Taiwan Takes Business Back: Examining the Shifting Landscape and What it Means for International Trade - Global Trade Magazine
  July 21st, 2020 | Written by

Taiwan Takes Business Back: Examining the Shifting Landscape and What it Means for International Trade

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  • There are several main drivers behind Taiwan's reshoring of Taiwan businesses from China.
  • "The innovation advantage that Taiwan has had in the past may well be limited in the years ahead."
  • "Taiwan companies are still reluctant to establish a robust trade secret program.

In an exclusive Q&A with Dr. Richard Thurston – former Senior Vice President at Taiwan Semiconductor Manufacturing Company, Ltd, and “Of Counsel” with Duane Morris, LLP in New York, we take a closer look at the current international trade climate as Taiwan’s efforts to re-shore impact current trade relations while exposing a significant need for bilateral trade agreements and the need to improve opportunities in workforce development. Dr. Thurston walks us through what to expect in the near future as Taiwan takes businesses back from China.

What major advantages are gained by Taiwan reshoring? What risks are associated with this move?

Dr. Thurston: There are several main drivers behind Taiwan’s reshoring of Taiwan businesses from China. First, U.S. geopolitical issues, such as Taiwan companies avoiding US tariffs on China-originated products. Taiwan companies are facing a lot of pressure there.

Second, the protection of the supply chain, not just the supply chain for Taiwan’s consumer product companies, but that of other companies such as Apple, Google, and the whole range of high-tech companies. Thirdly, avoidance of both U.S. criticism, and, more importantly, of potential. U.S. penalties, fines, exclusion orders, etc., relating to possible export control violations. Finally, the Huawei issue. Overall, the challenges are much broader than trade secret protection, driven by U.S. desire to keep actual products incorporating certain advanced technologies from getting into the hands of China’s People’s Liberation Army.

Those factors, along with growing demands for international diversification, are complimented by Taiwan’s corporate concerns over ongoing health, safety, and welfare of their staff and managers working in China. One other motivation of Taiwan’s Government is to bring back to Taiwan experienced talent that had left over the last decade (which had created a great hollowing out of Taiwan’s technological and other capabilities).

On that last point, do you see a reverse effect happening in the workforce going back to Taiwan and aiming efforts on workforce development for the tech industry, or are you anticipating a completely different landscape overall?

Dr. Thurston: Previously, a much different environment existed, where there were two key drivers behind the movement to China that started when President Ma Ying-jeou took over the political reigns. One of the key factors he had in mind was to access the sizable but elusive China market. The Taiwan market of 24 million people is not large enough by itself, to sustain market growth driven by technological innovation. Second, access to talented human capital. A serious Taiwan problem exists because the STEM  (science, technology, engineering, and math) talent pool has continued to dry up in Taiwan. This has been a huge issue faced by TSMC and other technology-driven companies. So, President Ma wanted to access a culturally comparable talent pool as well as to lower costs for land and raw material supply. Finally, the KMT wanted to use Taiwan’s trade and investment in China to neutralize China’s threat against Taiwan independence.

How can Taiwan continue dominating the IP (intellectual property) sector by reshoring? And does this have any impact on its current practice?

Dr. Thurston: Taiwan has had a lot of difficulties in the IP area, and part of it is related to what I just talked about, the significant decline in the STEM talent pool. If you look for other issues, a major one is that Taiwan (because of its political position arising from China’s position against them) is not a member of WIPO (World Intellectual Property Organization), and is not a participant in the Patent Cooperation Treaty (PCT) and therefore, there are significant barriers against becoming a predominant IP source.

But more importantly, with the exception of a few companies like TSMC, most Taiwan companies continue to operate in the mindset of OEM and ODM companies. That mindset focuses on a slim profit margin. Therefore, they do not truly incorporate intellectual property into their overall strategy because it is expensive to promote and protect IP.

This is very relevant for many companies, especially in some of the new sectors, such as biomedicine, aerospace, clean energy, Big Data and AI labs. For example, Taiwan companies are still reluctant to establish a robust trade secret program. Although the Taiwan government has done a lot for enacting trade secret laws and litigation in its courts, many companies take inadequate measures to protect this most important IP asset and thereby, diluting its IP leadership. While there has been improvement, it has been slow because IP is still not viewed as a key to profitability. The government has been trying to improve that attitude in its companies through its intellectual property laws, so we will see. For now, I think the lack of sufficient and sustainable STEM talent, which affects directly leading-edge creativity and innovation, is a core challenge.

Taiwan is extremely important to the U.S., both commercially, with respect to its supply chain, and defensively, with respect to maintain open and safe sea and air links. What is further of concern is that the U.S. still does not have a bilateral trade agreement with Taiwan. This limits the ability of the free flow of information, business, and protections to Taiwan businesses and U.S. businesses operating in and with Taiwan.

During 2019, Taiwan’s efforts to attract its businesses back to Taiwan, and the short-term assistance it is providing to respective land acquisition and operational subsidies, has generated 160 new projects. Companies have most definitely returned from China to Taiwan. But, the question remains: is that sustainable? That issue will hurt Taiwan along with the declining birth rate out there. The innovation advantage that Taiwan has had in the past may well be limited in the years ahead unless Taiwan shores up its bilateral trade and investment relations with the U.S.

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Richard L. Thurston, Ph.D. is Of Counsel at international law firm Duane Morris where he practices in the area of intellectual property law from its New York and Taipei offices. Prior to joining Duane Morris, Dr. Thurston was Senior Vice President and General Counsel of Taiwan Semiconductor Manufacturing Company, Ltd., where he was also Chief Proprietary Information Officer (Trade Secrets) and Corporate Compliance Officer.