House Republicans took aim at a new critical minerals trade agreement the Biden administration struck with Japan to support their case that the Democratic Inflation Reduction Act will subsidize foreign businesses to the detriment of U.S. industries.
The agreement was key to soothing trade tensions between the U.S. and Japan ignited by the IRA's sourcing provisions, particularly those for electric vehicle tax credits, and was drawn up to serve the administration's goal of expanding purchases of EVs.
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Republicans are now tying it to the broader case they're making against the IRA, which is that it will enable foreign competitors' businesses to grow, especially China's, using U.S. tax dollars.
Ways and Means Committee Chairman Jason Smith (R-MO) called the U.S.-Japan agreement a loophole the administration created that will benefit foreign companies and workers.
"The latest example is the administration’s new critical minerals agreement with Japan that evades IRA safeguards and allows benefits to flow to foreign companies," Smith said during remarks at a broader hearing about how U.S. dollars authorized in the IRA could flow to the benefit of Chinese companies.
At least one other GOP member took issue with the agreement being implemented without Congress's approval.
The Inflation Reduction Act, which Congress approved in August without any Republican votes, included language adding new conditions to the federal clean vehicle tax credit. Vehicles must be assembled in North America and contain increasing shares of critical minerals and battery components sourced from specified countries in order to be eligible for the full $7,500 credit.
Beginning this year, 40% of the value of the critical minerals used in a vehicle's battery must be extracted or processed in the United States or a country with which the United States has a free trade agreement, or recycled in North America.
The provision is one of several that angered Japan and European governments, which lack a comprehensive free trade agreement with the U.S. and lobbied the administration to build flexibility into the law so their industries would not lose out on subsidies.
The Treasury Department's implementation guidance for the credits, however, does not limit the definition of an FTA country to those 20 with which the United States Trade Representative has comprehensive trade agreements in force and opened the door to reaching new agreements on minerals, as the administration did with Japan.
Democrats disputed Republican characterizations of the IRA, which included language giving bonus incentives to project developers who use U.S.-made components and labor to build clean energy technologies or construct facilities to manufacture those technologies.
The law blocks the full EV credit from going to vehicles with components made by "foreign entities of concern," which the Treasury has yet to define but which many expect will extend to China and Chinese companies.
Beginning next year, eligible clean vehicles may not contain any battery components manufactured by a foreign entity of concern, and beginning in 2025, a vehicle may not contain any critical minerals that were extracted, processed, or recycled by a foreign entity of concern.
Republicans are "[using] China as a way to distract from their own policy failures," Ways and Means ranking member Judy Chu (D-CA) said during Wednesday's hearing.
House Republicans passed a wide-ranging energy bill as their first major legislative effort of the Congress designed to increase production of fossil fuels domestically and reform energy permitting laws, but Senate Democratic leadership declared the effort "dead."
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Sen. Joe Manchin (D-WV), the chief author of the IRA, insisted the language on batteries and mineral sourcing requirements be included in the law as a way to draw industry into the U.S. and other allied nations and out of China.
Manchin has expressed disappointment with the law's implementation, however, arguing the administration has been too flexible and strayed from the law's intent of reshoring industry.