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Taiwan: Adapting to ongoing macroeconomic and regulatory uncertainty

What's inside

Key legal developments in 2023 and their implications for Taiwan

Executive summary

The past two years have witnessed significant geopolitical fracturing and macroeconomic difficulties that continue to hamper certain dealmaking. Several sectors have posted transactional lows throughout 2023, and persistent inflation and high interest rates look set to remain in place for now. Economic decoupling and growing global regulations also create transactional hurdles, while China's slowing economy and now the Israel-Hamas war add to a steady sense of market unpredictability.

And yet, with volatility comes opportunity, such as infrastructure and renewables projects, growth in the semiconductor industry, and the rise of private credit. As many companies and investors in Taiwan are discovering, economic or regulatory setbacks are an invitation to think innovatively and to recalibrate their approach. With the right information and careful planning, they can position themselves for success now and in the future.

Following our 18th Annual Taiwan Roundtable Series in September, we hope this year's report for Taiwan-focused companies and investors provides helpful guidance in a rapidly evolving political and economic landscape.

We begin with a look at the continued proliferation of foreign direct investment (FDI) regimes in the US and the European Union. The Committee on Foreign Investment in the United States (CFIUS) has ramped up its activity to an all-time high, while EU member states continue to implement, refine and expand their regimes. Many FDI focus areas overlap with those of Taiwanese companies—technology in particular—meaning early-stage analysis is critical in this arena.

We then analyze the impact of forum selection in contracts with mainland Chinese (PRC) companies. Despite the tensions between PRC and Taiwan, their economies remain inextricably intertwined, so Taiwanese companies should consider how the provision of "interim measures" in Hong Kong arbitration can benefit their business.

Next, we provide an overview of the EU's new Foreign Subsidies Regulation (FSR), which scrutinizes foreign financial contributions received by companies engaging in M&A and public tenders in the EU, and grants the European Commission the power to investigate any other potentially distortive market situation. Taiwanese companies should be aware that the FSR casts a wide net and could also encumber merger control and FDI filings.

We then turn to the growing popularity of the US International Trade Commission (ITC) for trade secrets litigation. The ITC's unique global reach means trade secret owners can make a claim of misappropriation on any product that enters the US, even if the trade secret and alleged misappropriation are entirely extraterritorial. The risk of these claims has broad implications, especially for foreign companies trying to diversify and broaden their global footprint.

Our transaction-focused piece looks at the evolution of M&A, debt finance and investment funds practices in a tough macroeconomic environment. Certain technology and renewables remain attractive for M&A and private equity, while local consumer brands are considered the next target of credit investors, and the funds space is seeing growth in the secondaries market and NAV financings.

Aligning with the Roundtable Series' "clubs and fences" theme, we consider trade and sanctions through this framework. Taiwanese companies have the difficult task of balancing often-competing interests in Asia-Pacific and the West, but they will benefit from taking advantage of regional trade clubs and nimbly navigating regulatory fences that include tariffs, sanctions and export control.

Lastly, we examine two major proposed changes to US antitrust policy by the US Federal Trade Commission (FTC) and the Department of Justice, Antitrust Division: the FTC's proposed ban on non-compete clauses and both agencies' radical proposed changes to the Hart-Scott-Rodino Form. One key takeaway examines the possible use of employee NDAs to protect company information.

We look forward to discussing these and other issues with you.

Foreign direct investment reviews increasingly impact cross-border deals

Continued emphasis on FDI around the world, particularly in the US and Europe, creates additional challenges for investors


Hong Kong arbitration clauses offer advantage to Taiwanese companies doing business in China

Provision of "interim measures" strengthens Hong Kong's position as a level playing field in arbitration against PRC counterparties

building abstract

New challenges for Taiwanese companies under the EU’s Foreign Subsidies Regulation

The bloc's new scrutiny of foreign financial contributions poses regulatory hurdles for Taiwanese investments in M&A and public tenders in the EU

EU flag

Trade secret litigation at the US International Trade Commission: A rising fence

The growing popularity of the ITC as a regulatory venue with global reach has implications for Taiwanese trade secret owners and investigation targets

construction scaffolding

Getting deals done despite the odds

M&A, debt finance and investment fund actors seek alternative routes to dealmaking in the face of a dim macroeconomic outlook

stock market graph

Taiwanese companies in a world of “clubs” and “fences”

The evolving trade and sanctions landscape reflects a new global regulatory paradigm


Major proposed changes to US antitrust rules present new hurdles

US antitrust agencies step up enforcement with proposed policy changes that create uncertainty and new regulatory burdens

train railroad

Foreign direct investment reviews increasingly impact cross-border deals

Continued emphasis on FDI around the world, particularly in the US and Europe, creates additional challenges for investors

6 min read

Foreign direct investment (FDI) regimes continue to grow in number and complexity around the world, and FDI has become a key global regulatory consideration that must be carefully understood, assessed and managed in cross-border M&A. FDI regimes are expansive and various, with different rules and timelines applying to each individual jurisdiction. To avoid surprises and ensure they are appropriately protected, Taiwanese businesses and investors should be attuned to FDI considerations, both in the United States and elsewhere, when contemplating transactions.

CFIUS becomes even more active

In the US, the Committee on Foreign Investment in the United States (CFIUS) review process is considered a key national security tool by the Biden administration. In turn, CFIUS is requiring more mitigation measures to address perceived national security concerns; evolving its practices, policies and regulations; heightening efforts to identify and review non-notified transactions; and emphasizing oversight and enforcement.

