The starting point for responding to China's materials export controls is understanding what kind of restriction they actually are. Most measures — including those on scandium — are not embargoes but case-by-case licensing regimes. Supply is not sealed off; it has to pass review. Once you understand that structure, procurement can be designed to improve the odds of license approval and to spread risk. This article lays out five practical procurement strategies for a licensing environment, plus a vendor due-diligence checklist.
Start by Understanding the Licensing Structure
Under a licensing regime, authorities review each export shipment individually. Two practical implications follow, and they form the backbone of any sourcing strategy.
First, allocation is prioritized. Review capacity is finite and suppliers bear the burden of obtaining licenses, so large, long-term contracts tend to be allocated ahead of small, one-off orders. As a result, small spot contracts are the most exposed to supply interruption.
Second, end use is central to review. Certain uses such as defense and aerospace are excluded from approval, while civilian uses are selectively approved on the basis of end-user and end-use documentation. So "how you document the intended use" matters as much as "what you buy." The latest list and status of controlled items is available in the China Export Controls Timeline.
Strategy 1: Design for License Approval Through End-Use Documentation
A license is a paperwork contest. Preparing a document package in advance — end-user statements, use descriptions, and a clear account of the finished product's civilian application — improves both the likelihood and the speed of approval. This matters most for items with potential defense concerns, such as scandium: presenting an unambiguous civilian application like energy or fuel cells in documentation from the outset works in your favor. Deferring this preparation until after the contract is signed simply adds to lead time.
Strategy 2: Dual-Source the Supply
Relying on a single controlled-jurisdiction supplier means one license delay stops the line. The proven structure is to run two tracks in parallel:
- Controlled-jurisdiction line (license track): Keep a price-competitive Chinese supplier, but operate on the assumption of case-by-case licensing.
- Uncontrolled-jurisdiction premium line: Secure a parallel supplier in a non-controlled jurisdiction such as Japan, the US, or Korea. The unit price is higher, but the lower regulatory risk provides a buffer when licenses are delayed.
SOFC electrolyte (ScSZ), for example, can be dual-sourced by combining the price advantage of a Chinese supplier with the regulatory stability of Japanese, US, or Korean suppliers. The supplier landscape is covered in The Global ScSZ Electrolyte Supplier Landscape.
Strategy 3: Defend Yourself Through the Contract
The risk that a license is not granted should be written into the contract in advance. The key device is an Export License Contingency clause:
If the export license is not approved, the contract is void and any advance payment is refunded in full.
Without this clause, a license refusal can tie up your advance payment or escalate into a breach dispute. The more license risk a deal carries, the safer it is to tie the timing of payment to the timing of license issuance.
Strategy 4: Match Incoterms to the Risk
Who bears responsibility for export clearance determines where license risk sits.
| Situation | Recommended Incoterms | Rationale |
|---|---|---|
| Importing from a license-risk jurisdiction | FOB / FCA | Assigns export clearance (including license acquisition) to the seller |
| High-value, small-volume cargo | CIF / CIP | Seller insures goods in transit, reducing buyer risk |
Choosing Incoterms so that the party responsible for the license also bears the export-clearance obligation makes accountability clear if the license fails. Under an FOB contract, the issuer and cost of the certificate of origin (C/O) should also be specified — a point covered from the customs angle in SiC Powder Import Guide for Korea.
Strategy 5: Diligence the Upstream Supply
Even a stable finished-goods supplier leaves risk intact if the raw material it uses is controlled. For instance, you need to confirm whether a ScSZ finished-goods maker has secured a stable scandium supply and how the license track for that raw material is designed — only then is real supply stability assured. Extending the scope of diligence one step upstream, to the raw-material supply, is what makes the difference under export controls.
Vendor Due-Diligence Checklist
The minimum items to verify when qualifying a new supplier:
- Business registration and legal entity verification
- Quality system certification such as ISO 9001
- Production-capacity evidence (equipment, lines, annual capacity)
- Video or on-site audit
- Track record of obtaining export licenses (especially important for controlled items)
- Trade references and willingness to support third-party test reports
Quality verification does not end with paperwork. The method of pairing lot-level SEM/EDS, PSA, and XRD verification with a third-party report gate is detailed in Powder Quality Verification Methodology.
Frequently Asked Questions
In practice, how does licensing differ from an embargo?
An embargo blocks supply outright; licensing allows supply once review is passed. So under a licensing regime, "getting the license approved" is as valid a strategy as "finding an alternative." Because review takes time and small orders can be deprioritized, running both approaches in parallel is the realistic path.
Why is our company, which buys in small volumes, at a disadvantage?
Because license review and allocation tend to favor large, long-term contracts, small spot buyers are easily pushed down the queue. Bundling volume through annual commitments and rolling forecasts — raising both contract size and predictability — mitigates the disadvantage. For the related working-capital design, see Inventory Buffering and Cash Conversion Cycle Design in Materials Trading.
How do we word an Export License Contingency clause?
Base it on the principle "contract void and advance payment refunded in full if the export license is not granted," and tie payment timing to license issuance. The greater the license risk, the safer it is to negotiate a lower advance or a pay-after-license structure.
Are uncontrolled-jurisdiction suppliers always better?
They carry lower regulatory risk but generally higher unit prices. Rather than using an uncontrolled line alone, it is more sensible to combine a price-competitive controlled line (license track) with a regulatory-stable uncontrolled line, balancing total cost against supply stability.
References (Public Sources)
- China Ministry of Commerce (MOFCOM) Announcement No. 18 (Apr 2025)
- ICC Incoterms 2020 rules
- Holland & Knight, legal analysis of China export controls (Apr 2025)
Nami Tech Solution (NTS) is a trading company specializing in global sourcing of semiconductor and energy materials. Through materials sourcing, lot-level quality verification, dual-sourcing, FTA tariff, customs and K-REACH support, and domestic inventory buffering, NTS builds resilient procurement structures even under export-control conditions.
For help designing a procurement strategy for controlled items or identifying alternative suppliers in uncontrolled jurisdictions, contact [email protected] or use our contact page.