China: new export control measures

Introduction

On July 3, the Ministry of Commerce of China (MOFCOM) introduced a “General Administration of Customs (GACC)” with export control measures for gallium and germanium. This measure took effect on Aug. 1, 2023. In a subsequent measure, China is also instituting restrictions on drones and related equipment, which will take effect Sept. 1, 2023.

Chinese export control system

These measures are stipulated in the “Export Control Law” (ECL). This was promulgated in 2020. This ECL contains various administrative regulations and rule. Including measures regarding the export of dual-use goods.

An annually updated commodity list was published under the ECL. Importers and end users are covered by the regime. End-user and end-use certification is a requirement to apply for an export license. If violated, punitive action will be taken against these parties. Moreover, the authorities are entitled to impose countermeasures against countries and regions. This is justified if they abuse export controls and endanger China’s national security.

The latter may be seen as a method of countermeasure. Especially where and when Western countries such as the United States, Japan and the Netherlands impose restrictions on China.

When is a permit required?

The measures apply to exports of the controlled goods where export is a broad term.

This includes, transfer from PRC to foreign countries, transfer of the products by Chinese individuals or entities to foreign entities or individuals, transit, re-export of these items including shipping for exchange, donation or as samples.

The responsibility for obtaining an export license lies with the exporters. To obtain an export license, exporters must submit an end-user and end-use certification (the Certification), among other things. Certification is usually issued by end users. In accordance with the ECL, the Certification must specify the end use and end user of the Controlled Items and include an obligation by the end user not to change the end use of the Controlled Items without MOFCOM approval.

Gallium and Germanium

The decision to restrict on gallium and germanium followed days after the Dutch government instituted export control measures on advanced manufacturing equipment (ASML). China is the world’s largest producer of both elements. It produces more than 95% of the world’s gallium production and over 65% of germanium.

China is not only world leader for gallium and germanium, but also ear a group of 17 essential metals required for modern technological products. Items include: gallium nitride, gallium oxide, gallium phosphide, gallium arsenide, indium gallium arsenide, gallium selenide, gallium antimonide, zone-refined germanium rod, zinc germanium diphosphide, germanium epitaxial growth base, germanium dioxide and germanium tetrachloride.

Drones and related equipment

As of Sept. 1, there are measures on drones and equipment. These include products such as drone engines, lasers, anti-drone systems, communications and radar equipment. Export control measures also apply to consumer market drones. But it is expected that this could potentially have a major effect in the war going on in Ukraine. As is well known, drones play a major role in this earlo.

A possible reason is that a Chinese-made drone was found on the battlefield earlier this year. This Chinese drone was modified after purchase by adding weapons to it. These popularly called “Alibaba drones” can be bought for less than EUR 15k.

Exports of drone products from China are extensive. Markets include the United States, the European Union, as well as Russia. The latter she probably uses for her war in Ukraine.

Conclusion

The recently imposed measures stand as tit-for-tat restrictions on high-tech products amid worsening tension between the U.S. and China in particular.

The US has already taken several high-tech measures against China. It is doing so together with its allies the Netherlands and Japan. These countries play a crucial role because of a number of companies based there. A salient detail is that 50% of the drones sold in the US are made by DJI. This company has already been blacklisted by the US in 2021 for human rights violations in Xinjiang against the Uighur Muslim minority there.

The actual impact of the measures will have to be seen. Insight is pa after the extent to which permits will be granted and rejected for both measures. What is clear is that China is ahead of the curve with both measures. They can now deny markets, parties and countries products. To be expected, this will be particularly toward the countries that otherwise restrict China.

This could have major implications for the Netherlands. Where possible not entirely unrelated the Gallium and Germanium measure followed the Dutch restrictions.

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