November 04, 2022
The Government of Japan submits to the Department of the Treasury and the Internal
Revenue Service of the United States of America the following comments responding to the
Department’s request for comments on Credits for Clean Vehicles.
I. General Comments
- In order to achieve carbon neutrality in the road sector, it is vital to expand the
introduction of electrified vehicles. The EV tax incentive stipulated in the Inflation
Reduction Act of 2022 (hereinafter “IRA”) is therefore important to achieve the
ambitious goal of the U.S. administration aiming to raise the market share of zeroemission vehicles in annual new passenger cars and light commercial trucks sales in
the U.S. to 50 percent by 2030. - It is also crucial for the U.S. and Japan to build resilient supply chains for electric
vehicles and their batteries due to the rapid increase in demand for those vehicles and
batteries. Japan shares the purpose of the IRA to minimize the risk of supply disruption
by addressing bottleneck in supply chains of batteries. - However, the requirements of the EV tax credit, conditioning that the extraction,
processing, manufacture, or assembly of critical minerals or battery components
should be done in North America or countries with which the U.S. has a free trade
agreement in effect, are not consistent with the U.S. and Japanese governments’
shared policy to work with allies and like-minded partners to build resilient supply
chains, and they in fact preclude Japanese businesses from enjoying the benefit. - In addition, a limitation on the range of vehicles that benefit from the EV tax credit will
narrow the options available to U.S. consumers at affordable costs. It may interfere
with the efforts to achieve the ambitious climate goals of the Biden administration.
Japan believes that a fair and non-discriminatory tax incentive would contribute to CO2
emission reduction in the U.S. and around the globe through providing consumers with
a range of options and expanding the EV market in the U.S. - Japanese automakers have been investing in the U.S. for more than 40 years, creating
well-paid jobs in the U.S. and contributing to the U.S. society as good American
corporate citizens. Japanese battery makers have also been investing in the U.S to
support EV makers in the U.S. Japan is afraid that if such contributions were not taken
into consideration and the IRA would be implemented as it is to provide discriminatory
incentives, it would be possible that Japanese automakers hesitate to make further
investments towards electrification of vehicles. This could cause negative impacts on
the expansion of investment and employment in the U.S. - Against the abovementioned backdrop, Japan has serious concerns on the IRA EV
tax credit, particularly on its three requirements. First, vehicles imported from outside
North America are not eligible for the credit. Second, a certain percentage of critical
minerals contained in the battery of the vehicle has to be extracted or processed in the
U.S or in the limited number of countries with which the U.S. has a free trade
agreement in effect. Lastly, a certain percentage of battery components has to be
manufactured or assembled within North America. - Japan expects the U.S. to continue to ensure opportunities for the industries and other
relevant stakeholders to be adequately heard and considered. Japan also hopes that
a guidance which sufficiently reflects the opinions of industry will be issued in a timely
manner so that the industry will be provided with a sufficient period of preparation
before the full implementation of the EV tax credit.
II. Specific Comments to the specific questions in the Section3 (Request for Comments) of
the notice
- 【01 Clean Vehicles (9) Final Assembly Requirement】
Regarding the final assembly requirement, taking into consideration the objectives to
work with allies and like-minded partners to build resilient supply chains, appropriate
measures should be taken, including flexible interpretation of the definitions of both
“final assembly” and “North America” to ensure that EVs produced by allies such as
Japan are accorded treatment no less favorable than countries in the North America
region. - 【01 Clean Vehicles (2) Critical Minerals (a),(c)】
Regarding the critical minerals requirement, the definition of “extracted or processed
in the United States or in any country with which the United States has a free trade
agreement in effect” should be interpreted in a flexible manner so that the EV tax credit
can be applicable to a vehicle with critical minerals extracted or processed in allied
countries such as Japan. Taking into consideration the objective to work with allies and
like-minded partners to build resilient supply chains, allies including Japan, which are
closely working with the U.S. to this end, should be accorded treatment no less
favorable than the United States or countries with which the United States has a free
trade agreement in effect. Thus, Japan should be granted equal treatment.
Japan also requests that the scope of “any country with which the United States has
a free trade agreement in effect” be clarified.
3
Moreover, the definition of the phrase “extracted or processed” should be articulated
to clearly indicate which steps for extraction or processing are actually covered, and
appropriate measures should be taken, including flexible interpretation to ensure that
this phrase shall be interpreted in a flexible manner so that allies such as Japan are
accorded treatment no less favorable than United States or countries with which the
United States has a free trade agreement in effect. In addition, any formula for
calculating the value and percentage of critical minerals contained in a battery for this
requirement should be shared in detail so that stakeholders can submit further
comments based on it. - 【01 Clean Vehicles (3) Battery Components (a), (b), (c)】
Regarding the battery components requirement, the phrase “manufactured or
assembled in North America” should be interpreted in a flexible manner so that the EV
tax credit can be applicable to a vehicle with battery components manufactured or
assembled in allied countries such as Japan. Taking into consideration the objective
to work with allies and like-minded partners to establish resilient supply chains, allies
including Japan should be accorded treatment no less favorable than countries in the
North America region, because such resilient supply chains should not be closed
within North America.
Japan therefore requests that the definition of “battery components” be clarified,
specifically clarifying the boundaries between critical minerals and battery components.
Japan also requests that the definition of “manufactured or assembled” be clarified to
clearly indicate which actual processes and steps for manufacturing or assembly are
covered, and appropriate measures should be taken, including flexible interpretation
to ensure allies such as Japan are accorded treatment no less favorable than countries
in the North America region.
In addition, a formula for the calculation of value and percentage of battery
components contained in a battery for this requirement should be shared in detail so
that stakeholders can submit further comments based on it. - 【01 Clean Vehicles (5) Foreign Entity of Concern】
Japan understands that the intention behind the IRA is to address bottlenecks in
building resilient supply chains by reducing dependency on particular countries.
However, considering the reality of battery supply chains, almost all vehicles including
ones planned to be produced in the U.S. will be ineligible for the credit, should the
“foreign entity of concern” provision exclude any companies located in certain
countries or into which an entity of a particular country has made investments. To
ensure effective implementation of the EV tax credit, the scope of “foreign entity of
concern” and its verification procedure should be clarified so that stakeholders can
submit further comments based on the clarification.
Ministry of Foreign Affairs Japan