Updated December 15, 2023
U.S.-Japan Critical Minerals Agreement
On March 28, 2023, the United States and Japan signed a
countries as well as arrangements such as licensing
critical minerals agreement (CMA) covering five key
agreements could be either IRA compliant or non-
minerals related to the production of batteries for clean
compliant, depending on the specific corporate situation.
vehicles (commonly referred to as electric vehicles or
The guidance also proposes a transition rule (until 2027)
“EVs”). The U.S.-Japan CMA entered into force
that would provide flexibility for certain low-value critical
immediately upon signature.
minerals that may be difficult to trace through the supply
chain under current industry standards. Some companies
The CMA seeks to address Japan’s concerns regarding
have expressed uncertainty about whether current and
certain content requirements for the consumer tax credit for
planned operations will qualify for the credit. The agencies
new EVs included in P.L. 117-169, known as the Inflation
are seeking public comments ahead of finalizing the rules.
Reduction Act of 2022 (IRA). The IRA requires a certain
percentage of critical minerals in EV batteries to be sourced
FTA Partner Provision and CMA Negotiations
from the United States or U.S. free trade agreement (FTA)
There is no statutory definition for an FTA, but under
partners. Congress has approved all previous U.S. FTAs via
World Trade Organization (WTO) rules, a regional trade
legislation and typically set FTA procedures and
agreement such as an FTA must cover “substantially all
requirements in Trade Promotion Authority (TPA), which
trade” between trading partners. The United States currently
expired in 2021. The United States and Japan do not have a
has 14 such “comprehensive” FTAs—authorized and
congressionally-approved FTA, but subsequent to the
approved by Congress—with 20 countries. During the
signing of the U.S.-Japan CMA, the U.S. Treasury
Trump Administration, the United States and Japan signed
Department issued a proposed rule including Japan as an
the 2020 U.S.-Japan Trade Agreement (USJTA), which is
FTA partner for the purposes of the IRA EV tax credit.
not a comprehensive FTA. It reduces tariffs on some goods,
but not those in the automotive or critical minerals sectors.
The U.S.-Japan CMA ties into a broader discussion about
congressional and executive trade authorities. Other issues
Automotive industry groups and U.S. trading partners urged
for Congress include implications for U.S.-Japan trade
the Biden Administration to broaden the definition of FTA
relations, ongoing and future CMA negotiations, and the
(e.g., including the WTO Government Procurement
implementation of the EV tax credit.
Agreement) to allow more trading partners to qualify. They
IRA EV Tax Credit
argue that it will be difficult to source adequate supplies of
critical minerals from the United States and its
The IRA provides consumers a tax credit of up to $7,500
comprehensive FTA partners within the outlined timeframe.
for new EVs (26 U.S.C. §30D). U.S. policymakers crafted
The Administration proposed new trade agreements
IRA EV tax credit requirements that, in part, reflect
concerns over U.S. dependence on the People’s Republic of
focusing on critical minerals in EV batteries as a method of
addressing the FTA partner requirement. The U.S.-Japan
China (PRC, or China). China dominates the EV supply
CMA was the first such agreement to be concluded. To
chain, including mining and processing of critical minerals
date, the United States has launched negotiations with the
and production of EVs and EV batteries. To qualify for the
European Union (EU) and the United Kingdom (UK). In
tax credit, EVs must meet overall requirements, including
November 2023, the United States and Indonesia agreed to
final assembly in North America and retail price caps. EVs
develop a “critical minerals action plan” with a view
can qualify for partial credit if they meet content
towards future CMA talks.
requirements related to the components or critical minerals
in the EV battery. Specifically, the $3,750 critical minerals-
U.S.-Japan CMA Overview
related portion of the credit requires 40% by value of an
Japan is the fifth-largest U.S. trading partner, and the
EV battery’s critical minerals to be sourced from the United
automotive sector plays a major role in the U.S.-Japan
States or a U.S. FTA partner. The requirement will be 50%
economic relationship. In 2022, the United States imported
in January 2024 and increases annually, reaching 80% in
$48.2 billion in vehicles and parts from Japan and exported
January 2027.
$2.2 billion to Japan. Since 1982, Japanese automakers
have invested $60.4 billion in U.S. manufacturing facilities,
In addition, starting in January 2024 and January 2025,
and have announced various investments in EV and EV
respectively, EVs cannot qualify for the credit if they
battery production following the passage of the IRA and the
contain battery components or critical minerals from
“
2020 United States-Mexico-Canada Agreement (USMCA),
foreign entities of concern” (FEOC), which includes
which has North American content requirements.
countries such as Russia and China. In December 2023,
Treasury and the U.S. Energy Department proposed rules
The U.S.-Japan CMA changes neither U.S. law nor existing
defining FEOC to include all entities headquartered or
tariffs, and does not include other market access provisions.
operating in a FEOC country. The guidance indicates that
The United States and Japan stated that the CMA’s
FEOC-tied operations in the United States and FTA partner
objective is to “strengthen and diversify critical minerals
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U.S.-Japan Critical Minerals Agreement
supply chains” and promote the adoption of EV battery
Figure 1), and the inclusion of Japan as an FTA partner
technologies. The critical minerals covered by the CMA are
could give “incredibly competitive” Japanese automakers a
cobalt, graphite, lithium, manganese, and nickel—all key
pathway to receive U.S. subsidies. Some Members of
EV battery inputs. Among other measures, the United
Congress raised concerns about the CMA’s lack of binding
States and Japan agreed to (1) maintain the “current
or enforceable commitments, particularly related to labor
practice” of not imposing export duties on critical minerals
and the environment. Some Members also criticized
trade between their countries; (2) confer on measures to
Treasury’s designation of Japan as an FTA partner for the
address non-market policies and practices affecting critical
purposes of the EV tax credit, based largely on the CMA,
minerals supply chains; (3) confer on best practices for
describing this action as overriding congressional trade
review of foreign investments in their countries’ critical
authorities and undermining Congress’s intent to build up
minerals sectors; (4) coordinate on actions related to forced
domestic EV supply chains.
labor and other labor rights connected to critical minerals
Issues for Congress
supply chains; and (5) promote employer neutrality related
U.S.-Japan FTA and congressional trade authority.
to unions. The two countries are to review the CMA “at
least once within two years” of the agreement’s entry into
Some Members and industry groups continue to push for a
comprehensive U.S. FTA with Japan (e.g., further USJTA
force, and every two years thereafter, to decide whether to
negotiations or joining the Comprehensive and Progressive
terminate or amend the CMA, including which critical
Agreement for Trans-Pacific Partnership [CPTPP]).
minerals are covered.
Members may consider whether targeted agreements like
Japan is not a large source of mined critical minerals but
the CMA are appropriate substitutes. A related issue is
possesses related capabilities, including mineral processing
Congress’s role in trade agreements. Members might
and EV battery production (e.g., Panasonic). In 2022, Japan
consider whether to formalize approval and/or
was the ninth-largest source of U.S. imports of the five
implementation processes for CMAs, either through TPA
covered critical minerals (see Error! Not a valid
reauthorization or legislation such as P.L. 118-13, which
bookmark self-reference.); Japan was the third-largest
retroactively approves a June 2023 U.S.-Taiwan trade
U.S. source of processed cobalt and lithium.
initiative and outlines requirements for future deals.
Figure 1. U.S. Critical Minerals Import Sources (2022)
President Biden stated that the Administration will treat
Cobalt, Graphite, Lithium, Manganese, and Nickel
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,
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 capacity-building efforts
with countries like the Democratic Republic of the Congo,
Mongolia, and Zambia, and plurilateral initiatives such as
the Minerals Security Partnership, which convenes

