The Committee appreciates the Taiwan government’s recent efforts to implement the Asia Silicon Valley Development Plan, including the allocation of funds by the National Development Council (NDC) to such important areas as the internet of things (IoT), startups, and accelerators. We are also encouraged by the launch of the entrepreneur visa to attract foreign entrepreneurs to engage in Taiwan’s startup ecosystem, and we support the improvements made in the draft Cybersecurity Act and suggest that the government follow the consensus reached last year to strengthen information security in both the public and private sectors. These are all necessary steps in the right direction for building Taiwan’s startup ecosystem and transforming Taiwan into a knowledge-based economy.
Advances in technology hold incredible potential to enable Taiwan stay on the cutting edge of innovation. Technologies have opened up new markets and new opportunities for progress in economic development. However, the escalating pace of change requires a forward-looking and adaptive mindset on the part of the government. In this year’s White Paper, the Technology Committee highlights three top-priority issues: the need for adjustment in workforce regulations, use of Data Classification to determine which government data may be stored on the cloud, and clarification of the regulatory environment to be created through the Data Communications Act, which we believe will impact not only the technology sector but also industries across the board.
Suggestion 1: Adjust workplace regulations to provide the flexibility sought by knowledge workers.
The Committee recognizes the NDC’s coordination efforts toward increasing the flexibility of provisions in the Labor Standards Act (LSA). The regulations included in the current LSA not only jeopardize working condition flexibilities that are crucial to the technology sector, but would also cause incredible complexity in regulatory compliance. We continue to urge the government to modify workforce regulations as they affect knowledge-intensive industry sectors for the sake of Taiwan’s competitiveness in the fierce race for global talent and foreign investment.
Modify the attendance records requirement in the LSA. Article 30 of the Act requires that “Employers shall prepare and maintain worker attendance records for five years.” This requirement does not take into account the independent working mode of 21st century knowledge workers, in which their working location can be anywhere and their working time is flexible. In addition, Article 21 stipulates that “a worker shall be paid such wages as determined through negotiations with the employer.” Knowledge workers have greater bargaining power over their compensation packages than other employees, and their pay is determined by their performance rather than amount of working time put in. As a result, these so-called “responsibility-based workers” need flexibility in deciding their own working time and locations. We strongly suggest that knowledge workers be exempted from the requirement to keep attendance records. The LSA should be modified by referring to the regulatory approach taken in advanced countries, providing startups and other knowledge-oriented enterprises with a flexible regulatory environment conducive to driving growth through innovation.
Remove the 3% cap in the draft Protection of Dispatch Workers Act. In recent years the government has sought to spur growth by encouraging innovation among technology companies and accelerating the incubation of startups. For many tech companies, the use of dispatched labor provides a quick and flexible means of adding workers as innovation increases the need for labor with various skills.
The draft law would cap the employment of dispatch labor at 3% of a company’s total workforce. Micro startups normally cannot afford to maintain a large headcount. The cap would virtually prevent startups from utilizing dispatched labor to deal with potential but uncertain business growth. Multinational companies are also experiencing an increased need for dispatched labor to cope with rapid changes in market conditions, technology, and business models.
In many countries the percentage of dispatch labor is not regulated at all. The extremely low percentage proposed in the draft law would adversely affect Taiwan’s vital technology sector in terms of flexibility and the speed of innovation. The Committee urges the government to refrain from placing a ceiling on the percentage of dispatched labor a company may hire, and instead conduct a review of how dispatched labor employment should best be managed for the good of Taiwan’s economic vitality.
Suggestion 2: Utilize Data Classification to manage the movement of government data to the cloud.
Today’s most exciting technologies and associated innovations are built into and powered by cloud services. Throughout the world, businesses, educational institutions, and NGOs are increasingly adopting cloud services in order to reap advantages in terms of cost savings, efficiency, and innovation. Although they occur within national borders, these activities are global in scope. The challenge to governments is how to adopt and promote the use of innovative technologies to remain globally competitive.
Countries that seek to limit cross-border data flows through localization policies or data sovereignty requirements face negative economic consequences. Research by the European Centre for International Political Economy (ECIPE) concluded that unilateral restrictions on cross-border data flows negatively impact economic performance because they limit job creation, investment opportunities, and access to competitive pricing. Enabling the free flow of data across borders, on the other hand, has significant net positive impact on the global economy. A February 2016 report by the McKinsey Global Institute estimated that cross-border data flows contributed nearly US$2.8 trillion to the global economy in 2014 by facilitating the exchange of goods, services, and other resources.
A World Bank study of six developing countries and the 28 EU member states found that data localization requirements can reduce GDP by up to 1.7%, investments up to 4.2%, and exports by 1.7%. This impact is mostly felt by small businesses and startups.
Even as governments increasingly adopt cloud-first policies, many public-sector decision-makers understandably remain cautious about moving to the cloud, with the result that the uptake of cloud services is slower in the public sector than in the private sector. This differential is largely due to governments’ unique role as stewards of data that impact national security and national sovereignty. In this regard, data classification can be a valuable tool for governments in charting which data should be migrated to the cloud. It allows public-sector authorities to assign relative values to data so that all of their data does not need to be treated in the same way. Using data classification, governments can identify the workloads that may be immediately suitable for migration to the cloud, as opposed to data that for national security or national sovereignty reasons the government may never wish to move to the cloud.
