On 3 July 2023, China’s Ministry of Commerce (MOFCOM) and General Administration of Customs (GACC) published the Announcement on the Implementation of Export Control on Gallium and Germanium-related Items (the Announcement), imposing export control measures on gallium and germanium-related items (the Controlled Items) from 1 August 2023. The Announcement does not ban, but requires exporters to obtain licenses, for the export of the Controlled Items.
Market responses to the Announcement are varied. While some companies expect no impact on their supply chains, some companies have indicated that they will start or have already started applying for a license. Some companies admit the adverse impact of the Announcement on their businesses and hence the need for diversifying their supply chains.
Where does the Announcement lie under China’s export control regime?
China’s export control regime is established under the PRC Export Control Law (the ECL) promulgated in 2020 and various administrative regulations and rules, such as the Measures for the Administration on Import and Export License for Dual-use Items and Technologies (Measures), which implement the ECL. MOFCOM is the main export control authority under the regime, working with other State Council departments such as the GACC.
Under China’s export control regime:
- The authorities impose export control measures through, among others, an annually updated control list of items, temporary control measures (for items not included in the control list and with a duration of no more than 2 years) and prohibition orders (for export of certain items to specified destinations, entities or individuals).
- Importers and end users are also subject to the regime. End-user and end-use certifications are required when the exporters apply for export license from the authorities. The authorities may include entities who violate the end-user and end-use control measures in a control list of importers and end-users and impose punitive measures against them.
- Furthermore, the authorities are entitled to impose undefined “countermeasures” against specific countries and regions which “abuse export control measures and jeopardise China’s national security and interests".
A range of export control measures have been imposed since the promulgation of the ECL in 2020. The Announcement is believed to have been introduced as a temporary control measure as the Controlled Items are not yet included in the control list, although that is not explicitly stated in the Announcement.
Who are regulated by the Announcement?
According to the Announcement, “exporters” are required to obtain a license for each transaction that involves export of the Controlled Items. As a matter of practice, companies exporting those items bear the most responsibilities under the ECL as exporters. No entities or individuals should provide services (such as agency, freight, delivery, customs clearance, third-party e-commerce transaction platform or financing services) to exporters for any activities in violation of export control laws and regulations.
As mentioned above and explained further below, importers and end users are also subject to the ECL and the Announcement.
Which activities are regulated by the Announcement?
The Announcement applies to “export” of the Controlled Items. The term “export” is defined widely under the ECL and the Measures. To the extent relevant to the Controlled Items, the following activities are regulated by the Announcement:
- transferring Controlled Items from the territory of China to overseas;
- providing Controlled Items by any Chinese citizens, enterprises or other entities to foreign entities or individuals;
- transit, transshipment, or re-export of Controlled Items;
- exporting Controlled Items in the forms of international communication, exchange, cooperation, donation, assistance or service; and
- shipping cargo samples or experimental samples of Controlled Items overseas.
What are the obligations of the importers and end users?
As mentioned, the responsibility for obtaining export license from the authorities lies with the exporters under the Announcement. To obtain export license, exporters are required to submit, among other documents, an end-user and end-use certification (the Certification). The Certification is usually issued by end users. In certain circumstances (e.g. where the authorities consider that there is a higher risk in certain transactions), the authorities may require the Certification be certified by the government authorities of and the Chinese embassies/consulates in the states / regions where the end-users are located, or issued directly by the foreign government authorities.
Pursuant to the ECL, the Certification shall specify the end use and end user of the Controlled Items and contain an undertaking from the end-user not to change the end use of the Controlled Items without the approval from MOFCOM. Any unapproved change in the end-use of the Controlled Items or identity of the end-user (e.g. sale of the Controlled Items to a third party) may constitute a violation of the end-user and end-use control measures. Exporters and importers are also required to immediately notify the authorities, should they envisage or discover any potential change in the end-uses or end-users of the items. Pursuant to the Announcement, entities violating the end-user and end-use control measures might be included in the control list of importers and end-users and subject to punitive measures imposed by the authorities.
What are the consequences of violating the Announcement?
Violations of the ECL and the Announcement may expose the exporters to administrative penalties including confiscation of illegal gains, fines, suspension of businesses for rectification, revocation of export licenses and/or restriction or even prohibition of export business activities. In serious cases where the violations constitute criminal offenses, criminal penalties also apply.
For overseas entities, the major risk is being named in the control list of importers and end-users. MOFCOM may order to suspend, restrict or prohibit the export of certain controlled items to the entities named in the list.
Recommendations for companies and clients
As gallium and germanium are critical elements in the semiconductor industry, companies which may be impacted by China’s export control measures should monitor any further developments closely, including the future implementation of the Announcement.
According to the spokesperson of MOFCOM, the purpose of the Announcement is not to disrupt the export trade of the Controlled Items. Nevertheless, to obtain an export license (the process of which is provided in the Measures) might take up to 60 working days or even longer in exceptional circumstances. Companies should bear this timeframe in mind when planning their business activities.
Meanwhile, foreign importers and end users must also be prepared for complying with China’s end-use and end-user control measures. They may be required to issue necessary Certifications and liabilities may arise for any non-compliance.
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