Co-author: Pengcheng Zhou
Overview
In April 2025, China introduced new export licensing requirements for certain medium and heavy rare earth elements pursuant to the Announcement of the Ministry of Commerce and the General Administration of Customs [2025] No. 18 (“Announcement No. 18”). The measures have significantly impacted companies across a broad range of sectors, including the automotive and life sciences industries. Given that China accounts for approximately 90% of global rare earth refining capacity and that alternative sources remain limited and are frequently inferior in terms of cost and quality, affected businesses face a complex and fast-evolving compliance and strategic landscape.
This briefing outlines which rare earths are covered by the new regulations, how European businesses are affected, what the new licensing regime entails, and how our team can support your business in navigating the new regulatory reality.
Rare Earth Elements Covered by the New Regulations
The new export controls target seven of the seventeen rare earth elements recognized under international classification: samarium, gadolinium, terbium, dysprosium, lutetium, scandium, and yttrium. These are predominantly medium and heavy rare earths valued for their critical role in advanced technologies. Importantly, the controls extend beyond the pure elements to encompass their oxides, alloys, compounds, and mixtures.
All exports of the listed materials now require an export license issued by the Ministry of Commerce of the PRC (“MOFCOM”) under China’s export control regime. Shipments that lack the requisite license or documentation are liable to be detained at PRC customs. China’s stated rationale is that these particular rare earths are of strategic importance and are capable of dual use across sensitive industries, ranging from defense systems to advanced manufacturing. Any company sourcing these materials from China must therefore navigate the new restrictions or risk supply disruption.
It is important to note that the license application must be submitted by the Chinese exporter or supplier. In practice, however, Chinese suppliers are heavily reliant on the cooperation of their European customers in order to obtain the accurate and detailed information on end use and end users that the application requires.
Completing the license application forms with the greatest possible precision is essential to avoid delays in MOFCOM’s review process.
Implications for European Companies
China’s rare earth export restrictions extend beyond the technology and defense sectors, with significant consequences also for the automotive and life sciences industries.
The fundamental challenge is that the acute dependency of many businesses on Chinese rare earth sources cannot be meaningfully diversified in the short term. This supply-side exposure carries material consequences for cash flow predictability, customer retention, and capital expenditure planning, all of which bear directly on deal pricing and risk allocation in M&A and financing transactions.
Companies experiencing supply delays may face claims from their own customers for late delivery or non-performance. Whether such claims can be successfully resisted will depend critically on the precise drafting of force majeure or hardship clauses in the relevant supply agreements, as well as on the governing law of those agreements. Government-imposed export restrictions may, depending on the circumstances and contractual language, qualify as a force majeure event, but this cannot be assumed. In our experience, a thorough review of contractual risk allocation is indispensable to assess potential liability exposure and to consider whether contract modifications are warranted in pending or ongoing transactions.
Export Licensing Procedure: What European Companies Need to Know
Under the new regime, any export of the listed rare earths from China requires a MOFCOM export license. Two categories of license are available:
- Individual License – A single-shipment license authorizing export to a specific, identified end user
- General License – A broader license permitting multiple shipments over a defined period, typically granted to exporters with a demonstrated track record of regulatory compliance
License applications must include, at a minimum:
- Material type and volume
- End-use description
- Full end-user identification and documentation
Based on our experience advising affected clients, the license application process is frequently both complex and time-consuming. MOFCOM requires detailed, verifiable information regarding the end use and end user of the relevant materials, and applications are subject to rigorous scrutiny.
Although the application is formally submitted by the Chinese supplier, the European customer plays an indispensable role in the process by providing the end-use declarations, technical specifications, and supporting documentation required for a complete application. Incomplete or inconsistent submissions are, in our experience, among the most frequent causes of processing delays.
We assist European clients in preparing this documentation accurately and in a format that aligns with the requirements and expectations of the Chinese licensing authorities, with a view to minimizing MOFCOM’s review period and reducing the risk of rejection or delay.
Expected Processing Time
- Up to 45 working days for most applications
- Delays possible for sensitive or incomplete submissions
Whilst MOFCOM has indicated the availability of a “green channel” for applications relating to exports to the European Union, the practical effect of this channel on processing times remains to be seen. Companies should therefore continue to plan their procurement and supply chains on the basis of the standard review timeline.
How We Can Support You
Taylor Wessing’s China Group brings together expertise in regulatory compliance, mergers and acquisitions, international trade, and industrial sectors, supported by on-the-ground capabilities in China and across Europe. We advise clients on:
- Assessing rare earth supply chain exposure, including in the context of M&A due diligence and financing transactions
- Preparing end-use documentation for MOFCOM license applications
- Advising on licensing and regulatory strategy
- Reviewing force majeure and hardship clauses, and advising on supply contract risk allocation in light of export control-related disruptions and potential customer claims
Whether your business is diversifying its supply base, managing existing supply chain exposures, or planning a strategic acquisition, we provide the regulatory clarity, commercial rigor, and cross-border transaction expertise you need.
Contact Us
If your business or transaction is affected by China’s export control regime – or if you are assessing potential exposure within your deal pipeline – our international team is ready to assist. We advise on license applications, regulatory compliance, deal structuring, and contractual risk allocation strategies.
