INSIGHTi

Critical Minerals: A U.S.-EU Free Trade
Agreement?
April 14, 2023
On March 10, President Biden and European Commission President von der Leyen announced that the
United States and European Union (EU) seek to “immediately begin negotiations on a targeted critical
minerals agreement [CMA].” The proposed deal aims to enable critical minerals extracted or processed in
the EU to count toward certain electric vehicle (EV) tax credit requirements of P.L. 117-169, commonly
referred to as the Inflation Reduction Act of 2022 (IRA). What a deal may entail remains to be seen; a
potential reference might be the U.S.-Japan CMA, concluded in late March, which established “several
new [bilateral] commitments and areas for joint cooperation regarding [EV] battery critical minerals
supply chains….” The Biden Administration’s current trade initiatives do not seek tariff removal. The
U.S.-EU CMA talks come amid renewed U.S.-EU trade frictions and congressional debate over
Administration trade policies. Members of Congress may monitor the negotiations, assess their
implications for U.S.-EU trade relations, and consider options to weigh in on a potential CMA.
Background
IRA provisions seek to incentivize purchases of new EVs by offering consumers a tax credit of up to
$7,500. Prior to the IRA’s enactment in August 2022, most U.S. and foreign-manufactured EVs were
eligible for tax credits, subject to a cap of 200,000 vehicles per manufacturer. The IRA lifted this cap but
imposed new requirements, including assembly and sourcing restrictions. Eligibility for the entire credit is
contingent on EV final assembly occurring in North America and two other requirements based on the
value and source of the (1) EV battery components and (2) applicable critical minerals.
To be eligible for the critical minerals portion of the tax credit, the percentage of the value of the battery’s
critical minerals that are extracted or processed in the United States or in a U.S. free trade agreement
(FTA) partner, or recycled in North America, must be at least 40% beginning in 2023, increasing
incrementally to 80% by 2027.
The IRA does not define an FTA. Per Treasury’s draft guidance proposed on March 31, qualifying
countries include
 countries with which the United States has “comprehensive FTAs”—“agreements
covering substantially all trade in goods and services between the parties, including trade
Congressional Research Service
https://crsreports.congress.gov
IN12145
CRS INSIGHT
Prepared for Members and
Committees of Congress

---

Congressional Research Service
2
in critical minerals” (the United States currently has such FTAs with 20 partners, but not
with the EU);
 additional countries based on certain criteria, including whether the United States has
agreements with them to reduce or refrain from imposing trade barriers and/or establish
high-standard trade-related disciplines (e.g., labor, environment)—an example cited is
Japan, based on the U.S.-Japan CMA. In addition to the EU, the Administration might
pursue other CMAs (e.g., with the United Kingdom [UK]).
The EU has contended that IRA sourcing and assembly provisions are “discriminatory” against European
companies and violate certain World Trade Organization (WTO) obligations related to nondiscrimination
and prohibitions of certain subsidies. South Korea, the UK, and others have raised similar concerns. The
EU has also expressed concern that the tax credit scheme could incentivize companies to shift supply
chains from the EU and prompt a global subsidies race.
The proposed U.S.-EU CMA follows distinct unsuccessful U.S. efforts previously to conclude a
traditional comprehensive FTA with the EU (i.e., the Transatlantic Trade and Investment Partnership and
U.S.-EU Trade Agreement). In contrast to the possible CMA, these earlier negotiations, in which
Congress had a formal role, occurred under Trade Promotion Authority (TPA), and sought removal of
both tariff and nontariff barriers. These efforts stalled over U.S.-EU differences on key trade issues.
Some policymakers and others support renewing U.S.-EU FTA negotiations (e.g., S.Res. 134 in the 117th
Congress, the German government, and commentators). The Biden Administration has focused instead on
targeted issues and new initiatives. In 2021, the partners reached interim agreements on the WTO Boeing-
Airbus subsidies disputes and steel and aluminum tariffs, and launched the U.S.-EU Trade and
Technology Council (TTC) to deepen cooperation.
Issues for Congress
The U.S.-EU CMA negotiations may present oversight and legislative issues.
U.S.-EU Trade Relations. If concluded, the U.S.-EU CMA could give the partners more common ground
to address ongoing bilateral trade frictions and global trade and economic issues of shared concern. On
the other hand, it could be a lost opportunity for them to make more ambitious commitments through
concessions in broader-based trade negotiations. Some Members have called on the Administration to
address not only EU concerns regarding U.S. policies, but also U.S. concerns (e.g., with the EU’s digital
trade regulations). Members also may examine how a CMA would relate to the TTC.
WTO Compliance. Some policymakers and other WTO members might question the extent to which a
potential U.S.-EU CMA would be consistent with U.S. and EU WTO commitments, given its
contemplated limited scope to trade in EV battery critical minerals. In particular, WTO agreements
require that FTAs eliminate duties and other restrictive regulations of commerce on “substantially all the
trade” among the parties—something outside the scope of the current CMA negotiations. If U.S. trading
partners pursue WTO or other dispute settlement, and the U.S.-EU CMA (and/or the IRA’s tax credit
scheme) is found to violate WTO rules, other countries could potentially respond in kind by restricting the
importation or sale of U.S. goods, including EVs, in their own markets. U.S. trading partners may also
retaliate unilaterally, without WTO authorization.
Congressional Role. Since the 1970s, Congress generally has authorized and passed implementing
legislation for U.S. FTAs that lower or eliminate tariff and nontariff barriers (e.g., the U.S.-Mexico-
Canada Agreement). The Administration’s pursuit of CMAs and other initiatives (e.g., the Indo-Pacific
Economic Framework for Prosperity) as executive deals not subject to congressional approval has drawn
criticism from some Members, including at the March hearings on the Administration’s trade agenda. In
potential TPA renewal or separately, Congress could consider specifying (1) negotiating objectives for a

---

Congressional Research Service
3
traditional comprehensive FTA with the EU, (2) criteria for agreements to be considered FTAs generally
or in the IRA, or (3) its role in shaping and approving targeted trade agreements. EU lawmakers
reportedly have voiced similar concerns that the European Commission’s approach to the CMA could
potentially limit the European Parliament’s role in approving EU trade agreements.

Author Information

Shayerah I. Akhtar
Andres B. Schwarzenberg
Specialist in International Trade and Finance
Spec Intl Trade/Finance





Disclaimer
This document was prepared by the Congressional Research Service (CRS). CRS serves as nonpartisan shared staff
to congressional committees and Members of Congress. It operates solely at the behest of and under the direction of
Congress. Information in a CRS Report should not be relied upon for purposes other than public understanding of
information that has been provided by CRS to Members of Congress in connection with CRS’s institutional role.
CRS Reports, as a work of the United States Government, are not subject to copyright protection in the United
States. Any CRS Report may be reproduced and distributed in its entirety without permission from CRS. However,
as a CRS Report may include copyrighted images or material from a third party, you may need to obtain the
permission of the copyright holder if you wish to copy or otherwise use copyrighted material.

IN12145 · VERSION 1 · NEW

---