China Announces Export Permit System for Gallium and Germanium. What Does It Mean?

Earlier this week, the Ministry of Commerce of the People’s Republic of China (中华人民共和国商务部), or MOFCOM, announced that an export permit system would be introduced to control international sales of gallium and germanium products. The system, the statement indicated, is being implemented to “safeguard national security interests”. This was seen as retribution directed towards the US, Japan and the Netherlands, all of which have recently introduced limitations on the export of semiconductor manufacturing equipment and advanced chips to the PRC.

China is, by far, the world’s largest producer of primary gallium and primary germanium. The announcement caused some panic in markets for the two elements, particularly among those who are dependent on Chinese suppliers. According to the statement, the new rules will come into effect on August 1^st, 2023, leaving Chinese sources of gallium and germanium products just a few weeks to get products to customers outside of the country.

Over ten years ago, while I was working directly in the world of rare earth elements, we witnessed a number of policy changes by the PRC to consolidate the rare earths industry, as well as restrict and control the export of rare earth materials. While there are some similiarities between those actions and the recently announced export permits on gallium and germanium, there are also some noticeable differences.

As opposed to the export permit and export quota system that was originally introduced on rare earth elements, for gallium and germanium China has decided to implement an export permit system by classifying the two elements – and related compounds – as “dual use”.

Dual use goods and technologies refer to those that can have applications in military weaponry. While China is not a signatory to the Wassenaar Arrangement on the Export Controls for Conventional Arms and Dual-Use Goods and Technologies, it does have 
its own system of export controls for items deemed to be dual use.

The reason that China likely used the dual use classification, as opposed to export quotas, is likely due to the number of challenges rare earth export quotas faced under World Trade Organization principles. To classify gallium and germanium compounds as weapons-related will likely avoid those challenges.  

Based on my experiences in the rare earths industry and active involvement within the gallium and germanium markets, and after having discussions with some key players in both markets – inside and outside of China – I will share some of my initial thoughts on the implementation of export controls on gallium and germanium products.

1. The introduction of export permits does not necessarily mean that the PRC will constrict the flow of Ge and Ga out of China, but it does give China an easier way to do this, if they should choose to. Keep in mind that rare earths have had export permit requirements for over a decade, but western users still have access to all rare earth compounds. 
2. There will definitely be a short-term increase in prices, as some panic buying will occur, allowing refiners to raise prices. Whether the price increases stay really depends on whether the flow of Ge and Ga is limited, for how long and to what degree. These things we will not know until at least August.
3. There are Chinese companies that have strong government ties and international operations, which I believe will still be able to get material out of China. They will likely be the biggest beneficiaries, as the permit process will decrease competition and raise prices. 
4. By all reports, the process of getting a dual use export permit from the Chinese government can be slow and cumbersome. This will be particularly true for Ge and Ga exporters who are not yet familiar with the system. Meaning it is safe to assume that there will be disruptions to flows of Ge and Ga from China just on the bureaucratic side, alone. 

Based on the information that is now available, we can expect higher prices for the coming two to three months. There may be limited availability in the short-term, depending on the level of panic buying and the time it takes to implement the export permit system. End-users should expect longer lead times for deliveries of gallium and germanium products from China. But, longer term we do not expect difficulty accessing material and prices may drift lower after this period of instability.

Below, is a list of the materials covered by the new export permit system. Noted along with harmonized system (HS) tariff codes.

Gallium-Related Compounds:

Gallium Metal

8112929010、8112929090、8112999000

Gallium Nitride

2850001901、3818009001、3825690001

Gallium Oxide

2825909001、3818009002、3825690002

Gallium Phosphide

2853904030、3818009003、3825690003

Gallium Arsenide

2853909026、3818009004、3825690004

Indium Gallium Arsenide

2853909028、3818009005、3825690005

Gallium Selenide

2842909024、3818009006、3825690006

Gallium Antimonide

2853909029、3818009007、3825690007

Germanium-Related Compounds:

Germanium Metal

8112921010、8112921090、8112991000

Zone Refined Germanium Ingots

8112921090

Zinc Germanium Phosphide

2853904040、3818009008、3825690008

Germanium Epitaxial Growth Substrate

8112921090

Germanium Dioxide

2825600002、3818009009、3825690009

Germanium Tetrachloride

2827399001、3818009010、3825690010

Terence Bell

President,

Strategic Metal Investments Ltd.

July 7, 2023