October 23, 2023
U.S.-Japan Critical Minerals Agreement
On March 28, 2023, the United States and Japan signed a
notably China. Such analysts have commented that this
critical minerals agreement (CMA) covering five key
challenge could become more acute as demand for critical
minerals related to the production of batteries for clean
minerals grows due to the global transition towards clean
vehicles (commonly referred to as electric vehicles or
technologies. U.S. policymakers crafted IRA EV tax credit
“EVs”). The U.S.-Japan CMA entered into force
requirements that in part reflect concerns over U.S.
immediately upon signature.
dependence on PRC EV supply chains.
The CMA seeks to address Japan’s concerns regarding
FTA Partner Provision and CMA Negotiations
certain content requirements for the consumer tax credit for
There is no statutory definition for an FTA, but under
new EVs included in P.L. 117-169, known as the Inflation
World Trade Organization (WTO) rules, a regional trade
Reduction Act of 2022 (IRA). The IRA requires a certain
agreement such as an FTA must cover “substantially all
percentage of critical minerals in EV batteries to be sourced
trade” between trading partners. The United States currently
from the United States or U.S. free trade agreement (FTA)
has 14 such “comprehensive” FTAs—authorized and
partners. Congress has approved all previous U.S. FTAs via
approved by Congress—with 20 countries. During the
legislation and typically set FTA procedures and
Trump Administration, the United States and Japan signed
requirements in Trade Promotion Authority (TPA), which
the 2020 U.S.-Japan Trade Agreement (USJTA), which is
expired in 2021. The United States and Japan do not have a
not a comprehensive FTA. It reduces tariffs on some goods,
congressionally approved FTA, but subsequent to the
but not those in the automotive or critical minerals sectors.
signing of the U.S.-Japan CMA, the U.S. Treasury
Automotive industry groups and U.S. trading partners have
Department issued a proposed rule including Japan as an
urged the Biden Administration to broaden the definition of
FTA partner for the purposes of the IRA EV tax credit.
FTA (e.g., including the WTO Government Procurement
The U.S.-Japan CMA and its designation as an FTA tie into
Agreement) to allow more trading partners qualify. They
a broader discussion about congressional and executive
have argued that it will be difficult to source adequate
trade authorities. The CMA also raises issues for Congress
supplies of critical minerals from the United States and its
regarding the broader U.S.-Japan trade relationship, CMA
comprehensive FTA partners, and that inadequate sourcing
negotiations with other trading partners, and the
could negatively affect the “resiliency” of EV supply
implementation of the EV tax credit.
chains. The Administration has proposed new trade
IRA EV Tax Credit
agreements focusing on critical minerals in EV batteries as
a method of addressing the FTA partner requirement. The
The IRA provides consumers a tax credit of up to $7,500
U.S.-Japan CMA was the first such agreement to be
for new EVs (26 U.S.C. §30D). To qualify for the tax
concluded; to date, the United States has also launched
credit, vehicles must meet certain overall requirements,
negotiations with the EU and the United Kingdom (UK).
including final assembly in North America and retail price
caps. Vehicles can qualify for partial credit if they meet
U.S.-Japan CMA Overview
content requirements related to the components or critical
Japan is the fifth-largest U.S. trading partner, and the
minerals in the EV battery. Specifically, the $3,750 critical
automotive sector plays a major role in the U.S.-Japan
minerals-related portion of the credit requires a certain
economic relationship. In 2022, the United States imported
percentage by value of an EV battery’s critical minerals (as
$48.2 billion in vehicles and parts from Japan and exported
defined in 26 U.S.C. § 45X(c)(6)) to be extracted or
$2.2 billion to Japan. Since 1982, Japanese automakers
processed in the United States or in a U.S. FTA partner
have invested $60.4 billion in U.S. manufacturing facilities,
country, or recycled in North America. The percentage
and have announced various investments in EV and EV
requirement increases annually, starting at 40% as of April
battery production following the passage of the IRA and the
18, 2023, and reaching 80% on January 1, 2027.
2020 United States-Mexico-Canada Agreement (USMCA),
which has North American content requirements.
In addition, starting in 2024 and 2025, respectively, EVs
cannot qualify for the credit if they contain battery
The U.S.-Japan CMA changes neither U.S. law nor existing
components or critical minerals from “foreign entities of
tariffs, and does not include other market access provisions.
concern,” which includes countries such as Russia and the
In the CMA text, the United States and Japan stated that the
People’s Republic of China (PRC, or China), a dominant
agreement’s objective is to “strengthen and diversify
player in the EV supply chain. Treasury has stated that it
critical minerals supply chains” and promote the adoption
will issue guidance on the foreign entity of concern
of EV battery technologies. The CMA defines covered
provision by the end of 2023. Some analysts have expressed
critical minerals as cobalt, graphite, lithium, manganese,
concerns about a high risk for potential disruptions to
and nickel—all key EV battery inputs. Among other
critical mineral supply chains because current mining and
measures, the United States and Japan agreed to: (1)
processing is concentrated in a small number of countries,
maintain the “current practice” of not imposing export
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U.S.-Japan Critical Minerals Agreement
duties on critical minerals trade between their countries; (2)
Issues for Congress
confer on measures to address non-market policies and
U.S-Japan trade relations and congressional trade
practices affecting critical minerals supply chains; (3)
authority. Some Members and industry groups continue to
confer on best practices for review of foreign investments
push for a comprehensive FTA with Japan (e.g., additional
in their countries’ critical minerals sectors; (4) coordinate
USJTA negotiations or joining the Comprehensive and
on actions related to forced labor and other labor rights
Progressive Agreement for Trans-Pacific Partnership
connected to critical minerals supply chains; and (5)
(CPTPP)). Members may consider whether targeted
promote employer neutrality related to unions. The two
agreements like the CMA are appropriate substitutes for
countries are to review the CMA “at least once within two
comprehensive U.S. FTAs. Members might also consider
years” of the agreement’s entry into force, and every two
whether to formalize approval and/or implementation
years thereafter, to decide whether to terminate or amend
processes for CMAs, either through TPA reauthorization or
the CMA, including which critical minerals are covered.
legislation such as P.L. 118-13, which approves the first
Figure 1. U.S. Critical Minerals Import Sources (2022)
agreement (signed in June 2023) under the U.S.-Taiwan
Initiative on 21st Century Trade and outlines requirements
Cobalt, Graphite, Lithium, Manganese, and Nickel
for entry into force and for further deals. President Biden
stated that the Administration will treat certain
requirements in P.L. 118-13 as “non-binding” in cases
where he claims they “impermissibly infringe” on the
President’s constitutional authorities. For more information
on congressional and executive trade authorities, see CRS
Report R47679, Congressional and Executive Authority
Over Foreign Trade Agreements.
Future CMAs and other critical minerals initiatives. The
U.S.-Japan CMA could serve as a template for ongoing and
future CMA negotiations. Some critical minerals-producing
nations that do not have a comprehensive FTA with the
United States (e.g., Indonesia, the Philippines, Argentina,
Norway) have expressed interest in qualifying as FTA

