On July 3, 2023, China’s Ministry of Commerce (“MOFCOM”) and General Administration of Customs (“GAC”) announced restrictions on the export of gallium and germanium. Starting August 1, 2023, Chinese exporters of gallium, germanium, and certain related chemical compounds must obtain export licenses from MOFCOM before exporting these materials.
Gallium and germanium are “minor metals” produced as a byproduct during the refining process of other metals, such as zinc and aluminum. Gallium and germanium are integral to producing semiconductor wafers, integrated circuits, light-emitting diodes, electric vehicles, solar cells, fiber-optic cables, and other electronic components. The United States classifies both metals as critical to U.S. economic and national security.
While China’s announcement does not explicitly target any country, the government has said the restrictions are necessary to protect China’s national security, leading many observers to believe they may be a response to export controls on semiconductors imposed by the United States in October 2022 and similar measures undertaken by U.S. allies, including Japan and the Netherlands. The China Daily quoted a former Chinese vice minister of commerce as saying, “This is just the beginning of China’s countermeasures, and China’s tool box has many more types of measures available. If the high-tech restrictions on China become tougher in the future, China’s countermeasures will also escalate.”
China’s Latest Export Measures
These new export restrictions are partly based on China’s Foreign Trade Law and, in particular, the 2020 Export Control Law, which authorizes the government to impose restrictions on exports of certain items to “safeguard national security and interests, fulfill international obligations such as non-proliferation, and strengthen and standardize export controls.” According to the announcement, beginning August 1, 2023, exporters of gallium metal, germanium metal, and 12 associated compounds will be required to obtain licenses from MOFCOM prior to export from China. The announcement of the export restrictions details the specific customs classification codes of covered commodities to help exporters determine whether an item will be subject to the new restrictions. Notably, the new rules apply only to these specific commodities, not to finished products that incorporate them.
To obtain an export license, an exporter must submit an application with relevant export contracts, documents listing the end user and intended use, and information about the importer and end-user to MOFCOM via its provincial commerce department,. MOFCOM will process these applications independently or jointly with other government agencies and will decide whether to grant or deny the export license, accordingly. Exporters who engage in unauthorized exports may be subject to administrative or criminal penalties.
Short-Term and Long-Term Implications
China is the world’s largest producer of these metals, accounting for 94% of the global gallium supply and 83% of the germanium supply, according to a study by the European Commission. Consequently, a significant reduction in China’s export of these metals would likely disrupt supply chains and lead to price increases for a diverse array of industrial and consumer end products. In the short term, these export restrictions may have significant global ramifications for importers and manufacturers in relevant industries, particularly those who cannot secure sufficient stockpiles before August 1, 2023, unless China is relatively liberal in the granting of export licenses.
Despite potential short- and medium-term supply chain disruptions, the impact of these measures may wane as additional supplies globally come on line. In recent years many non-Chinese suppliers were forced to reduce or stop production due to China’s growing production capacity and low export prices. As prices for gallium and germanium are projected to increase substantially, production in other countries will likely rise, as it did during supply shortages in 2020 and 2021. Foreign governments are also likely to take action to spur increased production.
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Companies are advised to closely monitor China’s implementation of these restrictions, including MOFCOM’s decisions to grant or deny export license applications, and to consider the broader implications for their businesses and supply chains of continued tit-for-tat actions between the United States and China.
Eric Carlson, Chris Adams, Tim Stratford, Ting Xiang, and John Catalfamo of Covington & Burling LLP contributed to the research, analysis, and preparation of this article.