On June 1, U.S. and Taiwan authorities launched the U.S.-Taiwan Initiative on 21st Century Trade. The following week, The Office of the United States Trade Representative (USTR) solicited public comments on the Initiative to develop U.S. negotiating objectives and positions for talks expected to begin quickly. After notifying all AmCham members of the opportunity to comment and providing a survey site for input, our comments were uploaded to the official site on July 8, the final day for submissions. Thanks for your support and interest, and please continue to watch this space for related content.
Submitted July 8, 2022 in response to USTR request
Amended July 15, 2022 for posting on AmCham Taiwan website
AmCham Taiwan enthusiastically welcomes the U.S.-Taiwan Initiative on 21st Century Trade (the Initiative) and the opportunity to offer our recommendations on its design and content. This fourth platform for bilateral economic engagement to be initiated in a year comes at a historic juncture for Taiwan and the U.S.-Taiwan relationship. The Initiative offers an exceptional opportunity to enhance U.S. economic security and national security by bolstering a critical partner in the Indo-Pacific and generating trade and investment enhancing understandings. These understandings or “chapters,” in turn, should be replicated in multilateral discussions, driving U.S.-led trade liberalization in a more resilient global trade architecture.
To concretely deepen the U.S.-Taiwan trade and investment relationship as called for by U.S. Trade Representative Katherine Tai and Minister Without Portfolio John Deng, Taiwan’s chief trade negotiator, on June 1 when the Initiative was launched requires ambition and a sense of urgency, backed by political commitment from both U.S. and Taiwan governments, as well as support from private sector groups including AmCham Taiwan.
Specifically, as an end-product the negotiators should incorporate several understandings or chapter-agreements, in addition to addressing discreet economic barriers, structural problems – and success stories – in the relationship, within the 11 pillars envisioned in early June to organize the negotiations. Below, we recommend three topics for consideration as chapters. Finally, AmCham Taiwan suggests that the 11 categories be supplemented by additional pillars, beginning with Intellectual Property Rights, an important facet of a relationship grounded in technology.
First, AmCham Taiwan calls on the Initiative to not only promote digital tools to facilitate U.S.-Taiwan trade but to produce a Digital Trade Agreement that will serve as a global gold-standard DTA. It should target a regionally suited set of rules that will be more dynamic, inclusive, and beneficial to workers and small-and-medium enterprises. That chapter could then serve as a template for a multi-party agreement under the Indo-Pacific Economic Framework Agreement, as well as spur negotiations in the World Trade Organization (WTO).
The agreement would leverage U.S. experience in leading digital trade building blocks within the draft TPP, U.S.-Japan DTA, and the U.S.-Mexico-Canada Agreement (USMCA). It could draw from third-country innovations found in a pair of recent accords to which Singapore is party. Most importantly, it would leverage Taiwan’s successes in applications around e-government, SME and worker inclusion, disinformation control, and non-intrusive use of data in the service of public health, as well as Taiwan’s recent progress in setting up a digital affairs ministry – or recent challenges and lessons learned in drafting its forthcoming Digital Services Act. Given Taiwan’s prowess in a host of emerging technologies such as AI, the Initiative is positioned to break ground in writing the rules for ethical AI collaboration in the mode of the recent Singapore-Australia framework. Specific elements are spelled out in the next segment of AmCham comments, below, which outline commitments regarding cross-border data flows, eschewing localization requirements, promoting interoperability of privacy regimes and norms on cybersecurity, and non-discriminatory treatment of digital products.
Second, the U.S.-Taiwan Initiative should draw upon the rich legacy of U.S.-Taiwan collaboration in healthcare and, increasingly, life sciences to craft a model for collaboration in pandemic control and wider public health action. The COVID-19 experience spotlighted the extent to which U.S. prowess in medical innovation can be complemented by Taiwanese skill in sustained, painstaking attention to detail in implementing a care and control regime. What is needed is a set of rules around transparency, confidentiality, and IP protection to facilitate still more such collaboration, including the facilitation of more clinical work in Taiwan that would spur the uptake of medical innovation. Taiwan should also engage in more public education of chronic diseases (e.g., osteoporosis prevention), as well as prevention of cancer caused by high prevalence infectious diseases (e.g., liver cancer prevention through management of hepatitis B and C). This model agreement would draw upon work in several of the 11 pillars initially envisioned for the Initiative, supported by the preceding DTA chapter, which would better leverage patient data with state-of-the-art privacy protections.