partners through CMAs or existing trade initiatives. The
Source: Produced by CRS using trade data from U.S. Census
United States is also engaged in other global critical
Bureau. Tariff codes from U.S. Geological Survey and U.S.
minerals initiatives; for example, Memorandums of
International Trade Commission.
Understanding (MOUs) with Mongolia, the Democratic
Japan is not a large source of mined critical minerals but
Republic of the Congo, and Zambia to build capacity and
possesses related capabilities, including mineral processing
encourage investment in the minerals sector. Additionally,
and EV battery production (e.g., Panasonic). In 2022, Japan
the U.S.-led Minerals Security Partnership, launched in
was the ninth-largest source of U.S. imports of the five
June 2022, convenes various trading partners to discuss
covered critical minerals (see Figure 1); Japan was the
public and private investments related to critical minerals.
third-largest U.S. source of processed cobalt and lithium. In
Members may consider whether or not to encourage
2022, the United States was Japan’s third-largest source of
additional negotiations of CMAs or other critical minerals
processed lithium.
initiatives, and whether or not these initiatives should be
considered as FTAs.
Stakeholder Reactions to the CMA
Industry groups representing Japanese automakers praised
IRA EV tax credit implementation. Automakers have
the CMA as recognition of Japan’s status as a key U.S. ally
expressed concerns that the IRA EV tax credit requirements
and trading partner. The International Union, United
may limit the number of eligible vehicle models. In addition
Automobile, Aerospace, and Agricultural Implement
to concerns about the short timeline for meeting content
Workers of America (“United Auto Workers” or “UAW”)
requirements, some companies have raised concerns about a
—a major union representing workers at Ford, General
lack of clarity from Treasury regarding the foreign entity of
Motors, and Stellantis—expressed skepticism about the
concern provision. Some Members have expressed
CMA. UAW noted that U.S. imports of Japanese critical
concerns that Treasury’s implementation of the provision
minerals are relatively small (see Figure 1), particularly
could allow PRC companies to benefit from U.S. subsidies
compared to the size of U.S. automotive imports from
through arrangements such as licensing agreements.
Japan, and the inclusion of Japan as an FTA partner could
Members may consider whether or not to further define or
give “incredibly competitive” Japanese automakers a
clarify aspects of the IRA EV tax credit requirements
pathway to receive U.S. subsidies. Some Members of
through legislation (e.g., S. 756/H.R. 2951). Members also
Congress have raised concerns about the lack of binding or
may conduct oversight related to Treasury’s
enforceable commitments in the CMA, particularly related
implementation of the EV tax credit.
to labor and the environment. Some Members also have
criticized Treasury’s designation of Japan as an FTA
Kyla H. Kitamura, Analyst in International Trade and
partner for the purposes of the EV tax credit, based on the
Finance
CMA, describing this action as overriding congressional
trade authorities and undermining Congress’s intent to build
IF12517
up domestic EV supply chains.
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U.S.-Japan Critical Minerals Agreement


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https://crsreports.congress.gov | IF12517 · VERSION 1 · NEW

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