US Treasury to Announce Detailed IRA Guidelines This Week
The United States has decided to provide tax benefits under the Inflation Reduction Act (IRA) for Japanese-made electric vehicle battery components and critical minerals.
According to Bloomberg on the 28th (local time), the U.S. and Japan have signed a mineral supply chain cooperation agreement that includes not imposing export tariffs on critical minerals used in electric vehicle battery components such as lithium, nickel, cobalt, graphite, and manganese.
Under this agreement, electric vehicle batteries made in Japan using minerals mined and processed within Japan will be eligible for tax benefits under the U.S. IRA.
Last year, the U.S. introduced the IRA, which primarily supports subsidies for electric vehicles finally assembled domestically. According to a white paper released by the U.S. Treasury Department, for electric vehicle battery components, a tax credit can be received if 50% of the components are manufactured or assembled in North America. For critical minerals used in batteries, tax benefits are available if more than 40% of the minerals are mined and processed in the U.S. or countries that have free trade agreements (FTA) with the U.S.
Since Japan does not have an FTA with the U.S., it has been difficult for Japanese batteries to receive subsidies based on the critical minerals requirement, but this agreement opens the door for such benefits.
On the other hand, South Korea has already signed an FTA with the U.S., so if the U.S. Treasury Department’s white paper policy is finalized as previously announced, tax benefits can be received by meeting certain conditions. For example, even if minerals imported from China are processed domestically, there is a possibility of receiving tax credits if the value-added criteria are met.
Katherine Tai, U.S. Trade Representative (USTR), stated in a press release, "This announcement is part of President Joe Biden’s commitment to building resilient and stable supply chains," emphasizing that "Japan is one of our most important trading partners."
However, detailed information regarding IRA subsidies is expected to be included in the detailed guidelines for electric vehicle tax credits under the IRA, which the U.S. Treasury Department will announce this week. The key issue is whether the guidelines outlined in the white paper released at the end of last year will be finalized. In the U.S., there are already criticisms that the Treasury Department has changed the definitions of battery components and critical minerals to favor countries like South Korea.
Vivas Kumar, CEO of Mitrachem, a company developing anode materials, criticized the U.S. Treasury white paper, saying, "It still allows the most valuable parts of the battery supply chain to be located outside the U.S."
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