Tax Newsflash

On 3 July 2023, China’s Ministry of Commerce (MOFCOM) and General Administration of Customs (GAC) announced to implement export controls on gallium and germanium related items from 1 August 2023, aiming to safeguard national security and interest. Gallium and germanium, as well as the related items, are generally considered critical raw materials in the semiconductor industry.

The announcement provides a list of 14 controlled items (i.e. 8 gallium-related items and 6 germanium-related items) whose exports would be subject to a license requirement. The list contains the names of the controlled items and the corresponding China HS codes for reference. The controlled items can be in various forms such as polycrystalline, single crystal, wafer, epitaxial wafer, powder, shredded materials, etc. Please refer to the appendix of this article for the list in English.

To export an item on the list from China, an exporter will have to apply for a dual-use item export license; otherwise, no export would be permitted. To apply for the license, the exporter must fill in and submit an application form to the provincial commercial departments along with the following documents: -

(a) the original document of export contract/agreement or its (scan) copy;

(b) the technical specification or test report of the items to be exported;

(c) the end-user and end-use certificate;

(d) the information of the importer (i.e., the buyer) and the end-user; and

(e) identity documents of the exporter's legal representative, chief manager and staff handling the export affairs.

The provincial commercial departments will pass the application package to the MOFCOM for further review and determination about whether to issue or deny the export license.

Comments and recommendations

China is a leading producer and exporter of both gallium and germanium worldwide, accounting for a significant share of the global market. The demand mainly comes from sectors such as semiconductors, optics, and infrared technologies, as gallium and germanium are widely used in the production of semiconductors, LEDs, photovoltaic cells, etc.

Export volume and amount of gallium and germanium from China (source: GAC statistics)

The newly introduced export controls on gallium, germanium and the related items may impact businesses using these items as raw materials and the relevant suppliers. Affected businesses may need to consider whether to take any immediate actions (e.g. re-arranging the procurement plan, or starting the preparation work to apply for an export license) within the limited time before the export controls become effective.

We generally recommend the following approach for relevant businesses’ consideration: -

• Step 1.1 – Internal Assessment: Affected businesses should conduct a comprehensive review of their export activities and export items, so as to analyze the impact of the new export controls on them. This may involve identifying the specific gallium and germanium-related items in their product portfolio and understanding the regulatory requirements associated with their exportation. Businesses should confirm that the relevant products are properly classified under the relevant HS codes, taking into account of any changes resulting from the new export controls.
• Step 1.2 – External Management: Affected businesses should also communicate with customers and suppliers proactively, to ensure they are aware of the new export controls and their feedback are properly collected and addressed. Collaboration can help mitigate delays in supply chain and maintain positive business relationships.
• Step 2 – Plan: If exportation of the newly added controlled items is involved, the business should plan for the application work to obtain the export license. Based on our experience in license application assistance and confirmation with the relevant government authorities, an exporter normally needs to complete certain formalities (e.g. to obtain a CA key to the MOFCOM’s online platform and get registered with the MOFCOM as a qualified dual-use item exporter) before it can apply for an export license. The application, review and decision-making process may take approximately two months and hence relevant exporters should plan well to allow sufficient lead time.
• Step 3 – Do and Check: Businesses that wish to export controlled items from China should initiate the license application process by performing the registration formalities and preparing the supporting documents according to the export control regulations of China. After the application package is submitted, exporters should continuously monitor the application process, and also stay tuned for any updates both from regulatory and practical perspectives. 

Appendix

Gallium-related items

Germanium-related items

Authors:

Dolly Zhang
Partner
+86 21 6141 1113
dozhang@deloitte.com.cn

Sylvia Xie
Manager
+86 21 2316 6753
syxie@deloitte.com.cn

If you have any questions, please contact:

Tax and Business Advisory
Indirect Tax Services
National Leader
Lily Li
Partner
+86 21 6141 1099
lilyxcli@deloitte.com.cn

Deputy National Leader
Shu Tian
Partner
+86 10 8534 2338
shutian@deloitte.com.cn

Customs and Global Trade Services
Northern China
Yi Zhou
Partner
+86 10 8520 7512
jchow@deloitte.com.cn

Eastern China
Li Qun Gao
Partner
+86 21 6141 1053
ligao@deloitte.com.cn

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Janet Zhang
Partner
+86 20 2831 1212
jazhang@deloitte.com.cn

Western China
Frank Tang
Partner
+86 23 8823 1208
ftang@deloitte.com.cn