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.

Photo of Sean Stein Sean Stein

Sean Stein is a senior advisor in Covington’s Public Policy Practice Group. Prior to joining Covington, Mr. Stein served as the U.S. Consul General in Shanghai. He has over twenty years of diplomatic experience in Asia and has served in leadership positions in…

Sean Stein is a senior advisor in Covington’s Public Policy Practice Group. Prior to joining Covington, Mr. Stein served as the U.S. Consul General in Shanghai. He has over twenty years of diplomatic experience in Asia and has served in leadership positions in China, Washington, and the region. His insights informed policy making at the highest levels in Washington and he assisted dozens of U.S., Chinese, and international firms to develop strategies, manage risk, and identify opportunities for growth in response to the changing U.S.-China relationship.

Mr. Stein, a non-lawyer, is a key resource to businesses on issues related to political risk, public affairs, problem solving, and communications. He regularly assists companies facing acute or long-term issues to resolve them, often through discussions with U.S. and Chinese government officials. He is well placed to provide strategic advice to U.S. and international clients on issues relating to securing market access and protecting investments in China, assessing risk, navigating trade controls, sanctions, and supply chain restrictions, and resolving disputes and regulatory investigations.

Mr. Stein is available to brief clients on developments in within China and China’s relations with other countries and regions.

Photo of Ashwin Kaja Ashwin Kaja

With over a decade of experience in China, Ashwin Kaja helps multinational companies, governments, and other clients understand and navigate the complex legal and policy landscape in the country. He plays a leading role in Covington’s China international trade and public policy practices…

With over a decade of experience in China, Ashwin Kaja helps multinational companies, governments, and other clients understand and navigate the complex legal and policy landscape in the country. He plays a leading role in Covington’s China international trade and public policy practices and, outside of Covington, serves as the General Counsel of the American Chamber of Commerce in China.

Ashwin helps clients solve acute problems that arise in the course of doing business in China and position themselves for longer-term success in the country’s rapidly evolving legal and policy environment. He is an expert on Chinese industrial policy and has worked on matters related to a wide range of sectors including technology, financial services, life sciences, and the social sector. Ashwin has also counseled a range of clients on data privacy and cybersecurity-related matters.

As the General Counsel of the American Chamber of Commerce in China (AmCham China), Ashwin serves as a senior officer of the organization and as an ex officio member of its Board of Governors, supporting nearly one thousand member companies in developing their businesses in China and advocating for their needs with China’s central and local governments.

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Alexander Wang is special counsel with Covington’s Beijing office and specializes in antitrust/competition law, government affairs and regulatory matters. Alexander is experienced in advising clients in a broad array of regulatory matters such as antitrust/competition and national security review/FDI screening in connection with…

Alexander Wang is special counsel with Covington’s Beijing office and specializes in antitrust/competition law, government affairs and regulatory matters. Alexander is experienced in advising clients in a broad array of regulatory matters such as antitrust/competition and national security review/FDI screening in connection with cross-border trade and investment.

Previously Alexander served as an official of the Ministry of Commerce (MOFCOM), the Anti-Monopoly Bureau (predecessor of the now State Administration for Market Regulation, or SAMR), and the Office of Anti-Monopoly Commission of China’s State Council, where he participated in handling cases, making rules, and shaping policies in connection with China’s antitrust review of M&As and national security review of foreign investments. He also coordinated the antitrust law enforcement and competition policy making among the State Council and sixteen member ministries of the Anti-Monopoly Commission. Alexander has a deep and unique understanding of the way government mechanisms operate, and maintained sound working relationships with Chinese major regulatory authorities.

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Wanyu Zhang is an associate in the International Trade Practice Group at the firm’s Washington, DC office.

Wanyu represents clients in complex antidumping and countervailing duty investigations before the U.S. Department of Commerce and the International Trade Commission. She also regularly assists clients…

Wanyu Zhang is an associate in the International Trade Practice Group at the firm’s Washington, DC office.

Wanyu represents clients in complex antidumping and countervailing duty investigations before the U.S. Department of Commerce and the International Trade Commission. She also regularly assists clients with regulatory compliance matters before the U.S. Customs and Border Protection agency.