Indonesia will propose a limited Free Trade Agreement (FTA) with the United States for minerals used in the production of electric vehicles (EV).  

Coordinating Minister of Maritime Affairs and Investment Luhut Binsar Pandjaitan made the announcement in response to the recent signing of the Inflation Reduction Act (IRA) by the Biden administration earlier this February, which included a US$7,500 consumer tax credit for EV purchases. The IRA stipulates that only EVs produced using components made in the US or free trade partners are eligible for the tax credit. Indonesia does not yet have an FTA with the US.   

“We don’t have an FTA with [the US]. We’re now proposing a limited FTA with them,” said Mr. Pandjaitan, as quoted by Reuters, earlier this week. 

In the last couple of years, Indonesia has emerged as a key player in the global EV supply chain due to its nickel reserves – the largest in the world. Nickel is a key component in the production of EV batteries. Thanks to major investments in the nickel mining and processing sector – mainly from China – Indonesia’s exports of processed nickel have exploded from about $1 billion in 2015 to over $30 billion in 2022.  

The appetite for the sector is looking strong and is projected to continue growing as more and more global consumers adopt EVs. Indeed, one of the biggest IPOs in the country this year was that of Harita Nickel, an Indonesia-based mining company, which raised around $672 million.  

Mr. Pandjaitan, who has also been leading the effort to court US investments into Indonesia’s nickel mining and processing sector, added that he would meet with executives from US carmakers Ford and Tesla to discuss the matter when he travels to the US this week. 

Septian Hario Seto, Coordinating Deputy Minister for Investment and Mining at the Coordinating Ministry of Maritime Affairs and Investment, said the proposed FTA would likely be similar to that signed between the US and Japan on critical minerals such as Lithium, nickel, cobalt, graphite and manganese, with requirements on processing.