Updated April 4, 2024
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 noncompliant,
minerals related to the production of batteries for clean
depending on the specific corporate situation. The guidance
vehicles (commonly referred to as electric vehicles or
also proposes a transition rule (until 2027) that would
“EVs”). The U.S.-Japan CMA entered into force
provide flexibility for certain low-value critical minerals
immediately upon signature.
that may be difficult to trace through the supply chain under
current industry standards. Some companies have expressed
The CMA seeks to address Japan’s concerns regarding
uncertainty about whether current and planned operations
certain content requirements for the consumer tax credit for
will qualify for the credit and have called for more clarity
new EVs included in P.L. 117-169, known as the Inflation
regarding the definition of FEOC.
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. Department of the
Trump Administration, the United States and Japan signed
Treasury issued a proposed rule including Japan as an FTA
the 2020 U.S.-Japan Trade Agreement (USJTA), which is
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 toward
can qualify for partial credit if they meet content
future CMA talks.
requirements related to the components or critical minerals
in the EV battery. Specifically, as of January 2024, the
U.S.-Japan CMA Overview
$3,750 critical minerals-related portion of the credit
As of 2023, Japan is the sixth-largest U.S. trading partner
requires 50% by value of an EV battery’s critical minerals
(goods and services). The automotive sector plays a major
to be sourced from the United States or a U.S. FTA partner.
role in the U.S.-Japan economic relationship. In 2023, the
The requirement will increase annually until reaching 80%
United States imported $54.7 billion in vehicles and parts
in January 2027.
from Japan and exported $2.6 billion to Japan. Since 1982,
Japanese automakers have invested $61.6 billion in U.S.
In addition, starting in January 2024 and January 2025,
manufacturing facilities, and have announced various
respectively, EVs cannot qualify for the credit if they
investments in EV and EV battery production following the
contain battery components or critical minerals from
“
passage of the IRA and the 2020 United States-Mexico-
foreign entities of concern” (FEOC), which includes
Canada Agreement (USMCA), which has North American
countries such as Russia and China. In December 2023,
content requirements for duty-free automotive trade.
Treasury and the U.S. Energy Department proposed rules
defining FEOC to include all entities headquartered or
The U.S.-Japan CMA changes neither U.S. law nor existing
operating in a FEOC country. The guidance indicates that
tariffs, and does not include other market access provisions.
FEOC-tied operations in the United States and FTA partner
The United States and Japan stated that the CMA’s
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U.S.-Japan Critical Minerals Agreement
objective is to “strengthen and diversify critical minerals
undermining Congress’s intent to build up domestic EV
supply chains” and promote the adoption of EV battery
supply chains.
technologies. The critical minerals covered by the CMA are
Issues for Congress
cobalt, graphite, lithium, manganese, and nickel—all key
U.S.-Japan FTA and congressional trade authority.
EV battery inputs. Among other measures, the United
States and Japan agreed to (1) maintain the “current
Some Members and industry groups continue to push for a
practice” of not imposing export duties on critical minerals
comprehensive U.S. FTA with Japan (e.g., further USJTA
negotiations or joining the Comprehensive and Progressive
trade between their countries; (2) confer on measures to
Agreement for Trans-Pacific Partnership [CPTPP]).
address non-market policies and practices affecting critical
Members may consider whether targeted agreements like
minerals supply chains; (3) confer on best practices for
review of foreign investments in their countries’ critical
the CMA are appropriate substitutes. A related issue is
Congress’s role in trade agreements. Members might
minerals sectors; (4) coordinate on actions related to forced
consider whether to formalize approval and/or
labor and other labor rights connected to critical minerals
implementation processes for CMAs, either through TPA
supply chains; and (5) promote employer neutrality related
reauthorization or legislation such as P.L. 118-13, which
to unions. The two countries are to review the CMA “at
least once within two years” of the agreement’s entry into
retroactively approves a June 2023 U.S.-Taiwan trade
initiative and outlines requirements for future deals.
force, and every two years thereafter, to decide whether to
President Biden stated that the Administration will treat
terminate or amend the CMA, including which critical
certain requirements in P.L. 118-13 as “non-binding” in
minerals are covered.
cases where he claims they “impermissibly infringe” on the
Japan is not a large source of mined critical minerals but
President’s constitutional authorities. For more information,
possesses related capabilities, including mineral processing
see CRS Report R47679, Congressional and Executive
and EV battery production (e.g., Panasonic). In 2023, Japan
Authority Over Foreign Trade Agreements.
was the tenth-largest source of U.S. imports of the five
Future CMAs and other critical minerals initiatives. It is
covered critical minerals (see Figure 1), particularly
unclear whether the U.S.-Japan CMA will be a template for
processed cobalt.
other CMAs. Some critical mineral-rich nations without a
Figure 1. U.S. Critical Minerals Import Sources (2023)
comprehensive U.S. FTA (e.g., Argentina, Norway, the
Cobalt, Graphite, Lithium, Manganese, and Nickel
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
minerals projects. Some Members have expressed interest
in pursuing additional CMAs and/or strengthening critical
minerals supply chains with key partners (e.g., S. 3631). At
the same time, some Members also have concerns about
concluding CMAs with countries like Indonesia over 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 trade initiatives.
Sources: Produced by CRS using trade data from U.S. Census
IRA EV tax credit implementation. Automakers argue
Bureau. Tariff codes from U.S. Geological Survey.
that the EV tax credit requirements limit the number of
Stakeholder Reactions to the CMA
eligible models and may increase prices. Some companies
Japanese automakers praised the CMA as recognition of
and trading partners have also raised concerns about the
Japan’s status as a key U.S. ally and trading partner. The
FEOC provision. Some Members have argued that the
International Union, United Automobile, Aerospace, and
Administration’s implementation of the credit (e.g., Japan’s
Agricultural Implement Workers of America (“United Auto
FTA designation, interpreting FEOC to possibly allow for
Workers” or “UAW”)—a major U.S. union representing
materials from PRC-tied firms) undermines congressional
workers at Ford, General Motors, and Stellantis—expressed
intent and potentially allows U.S. taxpayer funds to flow to
skepticism about the CMA, noting that U.S. imports of
PRC firms. Others support the Administration’s efforts to
Japanese critical minerals are relatively small (see Figure
balance between derisking supply chains and promoting EV
1), and the inclusion of Japan as an FTA partner could give
adoption. Members may consider whether to change or
“incredibly competitive” Japanese automakers a pathway to
further clarify the IRA EV tax credit requirements through
receive U.S. subsidies. Some Members of Congress raised
legislation (e.g., H.R. 3938, S. 756/H.R. 2951) and/or
concerns about the CMA’s lack of binding or enforceable
conduct oversight related to implementation of the EV tax
commitments, particularly related to labor and the
credit. For example, some Members have indicated interest
environment. Some Members also criticized Treasury’s
in pursuing a Congressional Review Act resolution related
designation of Japan as an FTA partner for the purposes of
to the implementation of the FEOC provision and
the EV tax credit, based largely on the CMA, describing
supporting lawsuits against the Administration.
this action as overriding congressional trade authorities and
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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 7 · UPDATED

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