Third, the Initiative should aim at pathbreaking work on technology management and control that safeguards U.S.-Taiwan and like-minded nations’ values and competitiveness, while allowing for prudent, protected engagement with actors and economies that do not fully share those values. Again, Taiwan, through its experience in coping at close range with predatory commercial practices, as well as its capacity to earn trust as a supplier and technology developer places it uniquely among U.S. partners able to help jointly craft a framework for trusted, strategic trade. Keen observers of Taiwan have noted that this country can compensate for its lack of scale with its surplus of hard-won trust. The USTR should work out rules that, in the United States’ own interest, bolster this capacity for key partner Taiwan. This workstream would likely require integrating discussions around in- and out-bound investment screening and export control regulation, as well as work being led by the Commerce Department on supply chain strengthening.
A focus on preparing a Digital Economy Chapter – with its treatment of standards on data protection (including cybersecurity) and privacy – will be singularly important to making progress on technology management. Along with robust IPR protection rules and enforcement in both countries, USTR and Taiwan’s Office of Trade Negotiations can develop a powerful model of trusted partnership both for U.S. economic interests directly and for ensuring Taiwan’s continued prosperity and security. The Initiative represents an enormously important opportunity to pursue a comprehensive approach to technology and commerce that embraces enforceable commitments, new market opportunities, and the wide adoption of high standards, particularly for trade facilitation.
Following is more detail on our proposals:
1. Digital Trade
We welcome and support the US-Taiwan Initiative. Strong bilateral ties have grown increasingly important to both parties in recent years, as trade with Taiwan is essential to U.S. tech competitiveness and U.S. support is critical to Taiwan’s long-term development. In order to build strong cooperation, it is essential that the Initiative includes digital trade rules and standards which would facilitate the growth of digital trade and commerce between the U.S. and Taiwan.
We call on the Initiative to build on the digital trade rules in the U.S.-Mexico-Canada FTA (USMCA) and the U.S.-Japan Digital Trade Agreement, in considering the digital trade disciplines. In setting the framework and direction for the Initiative, parties should be guided by longstanding trade principles of non-discrimination, transparency, openness, and interoperability. It is important for the Initiative to include a core set of high-quality digital rules and commitments which are binding and enforceable. The value of such rules is reduced when they are not enforceable and when Taiwan cannot be held accountable should it run afoul of its commitments. There should be no broad exceptions or derogations from these rules as we have seen in RCEP and some European digital trade proposals. Should there be a need for an exception, there should be a GATS-style necessity test and relevant criteria laid out, with no broad, self-judging loopholes.
The need for flexibility should be addressed by allowing for phased-in implementation rather than carve-outs. The Initiative should be a “living framework” with built-in review mechanisms to ensure that the rules and initiatives are kept up-to-date and relevant. In developing and negotiating the Initiative, robust and regular stakeholder consultation, including with small businesses and underserved communities, should be conducted.
Eliminate Barriers to Digital Products
The Taiwan government will propose new regulations that require OTT services to register with the government, identify permanent local representatives, disclose proprietary information, and commit to local investments. Otherwise, they will be restricted from providing internet access to the public.
In the absence of legitimate and necessary public policy objectives, the Taiwan government should not impose mandatory investment obligations, prohibit, or restrict the cross-border transfer of information. Necessary and legitimate objectives may include those involving electronic transactions, reasonable consumer protection mechanisms, personal information protection, communications security, cybersecurity, intellectual property rights, criminal law enforcement, and protection against deceptive practices. Objectives motivated by public opinion or politics by themselves do not constitute a legitimate and necessary interest. In making a case for serving legitimate and necessary public policy objectives, the government will also need to determine whether alternative measures achieve the stated objectives, are proportionate to the objective, and do not result in unjustifiable discrimination (either de jure or de facto).
