The Indonesian government is pursuing a plan to sign a limited free trade agreement (FTA) with the United States covering only key mineral products for batteries such as nickel and aluminum. Korean battery companies that have contracted to supply battery minerals from Indonesia are also expected to benefit.
According to major foreign media on the 10th (local time), Luhut Panjaitan, Coordinating Minister for Maritime Affairs and Investment, said at a press conference that he plans to travel to the United States on the 11th to propose to the U.S. government the signing of an FTA covering only key minerals. He said, "This is to resolve the isolation of Indonesian nickel," adding, "An FTA is necessary to avoid restrictions under the IRA."
The United States has decided to provide subsidies of up to $7,500 (approximately 9.9 million KRW) only for electric vehicles assembled in North America under the IRA.
To receive this subsidy, from this year, at least 50% (by value) of all electric vehicle battery components must be manufactured or assembled in North America to qualify for half of the subsidy, a $3,750 (approximately 4.95 million KRW) tax credit. The remaining $3,750 tax credit can be obtained through the 'critical minerals requirement,' which mandates that at least 40% of the critical minerals used in the battery must be mined or processed in the U.S. or countries that have an FTA with the U.S.
If minerals from countries without an FTA with the U.S. are used, at least 50% of the value added during extraction or processing must occur in the U.S. or an FTA partner country.
However, Indonesia currently does not have an FTA with the United States. Under the current IRA regulations, Indonesia’s role is limited to mining and simple refining of nickel. To receive subsidy benefits, production of precursors and cathode materials must be moved to the U.S. or FTA partner countries such as South Korea. This disrupts Indonesia’s plan to leverage its position as the largest nickel producer to attract the entire battery industry?from mineral mining to battery cell production?within its borders. Therefore, Indonesia aims to sign an FTA with the U.S. limited to minerals, thereby obtaining the FTA status required by the IRA and ensuring no setbacks in its battery industry development plans.
If Indonesia signs an FTA with the U.S., domestic companies’ supply chains are also expected to ease somewhat. LG Chem, LG Energy Solution, and POSCO Holdings formed a consortium last year and entered the Indonesian nickel market. The consortium is known to be investing a total of $9.8 billion (approximately 12.9262 trillion KRW) in Indonesia. In April last year, the consortium signed a non-binding investment agreement related to building an electric vehicle battery value chain with Antam and Indonesia Battery Corporation (IBC), an Indonesian battery investment company.
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