Proposed U.S.-EU Critical Minerals Agreement

Proposed U.S.-EU Critical Minerals Agreement

INSIGHTi

Proposed U.S.-EU Critical Minerals
Agreement
Updated April 2, 2024
Since a March 2023 announcement, the United States and European Union (EU) have been negotiating a
critical minerals agreement (CMA). Key objectives are 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 (Inflation
Reduction Act of 2022, IRA); and deepen U.S.-EU cooperation on diversifying critical mineral and EV
battery supply chains. Congress may monitor and weigh in on the CMA negotiations, given their
significance to U.S.-EU trade relations and U.S. trade policy.
Background
In 2023, the United States was the EU’s largest export market for vehicles and vehicle parts, and major
European automakers operate vehicle assembly plants in the United States, including for EVs. IRA
provisions seek to incentivize new EV purchases by offering consumers a tax credit of up to $7,500.
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.
For eligibility 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 50% as of 2024, increasing incrementally to
80% by 2027.
The IRA does not define an FTA. Per Treasury’s draft guidance, qualifying countries include the 20
countries with “comprehensive FTAs” with the United States (the EU is not a U.S. FTA partner).
Additional countries may qualify based on certain criteria, including whether they have agreements with
the United States to reduce or refrain from imposing trade barriers and/or establish high-standard trade-
related disciplines, such as labor/environmental protections (e.g., Japan, per the March 2023 U.S.-Japan
CMA).
The EU contended that IRA sourcing and assembly provisions are “discriminatory” against foreign-based
companies and violate certain World Trade Organization (WTO) obligations on nondiscrimination and
subsidies. Other WTO members also raised concerns; China launched a challenge in the WTO against the
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IRA’s EV and renewable energy tax credits primarily on non-discrimination grounds. The EU also
contended that the tax credit scheme could incentivize companies to shift supply chains from the EU and
prompt a global subsidies race. The EU has taken steps to support clean technology and manufacturing
domestically through a Green Deal Industrial Plan, which some assess as the EU’s response to the IRA.
Negotiations Developments
Per the 2024 Trade Policy Agenda by the U.S. Trade Representative (USTR), the Administration is
pursuing agreements with the EU (and separately the United Kingdom) “similar” to the U.S.-Japan CMA.
Yet, potential differences have emerged, particularly as the Administration reportedly seeks to address
some congressional concerns regarding the latter.
The U.S.-Japan CMA covers five EV battery-related minerals (cobalt, graphite, lithium, manganese, and
nickel) and committed the parties to cooperate in various areas, such as on review of inbound foreign
investments and labor issues in their critical mineral sectors and supply chains. Some Members, while
supporting the Administration’s goals, criticized that CMA for lacking formal congressional approval and
also lacking, in their view, enforceable labor and environmental commitments (see March 2023 Senate
and House trade hearings).
In July 2023, the Council of the European Union (EU members’ ministers) authorized the European
Commission (the EU’s executive) to negotiate a CMA with the United States, with objectives including to
comply with WTO rules. To enter into force in the EU, the CMA would require approval from the Council
and the European Parliament.
EU officials assert that U.S. demands in CMA negotiations with the EU, such as for binding
commitments, are more extensive than the U.S.-Japan CMA. USTR stated it “tabled text that includes
robust environmental protections relevant to critical supply chains.” While the United States and EU
share interests in accessing critical minerals that are “sustainable” and “free of labor abuses,” EU officials
reportedly claim that a U.S.-proposed enforcement tool to ensure that EU critical mineral imports meet
labor and environmental standards may not be in line with EU practices and could be complicated to
implement (e.g., requiring investigations in third countries). Per the European Parliamentary Research
Service, some potential provisions also are not within EU law or EU competencies (e.g., promotion of
employer neutrality regarding labor unions). The range of critical minerals covered could be among other
contested issues.
Despite U.S.-EU commitments to intensify the negotiations, a CMA remains pending. The partners also
cooperate on critical minerals supply chains through the Mineral Security Partnership and other potential
ways.
Issues Facing Congress
Regarding a potential CMA, Congress may consider:
U.S.-EU Trade Relations. If concluded, a CMA could enhance U.S.-EU cooperation to address ongoing
bilateral trade frictions and global trade and economic issues of shared concern. At the same time, a CMA
could be a lost opportunity for the partners to make more ambitious commitments through concessions in
broader-based trade negotiations. Some Members urge the Administration to address not only EU
concerns regarding U.S. trade policies, but also U.S. concerns (e.g., with the EU’s digital trade
regulations). Members also may examine how a CMA could relate to U.S.-EU Trade and Technology
Council cooperation.

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WTO Compliance. Members may monitor the outcome of China’s current or other trading partners’
potential challenges in the WTO to the IRA or any final U.S.-EU CMA. If the WTO were to find
violations, U.S. trading partners might respond in kind by restricting the importation or sale of U.S.
goods, including EVs, in their own markets, and/or 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. The Administration’s pursuit
of CMAs and other initiatives as executive deals without formal congressional approval has drawn
criticism from some Members. Congress could consider specifying negotiating objectives for CMAs or
criteria for agreements to be considered FTAs generally or in the IRA, or require its approval for a CMA
to enter into force.

Author Information

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

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