Although governments are likely to be unwilling to experiment with new technologies like cloud computing for storing the most sensitive information, they should take advantage of the major cost reductions offered by the cloud for the bulk of government data which is less sensitive. Hybrid cloud options allow on-premises systems to interact seamlessly with the cloud, so that managing data both on-premises and in the cloud is experienced as a single integrated process.
Suggestion 3: Clarify the jurisdictions and liabilities in the draft Digital Communications Act to ensure a reasonable and industry-friendly internet governance environment.
The Executive Yuan’s draft of the Digital Communications Act was designed to establish a minimum degree of government supervision of digital communications service providers. However, the draft contains several ambiguous or contradictory articles, which if not remedied are likely to have serious unintended but harmful impact on the long-term development of Taiwan’s digital economy.
The Act would impose the duty on service providers to cooperate with government authorities in designated fields including 1) national security, 2) cybersecurity, 3) criminal investigation, judgment and enforcement, 4) severe public health or natural disaster prevention or reaction, and 5) the protection of user interests (Article 5), without defining any of these terms. This requirement would burden service providers with an additional layer of jurisdiction and accompanying legal obligations, raising questions as to the potential overlap between this provision and other applicable laws. Second and even more problematic is the broad and undefined term “protection of user interests.” This open-ended language renders Article 5 overly sweeping in nature, causing confusion and unpredictability.
Similarly, vague language appears in Article 21: “Digital service providers, for users located within the territory, shall not irregularly bypass facilities located within the territory to transmit, receive, process or store user-related digital information.” Nowhere in the draft is the term “irregularly bypass” defined, leaving interpretation subject to the discretion of government agencies. Like the imposition of “data localization” or “data nationalism” policies, this provision would have an adverse impact on Taiwan’s digital economy. It also runs counter to the widely shared principle of a free, open and global internet.
Furthermore, Chapter 3 (Article 10-19) of the Act controversially seeks to set provisions regarding liability and safe harbor, exempting service providers from liability if they have knowledge of “illegal behavior or information” but take steps that remedy the situation. Establishing the existence of such knowledge may in many cases result from court orders or rulings by the competent authority. But the article would also arguably be interpreted as requiring service providers to engage in self-censorship, which runs afoul of the spirit of the Act as well as the global consensus as set forth in the Manila Principles.
Clarify the relationship between Article 5 of the Digital Communications Act and other applicable laws. Specifically, the Committee recommends that the Executive Yuan specify the procedures or limits for exercising authority under Article 5 by referring to existing practices in other jurisdictions. Additionally, the Executive Yuan should further elaborate on the definition of “protection of user interests.”
Clarify the scope of application of Article 21 in the Digital Communication Act by explicitly defining the term “irregularly bypass.” We urge the Executive Yuan to reconsider the approach to cross-border data flows by taking into account developments in the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP), APEC, and other international forums.
Re-examine and recraft the scope of application of the liability and safe harbor clauses in the Digital Communication Act by taking into account implications relevant to freedom of speech and human rights.
Suggestion 4: Enhance Taiwan’s start-up ecosystem as the key to maintaining its technology leadership.
The Committee encourages Taiwan to ramp up its resource allocation and enhance the supporting regulatory environment to build a comprehensive startup ecosystem.
We appreciate the efforts Taiwan has already been making to promote startup activities, entrepreneurship, and innovation among small and medium enterprises (SMEs). These efforts have included the launch of the entrepreneur visa; the availability of government grants, loans, subsidies, and tax incentives; and direct financial support in developing accelerators focusing on IoT and software solutions. Such initiatives are positive steps that should be clearly and effectively communicated in English for reference by foreign entrepreneurs wishing to establish an entity in Taiwan.
The Committee also recommends that a single government agency be designated to act as a consolidated point-of-contact for foreign startups and entrepreneurs interested in establishing a business in Taiwan.
Taiwan offers a strong existing technology infrastructure, excellent engineering talent, solid intellectual property protection, and a central location within Asia, including convenient access to China. But Taiwan could further improve its attractiveness to early-stage technology startups and entrepreneurs by adopting the following measures:
Relax the restriction on the types of business entities that may register to conduct business in Taiwan. Under current law, a non-Taiwan business entity may register a Taiwan branch only when the legal structure is similar to that of a Taiwan limited company or a Taiwan company limited by shares. This restriction excludes many business entities that specialize in investment, including general partnerships, limited partnerships, limited liability partnerships, business trusts, statutory trusts, and others. The result is to close off potential opportunities for investment.
Clarify the types of rights and restrictions that shareholders may agree to in a company’s articles of incorporation. In the United States and other jurisdictions where technology startups are popular, it is common for shareholders to negotiate their rights among themselves in detail, with different shareholders enjoying different sets of rights depending on when they invested, the price at which they invested, and other factors. Taiwan law does not clearly state how much flexibility shareholders of a Taiwan company have to attach different rights and restrictions to different shares.