In 2022, CFIUS filings reached an all-time high—just above 2021's previous record—despite a notable year-on-year decrease in M&A. Most significantly, nearly one in four transactions submitted via a full notice resulted in mitigation measures—a substantial increase from prior years, and an indication that a well-resourced CFIUS is availing itself of wider latitude to address risks in transactions.

The most recent data also shows that CFIUS is becoming less efficient. One out of three short-form declarations in 2022 resulted in a request for a full notice—nearly double the rate of 2021. Additionally, there was a spike in notices requiring a second-stage investigation, with nearly 60 percent requiring the additional 45 days.

CFIUS is also increasing its focus on oversight, compliance and enforcement. Compliance monitoring has received a boost, and officials have emphasized enforcement as a priority, advising that two civil monetary penalties have already been issued in 2023, with more pending. This represents a break with CFIUS's past: Prior to 2023, the committee only announced two penalties. Though its review process is predominantly voluntary, CFIUS continues to search actively for non-notified transactions of interest and recently announced additional resources to identify transactions for potential review.

This year has also seen changes to CFIUS policy, the most significant of which reversed course on a long-accepted practice of parties using "springing rights" as a mechanism to close before the 30-day waiting period for mandatory filings by delaying any jurisdiction-triggering rights. This particularly impacts venture capital investments, where the timing of funding is often critical. CFIUS also updated its real estate regulations to include additional locations, which can also indicate potential "close proximity" concerns that can arise in investment transactions subject to CFIUS jurisdiction.

More changes are on the horizon, with new CFIUS regulations expected in the next year. CFIUS officials have said these updates will be aimed at improving the efficiency and effectiveness of reviews; updating penalty and enforcement authorities; sharpening and enhancing tools relating to non-notified transactions; and broadly ensuring tools and processes are best aligned to the current landscape.

The US government is also moving to launch new controls over outbound investment—the first of their kind. In August, President Joe Biden issued an executive order establishing a new "Outbound Investment Program" that will require prohibitions or notifications for certain US investments into China, or Chinese-owned or controlled entities, in three sectors: semiconductors and microelectronics; quantum information technologies; and artificial intelligence. Details will be set out in forthcoming regulations but could potentially impact activities by Taiwanese companies in relation to China.

European FDI regulation in full swing

In Europe, FDI regimes continue to proliferate. Throughout 2023, several EU member states have implemented, or taken significant legislative action to implement, new FDI regimes. For example, Sweden, Ireland and Bulgaria will likely all have new FDI regimes by the end of 2023 or early 2024. Some existing regimes, such as Spain's, have undergone refinement, while Germany is expected to reform and expand its FDI regime by the end of 2023.

There is now routine coordination on FDI reviews within the EU. Following the Cooperation Mechanism of October 2020, national screening authorities must alert the European Commission and other member states of certain deals. Since then, several multijurisdictional deals where parties did not file in each jurisdiction have caught the attention of FDI authorities conducting parallel review through the Cooperation Mechanism.

The EU screening regulation does not delegate veto or enforcement rights to the Commission, but reviewing member states must consider the observations of the Commission and other member states, and intra-EU investments are subject to the jurisdiction of the European Court of Justice (ECJ). Most recently, the ECJ ruled that Hungary's foreign investment screening law is incompatible with EU law, in particular the freedom of establishment enshrined in the Treaty on the Functioning of the EU. The judgment clearly states that a protectionist measure taking the form of national FDI screening legislation amounts to an unjustifiable restriction of the fundamental freedoms protected under EU law.

Outside of the EU, the almost two-year-old UK investment screening regime resulted in five prohibitions in 2022, including one for a licensing agreement with a Chinese investor.

Similar to the US, statistics show that most European transactions are cleared unconditionally and that prohibition cases are rare. Nonetheless, FDI authorities are increasingly using conditional clearances to address national security concerns, and the political, policy and regulatory landscape continues to evolve.

Impact on Taiwanese companies and investors

Despite the rising relevance of FDI reviews in cross-border transactions, Taiwanese companies should take comfort in the fact that FDI regimes generally encourage foreign investment and that the vast majority of transactions clear. That said, the increased number and sophistication of FDI regimes can contribute to transaction uncertainty. The US, European nations and other jurisdictions are upgrading and strengthening their FDI regimes, while increasing their focus on protection of national strategic assets and working to address concerns about global supply chain resilience. There is also a general increased attention to foreign investments in critical raw materials across jurisdictions. Canada, for example, has set out a stricter framework for evaluating FDI in the critical minerals sector by certain foreign investors.

Many focus areas for FDI authorities coincide closely with the business activities of a range of Taiwanese companies, particularly in the technology sector. Semiconductors remain an especially sensitive area in most jurisdictions, and various other types of technology developments and priorities are likely to be viewed as relevant to national security. For example, President Biden issued an executive order last year highlighting microelectronics, artificial intelligence, biotechnology and biomanufacturing, quantum computing, advanced clean energy, and climate adaptation technologies as relevant to US national security.

Taiwanese parties to cross-border deals must consider FDI issues in every relevant jurisdiction from the outset, so they can effectively manage timing and risk considerations. This includes conducting thorough due diligence on the target, understanding potential jurisdictional triggers, filing requirements and timelines in relevant countries, and developing a clear multijurisdictional strategy to proactively manage issues that may present challenges. For example, it is critical to anticipate potential mitigation measures or remedies that may be required for clearance to be granted and understand the impact they could have on the investor's goals for the transaction.

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This article is prepared for the general information of interested persons. It is not, and does not attempt to be, comprehensive in nature. Due to the general nature of its content, it should not be regarded as legal advice.

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