U.S.-Japan Critical Minerals Agreement, CRS, Jan. 8, 2025.
On March 28, 2023, the United States and Japan signed a
critical minerals agreement (CMA) covering five key
minerals related to the production of batteries for clean
vehicles (commonly referred to as electric vehicles or
“EVs”). The U.S.-Japan CMA entered into force
immediately upon signature.
The CMA seeks to address Japan’s concerns regarding
certain content requirements for the consumer tax credit for
new EVs included in P.L. 117-169, known as the Inflation
Reduction Act (IRA). The IRA requires a certain
percentage of critical minerals in EV batteries to be sourced
from the United States or U.S. free trade agreement (FTA)
partners. Congress has approved all previous U.S. FTAs via
legislation and typically set FTA procedures and
requirements in Trade Promotion Authority (TPA), which
expired in 2021. The United States and Japan do not have a
congressionally approved FTA, but the U.S. Department of
the Treasury has designated the CMA as an FTA for the
purposes of the IRA EV tax credit.
The U.S.-Japan CMA ties into a broader discussion about
congressional and executive trade authorities. Other issues
for Congress include implications for U.S.-Japan trade
relations, ongoing and future CMA negotiations, and the
implementation of the EV tax credit.
IRA EV Tax Credit
The IRA provides consumers a tax credit of up to $7,500
for new EVs (26 U.S.C. §30D). To qualify for the tax
credit, EVs must meet overall requirements, including final
assembly in North America and retail price caps. U.S.
policymakers crafted IRA EV tax credit requirements that,
in part, reflect concerns over U.S. dependence on the
People’s Republic of China (PRC, or China). China
dominates the EV supply chain, including mining and
processing of critical minerals and production of EVs and
EV batteries. EVs can qualify for partial credit if they meet
content requirements related to the components or critical
minerals in the EV battery. Specifically, as of January 2025,
the $3,750 critical minerals-related portion of the credit
requires 60% by value of an EV battery’s critical minerals
to be sourced from the United States or a U.S. FTA partner.
The requirement will increase annually until reaching 80%
in January 2027.
In addition, starting in January 2024 and January 2025,
respectively, EVs cannot qualify for the credit if they
contain battery components or critical minerals from
“foreign entities of concern” (FEOC), which includes
countries such as Russia and China. Treasury and the U.S.
Energy Department have defined FEOC to include all
entities headquartered in or organized under the laws of an
FEOC country. The guidance indicates that FEOC-tied
operations in the United States and FTA partner countries
as well as arrangements such as licensing agreements could
be either IRA compliant or noncompliant, depending on the
specific corporate situation. The guidance includes a
transition rule that provides flexibility until 2027 for certain
low-value critical minerals, including graphite, that may be
difficult to trace through the supply chain under current
industry standards. China is the top global producer of
graphite. Since December 2023, the PRC government must
approve graphite exports.
FTA Partner Provision and CMA Negotiations
There is no statutory definition for an FTA, but under
World Trade Organization (WTO) rules, a regional trade
agreement such as an FTA must cover “substantially all
trade” between trading partners. The United States currently
has 14 such “comprehensive” FTAs—authorized and
approved by Congress—with 20 countries. During the
Trump Administration, the United States and Japan signed
the 2020 U.S.-Japan Trade Agreement (USJTA), which is
not a comprehensive FTA. It reduces tariffs on some goods,
but not those in the automotive or critical minerals sectors.
Automotive industry groups and some U.S. trading partners
have expressed a desire for allowing more trading partners
to qualify for the FTA partner provision. They argue that it
will be difficult to source adequate supplies of critical
minerals from the United States and its comprehensive FTA
partners within the outlined timeframe. The Biden
Administration proposed new trade agreements focusing on
critical minerals in EV batteries as a method of addressing
such concerns. The U.S.-Japan CMA was the first such
agreement to be concluded. Currently, the United States is
negotiating CMAs with the European Union (EU) and the
United Kingdom (UK). In November 2023, the United
States and Indonesia agreed to develop a “critical minerals
action plan” with a view toward future CMA talks.
U.S.-Japan CMA Overview
As of 2023, Japan is the sixth-largest U.S. trading partner
(goods and services). The automotive sector plays a major
role in the U.S.-Japan economic relationship. In 2023, the
United States imported $54.5 billion in vehicles and parts
from Japan and exported $2.5 billion to Japan. Since 1982,
Japanese automakers have invested $61.6 billion in U.S.
manufacturing facilities, and have announced various
investments in EV and EV battery production following the
passage of the IRA and the 2020 United States-Mexico-
Canada Agreement (USMCA), which has North American
content requirements for duty-free automotive trade.
The U.S.-Japan CMA changes neither U.S. law nor existing
tariffs, and does not include other market access provisions.
