Indonesia plans to propose a limited free trade agreement with the US that would allow Indonesian businesses to benefit from US electric vehicle tax credits, according to an April 10 article by Reuters.1 Under such an agreement, critical minerals from Indonesia shipped to the US would qualify for preferential duty treatment. These critical minerals are used to manufacture electric vehicle batteries, and include lithium, nickel, cobalt, graphite, and manganese. Indonesia’s nickel reserves are the largest in the world and have become increasingly important to electric vehicle battery manufacturing.
As discussed in our previous newsletter,2 the Inflation Reduction Act (the “IRA”), enacted by the Biden Administration last August, includes approximately $369 billion in green energy tax incentives, including a new, advanced manufacturing production tax credit for taxpayers that produce critical minerals, as well as tax credits promoting the sale of electric vehicles.3
Septian Hario Seto, Deputy Coordinating Minister of Maritime and Investment Affairs of Indonesia, said he would expect any agreement to mirror the one that the US and Japan agreed to back in March.4 That is, “for critical minerals there will be free trade with requirements on processing, such as for nickel, aluminium, cobalt, [and] copper.”5
Luhut Binsar Pandjaitan, the Coordinating Minister of Maritime and Investment Affairs of Indonesia, said he would propose the free trade agreement with the US.6 Minister Luhut met with US Trade Representative (USTR) Gina Raimondo on April 13.7 The Office of the USTR reported that Minister Luhut “raised the topic of critical minerals, and Ambassador Tai reiterated that any future critical minerals talks would involve close consultation with Congress and domestic stakeholders.”8 No additional information has been released.
Minister Luhut stated he also would meet with Ford and Tesla executives while in the US, although little has been reported on those meetings.9 These meetings likely were connected to Indonesia’s desire to increase electric vehicle battery manufacture by 2025.10 Indonesia is reportedly on the “cusp of an EV battery revolution, but it still lacks a guaranteed supply of lithium” that would allow it to accomplish this goal by 2025. Minister Luhut reportedly has been looking to EV manufacturers like Tesla to invest in Indonesia. In March, Ford signed an agreement “with an Indonesia unit of Brazilian nickel miner Vale and China’s Zhejiang Huayou Cobalt to partner in a $4.5 billion [high pressure acid leach (HPAL)] plant in Indonesia’s Sulawesi Island.”11 HPAL plants “produce mixed hydroxide precipitate, a material extracted from nickel ore used in EV batteries.” Deputy Minister Seto “declined to comment on the progress of talks with Tesla, citing a non-disclosure agreement.”12 Earlier in April, Minister Luhut visited China to promote investment opportunities. According to Deputy Minister Seto, officials will return in May to meet with Chinese electric vehicle company BYD Group.
3 See the Mayer Brown Legal Update, https://www.mayerbrown.com/en/perspectives-events/publications/2022/09/strengthening-the-us-supply-chain-for-critical-minerals-and-the-inflation-reduction-act-opportunities-and-challenges
4 We discussed this deal in our April newsletter. https://www.mayerbrown.com/en/perspectives-events/publications/2023/04/us-and-japan-enter-into-critical-minerals-trade-deal