Taiwan’s deliberations on laws and regulations involving digital policies often skew toward the protection of domestic markets, while placing unequal burdens and responsibilities on U.S. players under the disguise of policy catchphrases such as “regulating the big players” while domestic players run free or conducting a ‘light-touch environment” in which the major foreign players succumb to additional oversight and involuntarily submission of companies’ proprietary business information. Arbitrary rules (such as disclosure of trade secrets or local investment requirements) only apply to major foreign companies, leading to heavier oversight and extra responsibilities applied to major U.S. digital companies in Taiwan. Resistance to such instructions by the government (or external government-assigned entities) may then be deemed as being noncompliant, causing disruptions to the cross-border transfer of information.
Parties to the Initiative should commit to removing trade barriers (such as localization requirements and blocking of internet services) on digital products, such as OTT TV services.
Foster trust in the digital economy
We believe that within a priority focus upon Digital Economy, standards on data protection (including cybersecurity) and privacy are singularly important for both parties. Along with robust IPR protection rules and enforcement in both countries, the USTR and OTN can develop a powerful model of trusted partnership around technology management with Taiwan, a uniquely equipped and strategically positioned partner.
It has been noted that trust is Taiwan’s pivotal commercial advantage, and this strength can be instrumentalized for both U.S. economic interests, directly, and securing Taiwan’s continued prosperity and security. Trust is fundamental to the growth and development of the digital economy and cross-border digital transactions. The initiative should promote cooperation on privacy, cybersecurity, and trust in data flows, while ensuring that businesses can transfer data across borders through interoperable data transfer mechanisms.
Digital Financial Services
The Initiative should promote transparency on regulation and regulatory processes, and this should also be applied to regulations made by self-regulatory organizations. Regulations should be harmonized with the standards set by international standard-setting bodies, such as the FSB, BCBS, IOSCO, IAIS and CPMI.
With regard to cross-border financial services business, as long as the financial regulatory authorities have ongoing access to required information being processed, neither party to the business shall require the use or locating of financial service computing facilities in that party’s territory as a condition for conducting business in that territory or subject the institutions involved to cumbersome pre-approval requirements. The Initiative should make this principle explicit.
The Initiative should include a clause eliminating unnecessarily different treatments to domestic and foreign financial institutions as regards the standards for the use of outsourcing and third-party services.
The initiative should include commitments to adherence to internationally recognized standards for cloud services certification procedures, such as the ISO 22301 and 27000 family of business continuity and information security management standards, as well as the SOC 2 service organizations standards published by the American Institute of Certified Public Accountants (AICPA), so as to support security, availability, processing integrity, confidentiality, privacy, and business continuity.
The Initiative should include a commitment not to enact unilateral measures such as expanding the current taxing mechanism for foreign electronic service providers to include sales to Taiwan B2B customers, nr enacting a different unilateral Digital Service Tax. Refraining from enacting such measures will give the OECD process time to work.
2. Healthcare / Public Health
AmCham Taiwan’s continuous advocacy efforts over the years has brought positive outcomes in strengthening the U.S.-Taiwan relationship, especially on trade issues. However, market access issues in the healthcare sector, such as insufficient funding for innovations (new products, new indications, etc.) and the limited scope of patient access under the National Health Insurance reimbursement scheme, are not among the 11 categories outlined in the 21st Century Initiative. Addressing these issues is critical to enabling the healthcare industry to be recognized as one of the growth pillars of the Taiwan economy and to attract private-sector investment. The barrier to access for innovative treatment represents a triple loss: from the perspectives of 1) patients’ health, 2) healthcare industry development, and 3) Taiwan’s ability to compete against neighboring markets.
