Indonesia is set to propose a limited free trade agreement (FTA) with the United States, focused on specific battery-related minerals crucial for electric vehicle (EV) batteries. The proposal aims to allow companies involved in the EV battery supply chain in Indonesia to benefit from the US’ tax credits under the Inflation Reduction Act (IRA). The announcement was made by senior Indonesian minister Luhut Pandjaitan during a news conference on Monday, who stated that he intends to meet with Ford and Tesla executives during an upcoming visit to the US.
“We do not have an FTA with them. Now we’re proposing a limited FTA with them,” said Pandjaitan.
The proposed FTA is expected to be similar to a deal that the US signed with Japan, which focused on trade deals involving minerals such as lithium, nickel, cobalt, graphite, and manganese. The Indonesian minister’s deputy, Septian Hario Seto, stated that the deal would include free trade with processing requirements for critical minerals such as nickel, aluminum, cobalt, and copper.
See also: US and EU Negotiate Agreement on Critical Minerals for Electric Vehicle Batteries
The IRA’s new guidance requires a specific value of battery components to be produced or assembled in North America or a free trade partner, which Indonesia hopes to achieve with this proposed agreement.
Indonesia is the world’s largest nickel reserve holder and has the potential to be a significant player in the EV industry. The country has been actively trying to secure deals with the giants of the EV sector, such as Tesla, and has been working hard to attract investment from the EV maker for some time. Tesla CEO Elon Musk even accommodated a delegation of Indonesian officials at Gigafactory Texas almost a year ago, and the president of Indonesia, Joko Widodo, has expressed optimism about securing a deal with the company.
See also: US and Japan Sign Trade Agreement on EV Battery Minerals and Tax Credits
Indonesia’s efforts to secure a deal with the US highlight the importance of minerals and the supply chain’s role in the transition to electric vehicles. The proposed FTA is an excellent opportunity for the US to secure a reliable source of minerals while helping Indonesia gain a foothold in the EV industry.
