Gallium and Germanium: Pioneers in China's Export Ban
From August 1, 2023, China has announced a ban on the export of gallium and germanium along with their chemical compounds. As per the Critical Raw Materials Alliance, China produces 60% of the world’s germanium and 80% of gallium. Both these metals in question have heavy industrial uses such as in defence, semiconductors and communication equipment. Gallium and germanium, however, are extracted as by-products of aluminium and zinc - metals of which China is largest global exporter - which means that alternative sourcing and supply chain diversification becomes difficult.
China’s export ban stems from the US-led restrictions on the export of semiconductors and related equipment to China. It also comes in the wake of restrictions heralded by Japan and Netherlands against the export of of chip making equipment to China. Given the momentum to diversify supply chains from the world’s largest manufacturer, countries such as Belgium, Canada, Germany, Japan, Ukraine, South Korea, Russia and Germany have been identified as potential sources to produce gallium and germanium. India on the other hand has been identified as a potential destination to take over China’s sway in manufacturing of semiconductors. Such developments present a cue from Kaname Akamatsu’s ‘Flying Geese Model’ that promotes diversification of supply chains. With Taiwan Semiconductor Manufacturing Co allocating resources to develop semiconductor plants in Japan and the USA, plans to cut China’s dominance in chip making have already been rolled out. However, hiccups exist as despite the passage of the CHIPS and Science Act in the US, suppliers based in South Korea and Taiwan remain reluctant to shift their manufacturing bases outside of China given their large-escale investments in the country. Also, the recent protectionist measures unleashed by the US have accentuated concerns about the stability in supply chains as trade and military tensions rise between the globe’s two major economies.
Although considered a ban, experts opine that China’s ban is more limited in scope as it requires exporters to apply for licences and report details of overseas buyers and their applications. The ban has been identified as a means of retaliation that the Chinese government is willing to take to secure its national interests. China has previously used trade restrictions to sustain its downstream industries and has also faced legal hurdles at the WTO. In the wake of such rising trade restrictions announced by several countries, an examination of Article XI of the General Agreement on Tariffs and Trade (GATT) under the WTO allows for the temporary application of export controls to relieve critical shortage of the commodity in question. In the realm of politics, nation-states tend to manipulate this concept of ‘temporary application’ by laying claim to Article XXI. Article XXI gives WTO members absolute sway in implementing their respective trade restrictions by justifying their policies as crucial to ‘essential security interests’.
As legislative enactments promoting export control gathers stream across economies, the concept of balancing stakeholder interests both upstream and downstream becomes challenging due to geopolitical issues. Contingency planning, diversification in sourcing and procurement, establishing manufacturing plants outside traditional locations, etc. may become the norm in the future as businesses swim through the ripple effects of deglobalisation policies.