Updated May 14, 2024
U.S.-Japan Critical Minerals Agreement
On March 28, 2023, the United States and Japan signed a
be either IRA compliant or noncompliant, depending on the
critical minerals agreement (CMA) covering five key
specific corporate situation. The guidance also includes a
minerals related to the production of batteries for clean
transition rule (until 2027) that would provide flexibility for
vehicles (commonly referred to as electric vehicles or
certain low-value critical minerals, including graphite, that
“EVs”). The U.S.-Japan CMA entered into force
may be difficult to trace through the supply chain under
immediately upon signature.
current industry standards. China is the top global producer
of graphite, and as of December 2023, it requires
The CMA seeks to address Japan’s concerns regarding
government approval for graphite exports.
certain content requirements for the consumer tax credit for
new EVs included in P.L. 117-169, known as the Inflation
FTA Partner Provision and CMA Negotiations
Reduction Act of 2022 (IRA). The IRA requires a certain
There is no statutory definition for an FTA, but under
percentage of critical minerals in EV batteries to be sourced
World Trade Organization (WTO) rules, a regional trade
from the United States or U.S. free trade agreement (FTA)
agreement such as an FTA must cover “substantially all
partners. Congress has approved all previous U.S. FTAs via
trade” between trading partners. The United States currently
legislation and typically set FTA procedures and
has 14 such “comprehensive” FTAs—authorized and
requirements in Trade Promotion Authority (TPA), which
approved by Congress—with 20 countries. During the
expired in 2021. The United States and Japan do not have a
Trump Administration, the United States and Japan signed
congressionally-approved FTA, but the U.S. Department of
the 2020 U.S.-Japan Trade Agreement (USJTA), which is
the Treasury has designated the CMA as an FTA for the
not a comprehensive FTA. It reduces tariffs on some goods,
purposes of the IRA EV tax credit.
but not those in the automotive or critical minerals sectors.
The U.S.-Japan CMA ties into a broader discussion about
Automotive industry groups and some U.S. trading partners
congressional and executive trade authorities. Other issues
have urged the Biden Administration to allow more trading
for Congress include implications for U.S.-Japan trade
partners to qualify for the FTA partner provision. They
relations, ongoing and future CMA negotiations, and the
argue that it will be difficult to source adequate supplies of
implementation of the EV tax credit.
critical minerals from the United States and its
IRA EV Tax Credit
comprehensive FTA partners within the outlined timeframe.
The Administration proposed new trade agreements
The IRA provides consumers a tax credit of up to $7,500
focusing on critical minerals in EV batteries as a method of
for new EVs (26 U.S.C. §30D). U.S. policymakers crafted
addressing such concerns. The U.S.-Japan CMA was the
IRA EV tax credit requirements that, in part, reflect
concerns over U.S. dependence on the People’s Republic of
first such agreement to be concluded. Currently, the United
States is negotiating CMAs with the European Union (EU)
China (PRC, or China). China dominates the EV supply
and the United Kingdom (UK). In November 2023, the
chain, including mining and processing of critical minerals
United States and Indonesia agreed to develop a “critical
and production of EVs and EV batteries. To qualify for the
minerals action plan” with a view toward future CMA talks.
tax credit, EVs must meet overall requirements, including
final assembly in North America and retail price caps. EVs
U.S.-Japan CMA Overview
can qualify for partial credit if they meet content
As of 2023, Japan is the sixth-largest U.S. trading partner
requirements related to the components or critical minerals
(goods and services). The automotive sector plays a major
in the EV battery. Specifically, as of January 2024, the
role in the U.S.-Japan economic relationship. In 2023, the
$3,750 critical minerals-related portion of the credit
United States imported $54.5 billion in vehicles and parts
requires 50% by value of an EV battery’s critical minerals
from Japan and exported $2.6 billion to Japan. Since 1982,
to be sourced from the United States or a U.S. FTA partner.
Japanese automakers have invested $61.6 billion in U.S.
The requirement will increase annually until reaching 80%
manufacturing facilities, and have announced various
in January 2027.
investments in EV and EV battery production following the
passage of the IRA and the 2020 United States-Mexico-
In addition, starting in January 2024 and January 2025,
Canada Agreement (USMCA), which has North American
respectively, EVs cannot qualify for the credit if they
content requirements for duty-free automotive trade.
contain battery components or critical minerals from
“foreign entities of concern” (FEOC), which includes
The U.S.-Japan CMA changes neither U.S. law nor existing
countries such as Russia and China. Treasury and the U.S.
tariffs, and does not include other market access provisions.
