The U.S. Biden administration's detailed regulations on electric vehicle (EV) tax credits under the Inflation Reduction Act (IRA) have sparked backlash from the U.S. Congress, which claims the rules favor the European Union (EU) and Japan.
According to the original regulations, the EU and Japan would not qualify for the tax credits as they have not signed free trade agreements (FTAs) with the U.S. However, Congress argues that the Biden administration is attempting to grant the EU and Japan the status of 'FTA partner countries' by pursuing separate trade negotiations, thereby infringing on Congress's exclusive authority to oversee trade.
Adrian Smith, Chairman of the Trade Subcommittee of the U.S. House Ways and Means Committee, stated, "Under no circumstances will Congress relinquish its constitutionally granted oversight authority over all trade matters." He added, "This is an unacceptable violation of the Constitution, and we will use every available tool to stop the administration's blatant overreach."
On the same day, the U.S. Treasury Department announced detailed regulations on the EV tax credits. According to the regulations, at least 40% of the critical minerals used in EV batteries must be mined or processed in the U.S. or in countries with which the U.S. has an FTA for the vehicle to qualify for the tax credit.
Additionally, although the U.S. has not directly signed an FTA with Japan, it has designated Japan as equivalent to an 'FTA partner country' by concluding a separate critical minerals agreement. The U.S. also indicated that it may add other countries that meet specific requirements such as trade barrier reductions in the future. The U.S. government is expected to conclude a similar critical minerals agreement with the EU.
Congress insists that any new trade agreements must be consulted with Congress first, while the Biden administration counters that the critical minerals agreements do not require congressional approval.
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