To strengthen the U.S.-Taiwan partnership and increase trade in the healthcare industry, we believe that the Initiative should address transparency and good regulatory practices, which are the infrastructure for an investment-friendly environment. Taiwan has adopted the use of Managed Entry Agreements to accelerate patient access to innovative treatment; however, as time goes by, the lack of confidentiality, transparency, and due process for decisions in the reimbursement scheme to increase the risk of revealing trade secrets and uncertainty is a matter of urgent concern in the pharmaceutical industry. We are requesting the Taiwan government to engage with relevant stakeholders as soon as possible, particularly with industry representatives to revise relevant pricing and reimbursed-related regulations to protect business secrets. We recommend that both parties address these challenges and find solutions with the vision of establishing a more transparent, time-sensitive, and value-based pricing and reimbursement system for innovative medicines.
We further suggest that the Initiative highlight the issue of public health, which is essential to workers’ rights and a well-rounded trade policy. The Initiative could aim to have governments recognize the important role of public health policy in economic activity, encourage administrations to take actions to ensure broad and timely access to health-related essential goods like vaccines and PPE, empower people with health knowledge, and be prepared to protect workers in possible future pandemics.
The COVID-19 pandemic has brought public awareness of the importance of adult vaccination to an unprecedented level. The WHO has also recognized the value of life-course vaccination in its Immunization Agenda 2030. However, persistent vaccine hesitancy is still posing a significant challenge to governments’ response to the pandemic. As raised in AmCham White Papers over the past five years, the industry believes that a crucial factor in vaccine hesitancy is a lack of sufficient public understanding of vaccines. Such misunderstanding could be alleviated by cutting red tape around disease-awareness campaigns on adult vaccination, codifying good regulatory practices that give pharmaceutical companies more certainty and space for sponsoring educational programs and advertisements on mass media. Relevant U.S. regulations could serve as a good benchmark.
A feasible standard/guidance is needed to expedite the accessibility of new devices by introducing more flexibility in granting “non-reimbursed (self-pay) code” or clearly stating not reimbursed by NHIA rather than asking for solid evidence to demonstrate therapeutic superiority, thereby deferring the accessibility of new devices.
3. Legitimize the chiropractic profession in Taiwan
Over the years, the U.S. government has intermittently raised the issue of the unfair treatment in Taiwan of chiropractic doctors, nearly all of whom are graduates of American chiropractic colleges and hold U.S. licenses. The issue has at times been raised in the bilateral TIFA talks and, under the heading of “Services Barriers,” USTR’s 2008 National Trade Estimates Report stated: “Taiwan does not license or recognize chiropractors as legitimate medical practitioners and allows chiropractors to practice in Taiwan only if they do not advertise their services and make no claims about the results or efficacy of treatments.” (Even operating a website in prohibited). Little progress has been made since then, despite appeals to the Taiwan authorities by the 15,000-member American Chiropractic Association and the WHO-affiliated World Federation of Chiropractic. The ACA, WFC, International Chiropractors Association, and the Southern California University of Health Sciences have separately submitted comments on Regulations.gov in support of this position.
While nearly every other market in the world has found a way to accommodate the chiropractic profession, Taiwan continues to be an outlier in this respect. In fact, the status of chiropractic is the longest single unresolved issue in the American Chamber of Commerce in Taiwan’s annual White Paper, dating back well over a decade. For many years, agricultural issues (especially trade in pork and beef) have either dominated the TIFA agenda or kept the negotiations from being held at all. The Initiative provides an opportunity to revive the chiropractic issue with more consistency as a matter of fair market access and harmonization with international norms and practices.
Those principles aside, resolution of this issue would bring practical benefits for the U.S. economy, including the enrollment of more Taiwanese students at American chiropractic colleges and the import of U.S.-made specialized chiropractic equipment into Taiwan. As Taiwan enters the stage of a “superaged society” with attendant healthcare challenges, support for the chiropractic profession would also be in Taiwan’s own interest. The chiropractor members of the American Chamber of Commerce in Taiwan appeal to the U.S. government to help end the logjam on this issue by including it in the Initiative discussions with Taiwan.
