Impact of Government Organizational Reform to Scientific Research Legal System and Response Thereto (2) – For Example, The Finnish Innovation Fund (“SITRA”)
Impact of Government Organizational Reform to Scientific Research Legal System and Response Thereto (2) – For Example, The Finnish Innovation Fund (“SITRA”)
III. Comparison of Strength and Weakness of Sitra Projects
1. Sitra Venture Capital Investment Model
In order to comprehend how to boost innovation business development to upgrade innovation ability, we analyze and compare the innovation systems applied in Sweden, France and Finland[1] . We analyze and compare the characteristics, strength and weakness of innovation promotion models in terms of funding, networking and professional guidance. Generally, the first difficulty which a start-up needs to deal with when it is founded initially is the funding. Particularly, a technology company usually requires tremendous funding when it is founded initially. Some potentially adequate investors, e.g., venture capitals, seldom invest in small-sized start-up (because such overhead as supervision and management fees will account for a high percentage of the investment due to the small total investment amount). Networking means how a start-up integrates such human resources as the management, investors, technical advisors and IP professionals when it is founded initially. Control over such human resources is critical to a new company’s survival and growth. Professional guidance means how professional knowledge and human resource support the start-up’s operation. In order to make its product required by the market, an enterprise usually needs to integrate special professional knowledge. Notwithstanding, the professional knowledge and talents which are available from an open market theoretically often cannot be accessed, due to market failure[2].
Assuming that Sitra’s funding is prioritized as Pre-seed-Initiation stage, Seed-Development stage and Follow-up – Growth stage, under Finland model, at the Pre-seed-Initiation stage, Sitra will provide the fund amounting to EUR20,000 when Tekes will also provide the equivalent fund, provided that the latter purely provides subsidy, while the fund provided by Sitra means a loan to be repaid (without interest) after some time (usually after commercialization), or a loan convertible to shares. Then, the loan would be replaced by soft or convertible (to shares) investment and the source of funding would turn to be angel investors or local seed capital at the Seed-Development stage. At this stage, the angel investors, local seed capital and Sitra will act as the source of funding jointly in Finland, while Tekes will not be involved at this stage. At the Follow-up-Growth stage, like the Sweden model, Sitra will utilize its own investment fund to help mitigate the gap between local small-sized funding and large-sized international venture capital[3].
How to recruit professional human resources is critical to a start-up’s success. Many enterprises usually lack sufficient professional human resources or some expertise. DIILI service network set up by Sitra is able to provide the relevant solutions. DILLI is a network formed by product managers. Its members actively participate in starts-up and seek innovation. They also participate in investment of starts-up independently sometimes. Therefore, they are different from angel investors, because they devote themselves to the starts-up on a full-time basis[4]. In other words, they manage the starts-up as if the starts-up were their own business.
2. Key to Public Sector’s Success in Boosting Development of Innovation Activity Business
In terms of professional guidance, voluntary guidance means the direct supply of such professional resources as financing, human resource and technology to starts-up, while involuntary guidance means the supply of strategic planning in lieu of direct assistance to help the enterprises make routine decisions[5]. The fractured and incomplete professional service attendant market generates low marginal effect. Therefore, it is impossible for the traditional consultation service to mitigate such gap and the investment at the pre-seed initiation stage will be excessive because of the acquisition of the professional services. Meanwhile, professional advisors seldom are involved in consultation services at the pre-seed initiation stage of a start-up because of the low potential added value. Therefore, at such stage, only involuntary professional guidance will be available usually. Under Sitra model, such role is played by an angel investor.
Upon analysis and comparison, we propose six suggested policies to boost innovation activities successfully as the reference when observing Sitra operation. First of all, compared with the French model, Finland Sitra and Sweden model set more specific objectives to meet a start-up’s needs (but there is some defect, e.g., Sitra model lacks voluntary professional guidance). Second, structural budget is a key to the successful model. Sitra will receive the funds in the amount of EUR235,000,000 from the Finnish Government, but its operating expenditure is covered by its own operating revenue in whole. Third, it is necessary to provide working fund in installments and provide fund at the pre-seed-initiation stage. Under both of Finland model and Sweden model, funds will be provided at the pre-seed-initiation stage (Tekes is responsible for providing the fund in Finland). Fourth, the difficulty in networking must be solved. In Sitra, the large-sized talent network set up by it will be dedicated to recruiting human resources. Fifth, the voluntary professional guidance is indispensable at the pre-seed-initiation stage, while the same is unavailable at such stage under Sitra model. Instead, the Sweden model is held as the optimal one, as it has a dedicated unit responsible for solving the difficulty to seek profit. Sixth, soft loan[6] will be successfully only when the loan cannot be convertible to shares. At the pre-seed initiation stage or seed-development stage, a start-up is usually funded by traditional loan. Assuming that the start-up is not expected to gain profit, whether the loan may be convertible to shares will also be taken into consideration when the granting of loan is considered (therefore, the fund provider will not be changed to the “capital” provider). Besides, the government authorities mostly lack the relevant experience or knowledge, or are in no position to negotiate with international large-sized venture capital companies. For example, under the French model, the government takes advantage of its power to restrict the venture capital investment and thereby renders adverse impact to starts-up which seek venture capital. Finally, the supply of own fund to meet the enterprises’ needs at seed-development stage and follow-up-growth stage to mitigate the gap with large-sized venture capital[7] is also required by a successful funding model.
IV. Conclusion－Deliberation of Finnish Sitra Experience
As the leading national industrial innovation ability promoter in Finland, Sitra appears to be very characteristic in its organizational framework or operating mechanism. We hereby conclude six major characteristics of Sitra and propose the potential orientation toward deliberation of Taiwan’s industrial innovation policies and instruments.
