Critical Minerals Deal With Japan Announced
The U.S. and Japan signed an agreement in Washington "formalizing the shared commitment of the Parties to facilitate trade, promote fair competition and market-oriented conditions for trade in critical minerals." The mini-deal that includes pledges not to impose export duties on the products, investment review within their countries for the sector, and a pledge to "confer on potential effective and appropriate domestic measures to address non-market policies and practices" that affect trade in critical minerals and critical minerals supply chains.
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According to the International Energy Agency, China's global market share in metal and mineral processing for goods needed for electric vehicle batteries is about 35% for nickel, 50% to 70% for lithium and cobalt, and almost 90% for rare earth elements.
Japan has secured a more significant supply of rare earth elements than the U.S. has, because China cut Japan off from rare earth minerals in 2010 after an unrelated dispute.
Senior administration officials declined to say that this agreement, which went into force March 28, will mean that minerals processed in Japan will qualify under the Inflation Reduction Act tax credit rules. That law says that $3,750 of a consumer tax credit for purchasing EVs is dependent on the car's battery having at least 40% of its minerals either from domestic sources or free-trade partners. The Treasury Department is expected to provide guidance on both critical minerals and battery component requirements later this week.
However, Bloomberg reported that Japanese trade minister Yasutoshi Nishimura said on March 28 in Tokyo that this agreement means Japanese minerals will qualify.
The Office of the U.S. Trade Representative offered a background call on the agreement, and an official on that call said that the investment screening provision is important because "there is a provision that will come into force that prohibits sources from foreign entities of concern to benefit from the tax credit."
A spokesperson for USTR did not respond to a request for clarification on whether that foreign entity of concern language would affect minerals mined or processed outside of China by a firm with majority Chinese ownership, or if the exclusion would be narrower than that, affecting only Chinese state-owned enterprises.
USTR said Japan and the U.S. also would cooperate on "information-sharing and enforcement actions related to labor rights in critical minerals extraction and processing," and on remedying labor rights violations, and that they would promote employer neutrality in union organizing.
House Ways and Means Committee Chairman Rep. Jason Smith, R-Mo., responded with disdain to the announcement: "The Biden Administration is clearly happy to hand out U.S. taxpayer dollars to foreign nations and risk American jobs solely to advance its radical ‘green’ energy agenda. This so-called ‘free trade agreement’ with Japan does nothing to shift critical mineral supply chains away from China. Equally shameful is the fact that the Biden Administration is distorting the plain text of U.S. law to write as many green corporate welfare checks as possible."
He said Congress has asked for there to be an analysis of how the agreement would affect American workers, and the administration has refused.
Ways and Means ranking member Rep. Richard Neal, D-Mass., and Senate Finance Committee Chairman Sen. Ron Wyden, D-Ore., said in a statement: "The critical minerals agreement announced today is unacceptable. Without enforceable environmental or labor protections, the Administration abandons worker-centric trade policy and jeopardizes our climate work by opening the door for another environmental catastrophe. Mining is a challenging business, with ongoing violations of workers’ rights, child labor, forced labor, environmental degradation, and toxic chemical exposure all present in the industry. Even among allies, the United States should only enter into agreements that account for the realities of an industry, learn from past agreements, and raise standards."
They said they warned USTR that the administration cannot enter into these sort of agreements without congressional approval. The text says the agreement is an extension of the mini-deal entered into during the Donald Trump administration, which lowered tariffs on both sides, and aimed to open agricultural access to U.S. exporters similar to what they would have gotten under the Trans-Pacific Partnership. Because the tariff reductions were small, the Trump administration used executive authority to enter into the deal, and did not seek a vote in Congress.