4. Regulatory practices and standards
Over the years Taiwan has continuously improved its regulatory system and accelerated digital transformation, but too much of the policymaking still involves creating industry regulations and standards unique to Taiwan and often more restrictive than those of international counterparts. Many U.S.-based companies continue to face obstacles to regulatory transparency in such areas as the assignment of import licenses, a lack of contract enforcement, and opaque government procurement processes. We recommend that government agencies provide yet more extensive and transparent consultation processes, making sure to invite industry representatives to participate in policy discussions from an early stage.
Transparent Development of Regulations
In developing laws and regulations, the Taiwan government often simply provides the title and text of the draft regulation, along with a legislative explanation of the law. Development of the regulation lacks transparency due to the inconsistent provision of necessary context regarding the regulatory impact assessment, the objectives of the law and how the regulation would achieve such objectives, the rationale for material features of the law, and any alternatives that have been considered. Simply referring to actions by other countries by itself is not a valid and transparent response to why a policy needs to be developed. The Taiwan government often attempts to make up for these information gaps by conducting a town hall meeting or open hearing. However, without the publication of critical information from the onset, public policy discussions and draft law deliberations in Taiwan are often overtaken by external and sometimes biased political pressures, which then become a reality at the regulatory authority level, causing public policy objectives to become distorted.
Further, the Taiwan government is highly reluctant to take on retrospective reviews for fear that political enemies and unfriendly media may criticize any resulting changes as a sign of incompetence in the initial drafting of the law or regulation. The impact is especially acute regarding digital trade because innovation and technological advancement causes change to occur in that sector at a particularly fast pace.
Another problem is that the Taiwan government tends to adhere to a 60-day comment period for publication of a draft law, even though some issues are extremely complicated and require further internal discussions between the U.S. and Taiwan teams of professionals. In other instances, multiple draft laws affecting digital platforms have been scheduled for publication at the same time, while still affording the public only 60 days to comment. The Taiwan government has rarely allowed a period longer than 60 days, even expressing fear of being accused of having ulterior motives for making an exception. This constraint has prevented U.S. businesses from sharing their first-hand experiences, insights, and opinions to ensure that policy discussions are as well-informed as possible.
Parties to the Initiative should commit to a transparent process for the development of regulations – one that identifies a clear public policy objective, is supported by tangible fact-based evidence, and is deliberated thoroughly by relevant key stakeholders.
Tariffs on agricultural trade: The US has long been Taiwan’s most important supplier of agricultural products, with 21.8% of Taiwan’s total agricultural imports coming from the U.S. in 2021. Still, U.S. companies are faced with unfavorable tariff rates – higher than those between most other Asian countries and U.S. – for certain American food products being imported into Taiwan.
Tariffs on food (single-member-firm position): Although the tariff issue is not covered in the 11 areas planned to be discussed under the Initiative, we would still like to convey our concerns and interests regarding this issue as the U.S. and Taiwan consider their next steps. In Taiwan, the goods “Other Food Preparations” under Tariff Number 21069099, including “Food preparation, in capsule of tablet form” (2106909920) and “Other food preparation” (2016909990), are given a tariff rate of 30%. Such high tariff rates result in high costs for AmCham members importing food products classified as “Other Food Preparations” under Tariff Number 21069099, in particular nutritional supplements that are one of the main products exported from the U.S. to Taiwan. Therefore, we strongly expect both governments to attach great importance to tariff issues around nutritional supplement products and include them in the upcoming discussions on deepening reciprocal cooperation on trade benefits.
Additional Issues for Consideration
Intellectual Property Rights Protection: The Initiative must enable the U.S. and Taiwan to enhance Taiwan’s IPR legal framework and enforcement practices through a dedicated pillar or initiative. We believe that further steps to provide adequate intellectual property protection in such areas as copyright protection and combatting online piracy would greatly benefit both parties’ stakeholders in a wide range of industries. We also suggest providing holistic and consistent protection for design patents.
