Proposed US rule for EVs could shut out Australia's CMsThe US Treasury guidance wait should soon be over and could give FT's CM's an advantage ...
...
While the Treasury and the IRS have said they will issue ‘subsequent guidance’ on the definition of FEOC, if they adopt the Department of Commerce’s definition for the CHIPS and Science Act, it would include any entity with at least 25% ownership by an FEOC. Under current US law, FEOCs include companies ‘owned by, controlled by, or subject to the jurisdiction or direction of a government of a covered nation’, which includes China, Russia, Iran and North Korea. Ostensibly, if batteries assembled in the US use lithium extracted in Australia but processed in China, that lithium would be considered processed by an FEOC, disqualifying EVs that use those batteries from both the critical-minerals tax credit and the battery-components tax credit.
Given the lack of clarity in the Treasury’s interim guidance as well as the lack of a final rule, opinions differ on whether the Treasury and IRS will adopt Commerce’s FEOC definition. The law firm Hogan Lovells believes ‘there is a good chance that Treasury will follow Commerce’s CHIPS Rule’ because ‘it would be strange for the two agencies to issue conflicting definitions’. Conversely, the law firm Covington & Burling writes, ‘While there is a good reason to adopt a single interpretation for the same term in nearly concurrently-enacted statutes, Treasury is not bound to apply the CHIPS Act interpretation of “foreign entity of concern”’ to the Inflation Reduction Act. Nonetheless, the US government seems likely to adopt a uniform FEOC definition across government entities.
Consequently, EV companies selling in the US market will likely avoid sourcing minerals from—and investing in—Australian mineral projects with Chinese ownership. For example, Australia’s Greenbushes lithium mine would likely be deemed an FEOC since the Chinese company Tianqi holds 26% ownership, disqualifying any EV batteries that source Greenbushes lithium from Inflation Reduction Act tax credits.
https://www.aspistrategist.org.au/proposed-us-rule-for-electric-vehicles-could-shut-out-australias-critical-minerals/