types the production of ore and bullion are limited to a select few countries, so the recently signed agreement provides benefits for the US as well, due to the fact that the agreement will lead to strengthening their supply chains for battery metals.
As part of the recently signed agreement, the US and Japan have agreed to cooperate on other related issues as well. These include the following: ‘Hold discussions regarding the possibilities of implementing effective and appropriate domestic measures to respond to anti-market policies and practices conducted by countries that are not part of the agreement which may negatively affect the trading of critical minerals, and also hold discussions regarding various issues related to the global supply chain of critical minerals’. ‘Support measures conducted between countries that are part of the agreement when supply chains are disrupted’. ‘Promote approaches that make more efficient use of resources and lead to a circular economy’.
