How to avoid becoming collateral damage in the US-China “tech war”
The benefits of paying close attention to details of US export controls and economic sanctions
Amid global market uncertainties and shifting regulatory priorities, where the only constant is change, Taiwanese businesses still can plot strategic pathways to success.
Welcome to our fourth report on global trends and opportunities for Taiwanese companies and investors conducting business internationally.
Although disruptive forces continue to buffet markets worldwide, advantages exist for savvy business leaders who pay close attention to global trends and act accordingly.
With the United States focusing more and more on China's technology industry as a national security priority, Taiwanese companies should take specific steps to decrease their risk of becoming collateral damage in a US-China "tech war." Similarly, despite a heightening US-China trade war, careful assessments of any supply chains that include China-made parts and related actions can help protect Taiwanese companies' access to US markets.
Design patents offer increasingly useful protections for design-focused Taiwanese companies that operate in the US. In the energy sector, Taiwan's offshore wind sector demonstrates vibrant potential for growth, particularly if Taiwan successfully resolves a few key challenges.
A new dynamism in the European Union's approach to antitrust enforcement provides guidance for growth-focused Taiwanese companies. And a recent change to US antitrust enforcement policy provides a compelling incentive for Taiwanese businesses to review their internal compliance programs and controls.
We hope you find this useful, and we look forward to seeing Taiwanese businesses grow and thrive in the year ahead.
Despite a volatile, uncertain trade environment, you can take steps to protect your US market share
Stay current on your favorite topics
One year into the US-China trade war, after several waves of unprecedented punitive US tariffs on US$250 billion worth of China-origin goods and retaliatory Chinese tariffs on US$110 billion worth of US-origin goods, global companies have begun diversifying their supply chains by moving some or all of their production out of China. Other factors, such as rising costs in China, are contributing to this trend.
As a result, many businesses are relocating their manufacturing operations from China to other Asian countries, primarily Taiwan and members of the Association of South East Asian Nations (ASEAN) region (Figure 1).
Some exporters believe that obtaining a certificate of origin for their finished goods from a third country such as Taiwan will keep them safe. But regulatory scrutiny of imports containing parts made in China has never been higher.
Shipping finished goods that contain China-made parts from Taiwan to the US can entail significant risks. A wise strategy includes proactively understanding these risks, assessing your potential exposure and taking action to protect your access to US markets.
US authorities may accuse Taiwanese exporters—and the US importers they work with—of trying to evade duties on China-made finished goods or parts, contrary to one or more trade laws. The consequences can be harsh, including high duties and penalties, blocking or limiting access to US markets and, in some cases, criminal charges and possible prison time. These trade laws include:
If goods you produce contain significant China-made parts, US authorities may decide they do not originate in Taiwan or otherwise that they should be subject to duties on goods from China. This risk usually increases if your exports increase, especially when there is a parallel decrease in exports from China, or if your production facility is a subsidiary or affiliate of a Chinese company.
The first step toward managing these potentially significant risks is to get a clear understanding of your company's exposure.
Start by assessing:
Depending on your circumstances, these actions can include:
No matter how the current US-China talks conclude, it is very likely that this bilateral trade relationship will remain volatile, with US regulators continuing to scrutinize goods containing China-made parts.
The controversial "Made in China 2025" strategic plan for China's dominance in key sectors may gain traction over the next five years and add to tensions. If the current US president is re-elected in 2020, this administration's trade policies may continue at least until 2024. And with China's domestic consumption projected to roughly double in the next ten years, the powerful incentive for Chinese and other global companies to increase capacity in China could have unintended consequences for global markets. Unexpected drops or capacity overshoots in China could result in surplus exports distorting global markets, resulting in a continued resort to tariffs against Chinese goods and stringent scrutiny of third-country products containing China-made parts.
Therefore, prudent exporters must plan for this possibility, rather than waiting and hoping for the US-China trade war to blow over.
This publication is provided for your convenience and does not constitute legal advice. This publication is protected by copyright.
© 2019 White & Case LLP