governments and private companies to discuss critical
Sources: Produced by CRS using trade data from U.S. Census
minerals projects. Some Members have expressed interest
Bureau. Tariff codes from U.S. Geological Survey and U.S.
in pursuing additional CMAs and/or strengthening critical
International Trade Commission.
minerals supply chains with key partners. At the same time,
Stakeholder Reactions to the CMA
some Members also have concerns about concluding CMAs
with countries like Indonesia over labor and environmental
Japanese automakers praised the CMA as recognition of
Japan’s status as a key
standards, PRC investment ties, and restrictive trade
U.S. ally and trading partner. The
practices. Other issues include the durability of CMAs and
International Union, United Automobile, Aerospace, and
how CMAs and other critical minerals frameworks relate to
Agricultural Implement Workers of America (“United Auto
existing trade initiatives.
Workers” or “UAW”)—a major U.S. union representing
workers at Ford, General Motors, and Stellantis—expressed
IRA EV tax credit implementation. Automakers argue
skepticism about the CMA, noting that U.S. imports of
that the EV tax credit requirements may limit the number of
Japanese critical minerals are relatively small (see Japan is
eligible EV models and increase prices. Some companies
not a large source of mined critical minerals but
have also raised concerns about a lack of clarity regarding
possesses related capabilities, including mineral
the FEOC provision. Some Members have argued that the
processing and EV battery production (e.g., Panasonic).
Administration’s implementation of the credit (e.g.,
In 2022, Japan was the ninth-largest source of U.S.
including Japan as an FTA partner, possibly allowing PRC-
imports of the five covered critical minerals (see Error!
tied firms to qualify for the critical minerals requirement)
Not a valid bookmark self-reference.); Japan was the
undermines congressional intent and potentially allows U.S.
third-largest U.S. source of processed cobalt and
taxpayer funds to flow to PRC firms. Others support the
Administration’s efforts to balance between derisking
lithium.
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U.S.-Japan Critical Minerals Agreement
supply chains and promoting EV adoption. Members may
consider whether to further clarify the IRA EV tax credit
requirements through legislation (e.g., S. 756/H.R. 2951)
and/or conduct oversight related to implementation of the
EV tax credit. For example, some Members have indicated
interest in pursuing a Congressional Review Act resolution
related to the implementation of the FEOC provision and
supporting lawsuits against the Administration.
https://crsreports.congress.gov

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U.S.-Japan Critical Minerals Agreement

IF12517
Kyla H. Kitamura, Analyst in International Trade and
Finance


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https://crsreports.congress.gov | IF12517 · VERSION 3 · UPDATED

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