According to a senior minister on Monday, Indonesia would seek a free trade agreement for particular minerals exported to the US so that businesses involved in the production of batteries for electric vehicles operating there can take advantage of US tax breaks.

In order to qualify for EV tax credits under the Inflation Reduction Act (IRA), battery components must be manufactured or assembled to a particular value in North America or a free trade partner, according to new advice from Washington. The regulations are intended to reduce American reliance on China for the growth of its EV battery supply chain.

Although Indonesia and the United States do not have a free trade agreement, the importance of its nickel products in the supply chain is rising.

The nation of Southeast Asia has been attempting to use its massive nickel reserves, the largest in the world, to entice investment from battery and EV makers, including American firms like Tesla and Ford.

Indonesian minister Luhut Pandjaitan, who has been leading initiatives to entice American businesses, was questioned about the new IRA criteria and revealed at a press conference that Jakarta will seek 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.

The FTA plan, which is still in its early stages, will probably be comparable to the one that the United States has inked with Japan for the crucial mineral trade, according to Luhut’s deputy Septian Hario Seto.

In March, the US and Japan reached a quick trade agreement on minerals used in EV batteries, such as 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 forbade the export of nickel ore in 2020, a large number of Chinese businesses have made investments in refineries, such as high pressure acid leach (HPAL) plants that create mixed hydroxide precipitate, a substance recovered from nickel ore used in EV batteries.

Ford and Zhejiang Huayou Cobalt signed a partnership agreement to work together on a $4.5 billion HPAL project in Indonesia’s Sulawesi island last month. Vale has an Indonesian subsidiary.

Last week, Luhut traveled to China with an Indonesian envoy to promote business opportunities.

According to Seto, officials will discuss prospective investments in May with the Chinese EV manufacturer BYD Group. He used a non-disclosure agreement as his excuse for declining to comment on how the Tesla negotiations were going.

(Adapted from USNews.com)

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