On 2 January, China’s Ministry of Commerce (“MOFCOM”) announced a key regulatory update that is set to have a knock-on effect and further raise regulatory complexity in the global battery supply chain.
Subject to the public consultation period currently underway, the proposed changes would re-classify gallium extraction, lithium processing and refining technologies into the restricted category, meaning approval from the regulator would be required for any technology export. As “technology export” is broadly defined under Chinese laws, this captures almost all forms of joint ventures, licensing, technical services, and other forms of cooperation.
This article explores the proposed changes and implications in more detail, together with our key observations, and things that battery supply chain participants should be thinking about now.
Background to the proposed amendment
A public consultation was launched by MOFCOM on amending the Catalogue of Technologies Subject to Export Prohibitions and Restriction (《中国禁止出口限制出口技术目录》) (the “Catalogue”). The Catalogue sets out a list of technologies which are classified as prohibited technology, which are prohibited for technology export, or restricted technology which requires MOFCOM’s approval for an export permit.
The draft amendment to the Catalogue proposes to include, amongst others, the following cathode materials technologies as well as various lithium processing and refining technologies:
Cathode-related
- Lithium iron phosphate (“LFP”) cathode material preparation technology
- Lithium manganese iron phosphate (“LMFP”) cathode material preparation technology
- Phosphate cathode electrode raw materials preparation technology
Lithium-related
- Lithium carbonate production technology from spodumene
- Lithium hydroxide production technology from spodumene
- Metal lithium (alloy) and lithium material preparation technology
- Direct lithium extraction technology from raw brine
- Preparation technology of lithium-containing purified liquid
These technologies are not currently categorised as restricted, and therefore can be freely exported from onshore China to overseas territories (provided that a registration with MOFCOM is completed 60 days from the signing of a contract).
The proposed amendment to the Catalogue would re-classify the abovementioned technologies into the restricted category, meaning MOFCOM’s export permit is required for export of technology from onshore China to offshore territories.
Under the Regulations on Technology Import and Export Administration of the People’s Republic of China(《中华人民共和国技术进出口管理条例》), “technology export” is widely defined. Pursuant to the regulations, technology export includes “assignment of the patent right, assignment of the patent application right, licensing for patent exploitation, assignment of technical secrets, technical services and transfer of technology by other means”.
It is therefore expected that the latest round of tightening regulations on technology export for cathode, lithium processing, and lithium refining will have a significant impact on the battery supply chain globally, in particular, on joint ventures, technology licensing or technical service arrangements.
Public consultation period
The public consultation period will run from 2 January to 1 February 2025. Generally, the public consultation process will be followed by a published draft amendment of the Catalogue, before the formal promulgation of such changes to the existing legislative framework. Further details maybe published by MOFCOM in the future detailing the implementation of the proposed amendment which may include changes to other regulations.
Key considerations for battery supply chain participants
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Focus on upstream technologies: It appears that the latest round of tightening regulations for technology export focuses on the upstream battery value chain, such as cathode, lithium processing, and lithium refining-related technologies. These are critical battery materials and minerals for the entire value chain, and therefore signals a further step from the Chinese regulators to solidify its dominance in the upstream value chain. MOFCOM also provided technical parameters on the specific type of cathode technologies subject to technology export restrictions, whilst no technical parameters for lithium processing and lithium refining technologies are provided at this stage.
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No changes to other battery-related technologies: Notwithstanding the latest rounds of regulatory restrictions only placed cathode, lithium processing, and lithium refining-related technologies on the restricted list, it remains possible that other battery material technologies (e.g. other key materials: anode, separator, electrolyte and others), as well as downstream cell manufacturing technologies, may be placed on the restricted list in future, given the rising global trade tensions.
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Importance of reviewing signed/existing contracts: At this stage, the proposed amendment to the Catalogue published by MOFCOM has not provided any express provisions for the amendment to apply retrospectively to signed/existing contracts, however, there is a possibility that subsequent to the consultation period, the amending regulations may provide additional updates on this. We strongly recommend reviewing your existing signed contracts to ensure compliance with the applicable laws.
How we can help
To better understand how you may be affected by the proposed amendment, please reach out to one of our mining sector experts.
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Disclaimer
The articles published on this website, current at the dates of publication set out above, are for reference purposes only. They do not constitute legal advice and should not be relied upon as such. Specific legal advice about your specific circumstances should always be sought separately before taking any action.