Taxation: Drop shipping, in which finished goods are ordered from a contract manufacturer by one company but are shipped directly to a customer of that company, reduces shipping costs and increases efficiency. However, Taiwan’s Ministry of Finance discourages the use of drop shipping through its unique rule subjecting income from drop shipping to taxation in Taiwan, creating a potential problem of double taxation. Taiwan’s approach is illogical and has a serious impact on trade costs and efficiency in such sectors as semiconductors. We urge the U.S. government to begin laying the groundwork for a U.S.-Taiwan Double Taxation Treaty (DTA) to reduce withholding tax on payments from Taiwan to the U.S., and to meet both parties’ interest in diversification, smoothly operating supply chains, and enhanced competitiveness.
Semiconductor supply chains: Globally, much attention is placed on strengthening critical supply chains, beginning with the foundational and strategic semiconductor sector. Given Taiwan’s qualitative and quantitative predominance in the sector, Taiwan is a natural counterpart for a comprehensive bilateral semiconductor supply chain initiative, which could be initiated under the Initiative for later incorporation in a regional or comprehensive accord. The EU-U.S. Trade and Technology Council (TTC) is coordinating approaches to address supply chain issues, and participating firms have called for the TTC partners to look beyond their borders and engage Japan, Korea, and Taiwan when conducting semiconductor supply chain assessments. We also suggest that both parties ensure that semiconductor supply chain security measures and chipset security standards follow international practices. Taiwan has the most complete semiconductor ecosystem in the world and plays a key role in the global ICT supply chain. Developing internationally acceptable chip security norms and standards will further cement US-Taiwan relations through the semiconductor supply chain. A comprehensive multi-sector agreement could strengthen supply chains through investment in quality infrastructure development, and enhance supply chain resilience through diversification, flexibility, redundancy, and multi-platform cooperation with Taiwan.
The need for flexibility should be addressed by allowing for phased-in implementation rather than carve-outs. The Initiative should be a “living framework” with review mechanisms to ensure that the rules and initiatives are kept up to date and relevant. In developing and negotiating the Initiative, robust and regular stakeholder consultation, including with small businesses, other affected businesses, civil society, and underserved communities, should be conducted to ensure that the framework is inclusive and considers the needs and challenges of a wide range of stakeholders.
In addition, parties should look to maximize transparency around negotiating texts.
Summary: Through the Initiative, USTR must reach beyond conventional approaches to drive the U.S.-Taiwan relationship forward. There are both deficiencies to address and models of success to be documented and shared. The Initiative is important not only in its own right but also as a bridge to comprehensive bilateral understandings (such as a future Bilateral Trade Agreement); the highly promising Trade and Technology Investment Cooperation framework (TTIC), with its focus on supply chains, investment, and the public-private partnership model; and multilateral arrangements such as the Indo-Pacific Economic Framework. USTR should approach the Initiative informed by opportunities for complementarity with discussions under the TIFA talks and/or the TTIC and the Economic Prosperity Partnership Dialogue. As the need for additional channels comes to light during Initiative talks – for example, on the avoidance of double taxation – USTR should share that with the public and work with the relevant agencies and Taiwan counterparts to advance those processes in concert.
About AmCham Taiwan
The American Chamber of Commerce in Taiwan (AmCham Taiwan) is an independent, nonprofit business organization established for 71 years in Taiwan and affiliated with the U.S. Chamber of Commerce, the largest business federation in the world.
Our Chamber regularly presents the views and interests of American business in Taiwan to the government of the United States, including the legislative and executive branches, state governments, business and professional associations, and the American people. We do this through our annual Business Climate Survey, Taiwan White Paper, Washington Doorknock visits, and support to both U.S. and Taiwan authorities through frameworks such as the Trade and Investment Framework Agreement (TIFA), as well as unofficial and official collaborative platforms, including the Technology Trade & Investment Collaboration (TTIC).