Relax the revenue requirement imposed on an entity with foreign investment for hiring foreigners as executives. Under the current law and regulations governing the hiring of foreigners, an entity with foreign investment that wishes to hire a foreigner as a manager or executive officer is required (i) to have paid-in capital or operating funds in Taiwan of more than NT$500,000, and (ii) to earn sales revenue of more than NT$3 million a year, have an import/export amount of more than US$500,000, or receive commission of more than US$200,000. Even more severe restrictions apply if a company wants to hire a foreigner as a technical specialist, hire more than one foreign citizen, or renew its foreign citizens’ work permits when they expire. It would be unrealistic to expect a technology startup to achieve any sales revenue in its first few years, as its primary goal is to invest in R&D, which may not bring any return for some years. Yet it is critical for a technology startup to be able to employ, and rely on, foreign professionals’ skills and experiences in their respective practice areas.
Relax fixed-term labor contract restrictions. The Labor Standards Act permits an employer and employee to enter into a fixed-term labor contract only under very limited conditions. While intended to protect employees’ rights and benefits, this policy creates hurdles for a technology startup, especially in its early stage when it needs flexibility to adjust the workforce depending on the progress of its R&D development, which is very difficult to predict.
Loosen the salary and other barriers for foreign white-collar workers. Hiring foreign talent involves higher entry barriers in comparison to local talent. While the two years’ experience barrier was relaxed, the entry-level salaries stipulated for a foreigner holding a bachelor’s degree and a Chinese job applicant with a similar level of education are NT$47,971 and NT37,619 respectably. These salary requirements are higher than the minimum applicable for a local Taiwanese, putting young foreign talent wishing to integrate into the local startup community at a disadvantage.
Ease tax pressures. Companies often face intense scrutiny from the local tax office if they do not show a minimum profit on their tax returns, but the business plan for technology startups is frequently to reach profitability only after a lengthy period of R&D, product development, and market penetration. The absence of profit during the first few years may be completely consistent with management’s long-term objectives for the company, not a sign of tax evasion.
Increase access to funding by attracting VCs to Taiwan. While Taiwan has approximately 200 venture capital companies investing in diverse industries, most of them invest in “established” companies rather than early-stage startups (pre-seed, seed, and Round A). Taiwan’s National Development Council has taken an important step by investing US$83 million in four different VC firms for them to invest in local startups. We recommend that the scope of such investment be broadened to foreign startups with solutions applicable for Taiwan in order to spur innovation. In addition, we urge the Taiwan government to incentivize international VCs to open branches in Taiwan, as well as to encourage local VCs to engage in more early-stage investments through tax incentives and relaxing the currently existing grant restrictions.
The Committee believes that the above measurements will attract both foreign and local startups and entrepreneurs to establish operations in Taiwan and thus contribute to fostering an active ecosystem for innovation.
Suggestion 5: Simplify the review process and extend the validity of business visas for Chinese visitors to 30 days.
Global multinationals that establish R&D centers and manufacturing facilities in Taiwan mainly do so with the aim of serving their regional internal and external customers in the Asia Pacific, including those from China. The success of their operations here depends on maintaining close communications with those customers and being able to bring them to Taiwan conveniently for meetings and business discussions.
However, the Taiwan government continues to apply unnecessarily restrictive measures on Chinese applicants for business travel, for example requiring them to itemize a daily schedule for review. The period of validity of the visas is limited, and overstay cases are often subjected to heavy penalties. These policies present an obstacle to Taiwan’s use as a regional operations center and may reduce Taiwan’s overall competitiveness in attracting foreign direct investment (FDI).
We urge the Taiwan government to simplify the business visa application form for Chinese visitors, removing the requirement to specify a daily itinerary and extending the visa validity to 30 days per application, in line with international norms.
Suggestion 6. Adopt sound policies for spurring AI innovation.
The next digital revolution, driven by Artificial Intelligence (AI), will impose many challenges to both businesses and government policymakers before we can enjoy its benefits. We welcome the Taiwan government to dialogue with industry to help prepare Taiwan with a sound regulatory environment to ease this transition.
Enterprises responsible for driving technological progress have an obligation to ensure that new innovations solve social problems without trampling social values. As policymakers, business leaders, and citizens contemplate the future of work and life in the age of abundant data, those helping usher in this new era need to be transparent in their purposes and intentions. We encourage the government look into the following key areas to prepare Taiwan with a sound policy environment to foster both economic growth and citizens’ welfare:
Data ownership and privacy. Government data policies should be fair and equitable, and prioritize openness. Industry-leading security practices shall be adopted to safeguard data.
Data flows and access. We support digital trade agreements that enable and facilitate the cross-border flow of data and limit data localization requirements.
Artificial Intelligence explicability and transparency. We support transparency and data governance policies that will help people understand how an AI system came to a given conclusion or recommendation. Companies must be able to explain what went into their algorithm’s recommendations.
Data skills and workforce policies. Efforts are needed to ensure that workers are prepared for the technological and business shifts that are changing the way work gets done and that are driving productivity, economic growth and job creation. Government shall revisit workforce policies and labor regulations that are fundamental to prepare workforce for the future of work.