[Asia Economy Reporter Haeyoung Kwon] Janet Yellen, the U.S. Secretary of the Treasury, stated that the European Union (EU) and Japan must first establish a Free Trade Agreement (FTA) to benefit from the U.S. Inflation Reduction Act (IRA) incentives for electric vehicles, according to a report by the Wall Street Journal (WSJ) on the 24th (local time).
In an interview with WSJ, Secretary Yellen explained this while referring to the IRA’s critical minerals requirement for electric vehicle batteries, which provides tax credit benefits for North American-made electric vehicles.
The critical minerals requirement stipulates that batteries must contain at least 40% of critical minerals mined or processed in North America or countries with which the U.S. has an FTA to qualify for electric vehicle tax credits. This critical minerals ratio will double to over 80% by 2027 and increase to 100% by 2028.
Secretary Yellen said, "Currently, the U.S. does not have an agreement with the EU or Japan that can be considered an FTA," adding that if both sides wish, they could negotiate a new FTA limited to minerals.
This statement drew a clear line against some EU factions’ claims regarding the critical minerals requirement, which argued that there is no clear regulation on FTAs and that existing various trade agreements with the U.S. might substitute for it.
Last year, the U.S. passed the IRA, which provides tax credit benefits only for electric vehicles that meet the mineral and component requirements for batteries. To receive a tax credit benefit of up to $7,500, more than 50% of the battery components must be produced in North America in addition to the mineral requirements. South Korea, along with Europe and Japan, strongly opposed the passage of the IRA. The European Union (EU) has decided to enact the Carbon Neutral Industry Act, which includes subsidies for clean industries, as a countermeasure against the IRA.
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