Indonesia To Propose Limited Free Trade Deal With US On Critical Minerals

Indonesia will propose a free trade agreement for some minerals shipped to the United States so that companies in the electric vehicle battery supply chain operating in the country can benefit from U.S. tax credits, a senior minister said on Monday.

Washington has issued a new guidance for EV tax credits under the Inflation Reduction Act (IRA), requiring a certain value of battery components to be produced or assembled in North America or a free trade partner. The rules are aimed at weaning the United States off dependence on China for the development of its EV battery supply chain.

Indonesia does not have a free trade agreement with the United States, but its nickel products have increasingly become important in the supply chain.

The Southeast Asian country has been trying to leverage its nickel reserves, the world's biggest, to attract investment from battery and EV makers, including U.S. companies such as Tesla and Ford.

Asked about the new IRA guidelines, Indonesian minister Luhut Pandjaitan, who has been spearheading efforts to attract U.S. companies, told a news conference Jakarta will propose a limited free trade agreement (FTA) with Washington.

"We do not have an FTA with them. Now we're proposing a limited FTA with them," Luhut said, adding that he would meet with Ford and Tesla executives to discuss the matter when he travels to the United States later this week.

Luhut's deputy, Septian Hario Seto, said the FTA proposal, which was still at an early stage, will likely be similar to the one the United States has signed with Japan for the critical mineral trade.

The United States and Japan in March agreed on a swiftly negotiated trade deal on EV battery minerals, including lithium, nickel, cobalt, graphite and manganese.

"It's the same in essence, that for critical minerals there will be free trade with requirements on processing, such as for nickel, aluminium, cobalt, copper," he said.

Since Indonesia banned exports of nickel ore in 2020, many Chinese companies invested in refining facilities, including high pressure acid leach (HPAL) plants, that produce mixed hydroxide precipitate, a material extracted from nickel ore used in EV batteries.

Last month, Ford signed an agreement with an Indonesian unit of Brazilian nickel miner Vale and China's Zhejiang Huayou Cobalt to partner in a $4.5 billion HPAL plant in Indonesia's Sulawesi island.

Luhut led an Indonesian delegate last week on a trip to China to promote investment opportunities.

Seto said officials will hold talks with Chinese EV company BYD Group in May on potential investment. He declined to comment on the progress of talks with Tesla, citing a non-disclosure agreement.