US, EU begin mineral trade negotiations

The bilateral deal talks are a first step toward forming what officials have described as a buyers’ club for materials central to the clean energy transition. The trade deal and broader buyers’ club are aimed at resolving a dispute over US subsidies for electric vehicles and moving clean energy supply chains out of China.

The Inflation Reduction Act, passed last year, revamped US tax credits for electric vehicles. It required EV batteries to contain minerals largely from the US or a country with which the US has a free trade agreement. That angered close US allies who do not have a free trade agreement with the US, including the EU and Japan.

According to those familiar with it, the US is now starting to strike a deal with the EU that would focus closely on environmental and labor standards for the production of critical minerals, such as lithium and nickel. In the US, it would be an executive agreement that the people say does not require Congressional approval.

While such a deal would not be a traditional free trade deal that lowers tariffs, the Biden administration thinks such a deal would allow the EU to meet mineral procurement requirements for the subsidies, the people said.

“There could be an indication that the EU, at least in the critical minerals sector, can be considered a free trade partner,” said Erik Brattberg, a senior fellow at the Atlantic Council.

With a deal targeting critical minerals, which the US is also pursuing with Japan and the UK, the Biden administration is trying to appease allies abroad without bothering lawmakers on Capitol Hill who drafted the new rules on the subsidies. traps. It can be difficult to find that balance.

Senator Joe Manchin (D., W.Va.), a centrist central to the making of the law, has strongly criticized the Biden administration’s past decisions on how to implement the law, arguing that they conflict with his intent to move production to the U.S. Manchin said Wednesday he would vote against Biden’s nominee to head the Internal Revenue Service because of his disapproval of the Treasury Department’s previous efforts to allow allies to qualify for parts of the grants.

Some lawmakers are also concerned that the Biden administration could create trade policies without their approval. Sen. Ron Wyden (D., Ore.) — the chair of the Senate Finance Committee, which oversees trade policy — has called on the Biden administration to work with lawmakers on its trade moves.

“We’ve made it clear that it’s a constitutional requirement that the Congress and Senate be involved in trade policy,” he said.

The Biden administration is consulting with Congress and unions about the talks, US officials said.

According to the Biden administration’s draft, agreements with the EU, Japan and the UK would be the first step towards creating a new critical minerals buyers’ club among the advanced democracies of the Group of Seven.

The G-7 group would then approach mineral-rich countries in Africa, Asia or Latin America and seek agreements with them. US and European officials have begun that outreach, according to people familiar with it.

As part of those arrangements, the G-7 would offer to provide funding to develop infrastructure for the procurement of the minerals, according to those familiar with the plans. China is currently a major supplier of minerals for critical clean energy technologies, raising concerns from Western officials.

The goal of the buyers’ club is to ensure that the Western world has reliable access to critical minerals, while avoiding a bidding war between the G-7 economies over them. The Inflation Reduction Act will eventually prevent vehicles with minerals sourced from worrying countries like China from receiving the subsidy.

Write to Andrew Duehren at andrew.duehren@wsj.com