The US government has proposed a tax credit system for buying electric vehicles assembled in North America. It's likely to put Japanese makers at a disadvantage in one of the world's biggest auto markets.

The Treasury Department released the details on Friday.

The system offers a tax incentive of up to 7,500 dollars for electric cars that undergo final assembly in North America.

Eligible vehicles must also use minerals extracted or processed in the United States.

The minerals can also be extracted or processed in countries engaged in a free trade deal with Washington, or Japan and some others.

A certain percentage of the value of battery components must also be manufactured or assembled in North America.

The ratio will incrementally increase until reaching 100 percent in 2029.

Observers say the conditions intend to make US industries more competitive in light of China's dominance of EV supply chains.

But the rules are likely to have a negative impact on automakers elsewhere, including Japan and South Korea.

Japanese firms have been working to increase production in the US, but many of their electric cars will not be eligible for the incentive at this point.