Impact of China's Export Control on Rare Earth Magnets

Importers of critical rare earth magnets from China are considering invoking the “force majeure clause (FMC)” in their supply contracts with automobile OEMs (original equipment manufacturers) due to disruptions in shipments.

Current Situation

• Since April 4, following US-imposed reciprocal import tariffs and China's retaliatory actions, around 35 Indian importers have faced delays in magnet shipments or have not received import licenses under China's new export control regulations.
• Only one formal rejection has been reported (Sona Comstar), but the option to reapply remains open. Other companies like Bosch India, Continental, and Mahle are also affected.

Corporate and Legal Standpoints

• OEMs are in discussions about suspending obligations to avoid penalties.
• Publicly listed OEMs must declare such contractual adjustments to stock exchanges.
• Law firms stress the urgency for importers to seek legal protection through FMC as critical supplies are stuck and alternatives are unavailable.

Historical Precedent of FMC

The force majeure clause was extensively used during the Covid-19 pandemic to address supply chain disruptions, with the Indian Finance Ministry clarifying its applicability in such situations. The clause covers unforeseen events making contract performance impossible, such as pandemics, earthquakes, floods, or civil unrest, under the Indian Contract Act.