The United States and Japan stated that the CMA’s
objective is to “strengthen and diversify critical minerals
supply chains” and promote the adoption of EV battery
technologies. The critical minerals covered by the CMA are
cobalt, graphite, lithium, manganese, and nickel—all key
EV battery inputs. Among other measures, the United
States and Japan agreed to (1) maintain the “current
practice” of not imposing export duties on critical minerals
trade between their countries; (2) confer on measures to
address nonmarket policies and practices affecting critical
minerals supply chains; (3) confer on best practices for
review of foreign investments in their countries’ critical
minerals sectors; (4) coordinate on actions related to forced
labor and other labor rights connected to critical minerals
supply chains; and (5) promote employer neutrality related
to unions. The two countries agreed to review the CMA
periodically to determine whether to terminate or amend the
CMA, including which critical minerals are covered.
Japan is not a large source of mined critical minerals but
possesses related capabilities, including mineral processing
and EV battery production (e.g., Panasonic). In 2023, Japan
was the tenth-largest source of U.S. imports of the five
covered critical minerals (see Figure 1), particularly
processed cobalt.
Stakeholder Reactions to the CMA
Japanese automakers praised the CMA as recognition of
Japan’s status as a key U.S. ally and trading partner. The
International Union, United Automobile, Aerospace, and
Agricultural Implement Workers of America (UAW)—a
major U.S. union representing workers at Ford, General
Motors, and Stellantis—expressed skepticism about the
CMA, noting that U.S. imports of Japanese critical minerals
are relatively small, and the inclusion of Japan as an FTA
partner could give “incredibly competitive” Japanese
automakers a pathway to receive U.S. subsidies. Some
Members of Congress raised concerns about the CMA’s
lack of binding or enforceable commitments, particularly
related to labor and the environment. Some Members also
criticized Treasury’s designation of the CMA as an FTA for
the purposes of the EV tax credit, describing this action as
overriding congressional trade authorities and undermining
Congress’s intent to build up domestic EV supply chains.
Issues for Congress
U.S.-Japan FTA and congressional trade authority.
Some Members and industry groups continue to push for a
comprehensive U.S. FTA with Japan (e.g., further USJTA
negotiations or joining the Comprehensive and Progressive
Agreement for Trans-Pacific Partnership [CPTPP]).
Members may consider whether targeted agreements like
the CMA are appropriate substitutes. A related issue is
Congress’s role in trade agreements. During the 118th
Congress, some Members proposed legislation defining
FTA for the purposes of the tax credit as a congressionally
approved agreement covering “substantially all the trade”
between the United States and one or more countries (e.g.,
H.R. 7983). Other Members proposed legislation to
authorize the negotiation of and outline approval processes
for limited FTAs focusing on critical minerals (S. 5451).
See CRS Report R47679, Congressional and Executive
Authority Over Foreign Trade Agreements.
Future CMAs and other critical minerals initiatives. It is
unclear whether the U.S.-Japan CMA will be a template for
other CMAs. Some critical mineral-rich nations without a
comprehensive U.S. FTA (e.g., Argentina, Norway, the
Philippines) have expressed interest in qualifying as FTA
partners through CMAs or existing trade initiatives. The
United States is also engaged in plurilateral initiatives such
as the Minerals Security Partnership, which convenes
governments and private companies to discuss critical
minerals projects. Some Members of Congress have
expressed interest in pursuing additional CMAs and/or
strengthening critical minerals supply chains with key
partners (e.g., S. 3631, 118th Congress). At the same time,
some Members also have concerns about concluding CMAs
with countries, like Indonesia, due to weak labor and
environmental standards, PRC investment ties, and
restrictive trade practices. Other issues include the
durability of CMAs and how CMAs and other critical
minerals frameworks relate to existing U.S. trade initiatives.
IRA EV tax credit implementation. Some Members
argued that the Biden Administration’s implementation of
the credit (e.g., temporary flexibility for certain minerals
and interpreting FEOC to possibly allow for materials from
PRC-tied firms) undermines congressional intent and may
allow U.S. taxpayer funds to flow to PRC firms. Others
supported the Administration’s efforts to balance between
derisking supply chains and promoting EV adoption.
During the 118th Congress, some Members proposed
legislation to change or further clarify IRA EV tax credit
requirements (e.g., S. 3869, S. 756/H.R. 2951, H.R. 3938,
H.R. 7980). Some Members also proposed eliminating the
EV tax credit (e.g., S. 4237). Congress may also consider
oversight of the EV tax credit’s implementation—for
example, during the 118th Congress, some Members
pursued a Congressional Review Act resolution (e.g.,
S.J.Res. 87/H.J.Res. 148).
Kyla H. Kitamura, Analyst in International Trade and
Finance
https://crsreports.congress.gov/product/pdf/IF/IF12517