Energy Department have defined FEOC to include all
The United States and Japan stated that the CMA’s
entities headquartered in or organized under the laws of a
objective is to “strengthen and diversify critical minerals
FEOC country. The guidance indicates that FEOC-tied
supply chains” and promote the adoption of EV battery
operations in the United States and FTA partner countries
technologies. The critical minerals covered by the CMA are
as well as arrangements such as licensing agreements could
cobalt, graphite, lithium, manganese, and nickel—all key
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U.S.-Japan Critical Minerals Agreement
EV battery inputs. Among other measures, the United
negotiations or joining the Comprehensive and Progressive
States and Japan agreed to (1) maintain the “current
Agreement for Trans-Pacific Partnership [CPTPP]).
practice” of not imposing export duties on critical minerals
Members may consider whether targeted agreements like
trade between their countries; (2) confer on measures to
the CMA are appropriate substitutes. A related issue is
address non-market policies and practices affecting critical
Congress’s role in trade agreements. Members might
minerals supply chains; (3) confer on best practices for
consider whether to define the term “FTA” through
review of foreign investments in their countries’ critical
legislation like H.R. 7983, which defines FTA for the
minerals sectors; (4) coordinate on actions related to forced
purposes of the tax credit as a congressionally-approved
labor and other labor rights connected to critical minerals
agreement covering “substantially all the trade” between
supply chains; and (5) promote employer neutrality related
the United States and one or more countries. If enacted,
to unions. The two countries agreed to review the CMA
such legislation may affect Japan’s FTA partner status
periodically to determine whether to terminate or amend the
under the EV tax credit.
CMA, including which critical minerals are covered.
Members might also consider whether to formalize
Japan is not a large source of mined critical minerals but
approval and/or implementation processes for CMAs, either
possesses related capabilities, including mineral processing
through TPA reauthorization or legislation such as P.L.
and EV battery production (e.g., Panasonic). In 2023, Japan
118-13, which retroactively approves a June 2023 U.S.-
was the tenth-largest source of U.S. imports of the five
Taiwan trade initiative and outlines requirements for future
covered critical minerals (see Figure 1), particularly
deals. President Biden stated that the Administration will
processed cobalt.
treat certain parts of P.L. 118-13 as “non-binding” in cases
Figure 1. U.S. Critical Minerals Import Sources (2023)
where he claims they “impermissibly infringe” on the
President’s constitutional authorities. See CRS Report
Cobalt, Graphite, Lithium, Manganese, and Nickel
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
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
Sources: Produced by CRS using trade data from U.S. Census
the same time, some Members also have concerns about
Bureau. Tariff codes from U.S. Geological Survey.
concluding CMAs with countries like Indonesia due to
Stakeholder Reactions to the CMA
labor and environmental standards, PRC investment ties,
Japanese automakers praised the CMA as recognition of
and restrictive trade practices. Other issues include the
Japan’s status as a key U.S. ally and trading partner. The
durability of CMAs and how CMAs and other critical
International Union, United Automobile, Aerospace, and
minerals frameworks relate to existing U.S. trade initiatives.
Agricultural Implement Workers of America (“United Auto
IRA EV tax credit implementation. Some observers argue
Workers”)—a major U.S. union representing workers at
that the EV tax credit requirements limit the number of
Ford, General Motors, and Stellantis—expressed skepticism
eligible models and may increase prices. Some Members
about the CMA, noting that U.S. imports of Japanese
have argued that the Administration’s implementation of
critical minerals are relatively small (see Figure 1), and the
inclusion of Japan as an FTA partner could give “incredibly
the credit (e.g., temporary flexibility for certain minerals
and interpreting FEOC to possibly allow for materials from
competitive” Japanese automakers a pathway to receive
PRC-tied firms) undermines congressional intent and
U.S. subsidies. Some Members of Congress raised concerns
potentially allows U.S. taxpayer funds to flow to PRC
about the CMA’s lack of binding or enforceable
firms. Others support the Administration’s efforts to
commitments, particularly related to labor and the
balance between derisking supply chains and promoting EV
environment. Some Members also criticized Treasury’s
adoption. Members may consider whether to change or
designation of the CMA as an FTA for the purposes of the
further clarify the IRA EV tax credit requirements through
EV tax credit, describing this action as overriding
legislation (e.g., H.R. 7980, H.R. 3938, S. 756/H.R. 2951)
congressional trade authorities and undermining Congress’s
and/or conduct oversight related to implementation of the
intent to build up domestic EV supply chains.
EV tax credit. For example, some Members have indicated
Issues for Congress
interest in pursuing a Congressional Review Act resolution
U.S.-Japan FTA and congressional trade authority.
related to the implementation of the EV tax credit and
Some Members and industry groups continue to push for a
supporting lawsuits against the Administration.
comprehensive U.S. FTA with Japan (e.g., further USJTA
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 8 · UPDATED

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