1. Particularity of Organizational Standing
In consideration of the particularity of Sitra organizational standing, it has two characteristics observable. First, Sitra is under supervision of the Finnish Parliament directly, not subordinated to the administrative organizational system and, therefore, it possesses such strength as flexibility and compliance with the Parliament’s requirements. Such organization design which acts independently of the administrative system but still aims to implement policies has been derived in various forms in the world, e.g., the agency model[8] in the United Kingdom, or the independent apparatus in the U.S.A. Nevertheless, to act independently of the administrative system, it has to deal with the deliberation of responsible political principles at first, which arouses the difficulty in taking care of flexibility at the same time. In Taiwan, the intermediary organizations include independent agencies and administrative corporations, etc., while the former still involves the participation of the supreme administrative head in the right of personnel administration and is subordinated to the ministries/departments of the Executive Yuan and the latter aims to enforce the public missions in the capacity of “public welfare” organization. Though such design as reporting to the Parliament directly is not against the responsible political principles, how the Parliament owns the authority to supervise is the point (otherwise, theoretically, the administrative authorities are all empowered by the parliament in the country which applies the cabinet system). Additionally, why some special authorities are chosen to report to the parliament directly while other policy subjects are not is also disputable. The existence of Sitra also refers to a circumstantial evidence substantiating that Finland includes the innovation policy as one of the important government policies, and also the objective fact that Finland’s innovation ability heads the first in the world.
Second, Sitra is a self-sufficient independent fund, which aims to promote technical R&D and also seeks profit for itself, irrelevant with selection of adequate investment subjects or areas. Instead, for this purpose, the various decisions made by it will deal with the utility and mitigate the gap between R&D and market. Such entity is responsible for public welfare or policy projects and also oriented toward gain from investment to feed the same back to the individuals in the organization. In the administrative system, Sitra is not directed by the administrative system but reports to the Parliament directly. Sitra aims to upgrade the national R&D innovation ability as its long-term goal mission and utilizes the promotion of innovation business and development of venture capital market. The mission makes the profit-orientation compatible with the selection of investment subjects, as an enterprise unlikely to gain profit in the future usually is excluded from the national development view. For example, such industries as green energy, which is not likely to gain profit in a short term, is still worth investing as long as it meets the national development trend and also feasible (in other words, selection of marketable green technology R&D, instead of comparison of the strength and weakness in investment value of green energy and other high-polluted energy).
2. Expressly Distinguished From Missions of Other Ministries/Departments
For the time being, Sitra primarily invests in starts-up, including indirect investment and direct investment, because it relies on successful new technology R&D which may contribute to production and marketability. Starts-up have always been one of the best options, as large-sized enterprises are able to do R&D on their own without the outsourcing needs. Further, from the point of view of an inventor, if the new technology is marketable, it will be more favorable to him if he chooses to start business on his own or make investment in the form of partnership, instead of transfer or license of the ownership to large-sized enterprises (as large-sized enterprises are more capable of negotiation). However, note that Sitra aims to boost innovation activities and only targets at start-up business development, instead of boosting and promoting the start-up per se. Under the requirement that Sitra needs to seek profit for itself, only the business with positive development view will be targeted by Sitra. Further, Sitra will not fund any business other than innovation R&D or some specific industries. Apparently, Sitra only focuses on the connection between innovation activities and start-up, but does not act as the competent authority in charge of small-sized and medium-sized enterprises.
Meanwhile, Sitra highlights that it will not fund academic research activities and, therefore, appears to be distinguished from the competent authority in charge of national scientific research. Though scientific research and technology innovation business, to some extent, are distinguished from each other in quantity instead of quality, abstract and meaningless research is existent but only far away from the commercialization market. Notwithstanding, a lot of countries tend to distinguish basic scientific research from industrial technology R&D in the administration organization's mission, or it has to be. In term of the way in which Sitra carries out its mission, such distinguishing ability is proven directly.
3. Well-Founded Technology Foresight-Based Investment Business
The corporate investments, fund investments and project funding launched by Sitra are all available to the pre-designated subjects only, e.g. ecological sustainable development, energy utilization efficiency, and social structural changes, etc. Such way to promote policies as defining development area as the first priority and then promoting the investment innovation might have some strength and weakness at the same time. First of all, the selection of development areas might meet the higher level national development orientation more therefor, free from objective environmental restrictions, e.g. technical level, leading national technology industries and properties of natural resources. Notwithstanding, an enterprise’s orientation toward innovation R&D might miss the opportunity for other development because of the pre-defined framework. Therefore, such way to promote policies as defining development areas or subjects as the first priority will be inevitably based on well-founded technology foresight-based projects[9], in order to take various subjective and objective conditions into consideration and to forecast the technology development orientation and impact to be faced by the home country’s national and social economies. That is, said strength and weakness will be taken into consideration beforehand for foresight, while following R&D funding will be launched into the technology areas pre-designated after thorough analysis.
4. Self-Interested Investment with the Same High Efficiency as General Enterprises
Sitra aims to gain profit generally, and its individual investment model, e.g., DIILI, also permits marketing managers to involve business operation. The profit-sharing model enables Sitra to seek the same high efficiency as the general enterprises when purusing its innovation activity development. The investment launched by Sitra highlights that it is not “funding” (which Tekes is responsible for in Finland) or the investment not requiring return. Therefore, it has the system design to acquire corporate shares. Sitra participates in a start-up by offering its advanced technology, just like a general market investor who will choose the potential investment subject that might benefit him most upon his personal professional evaluation. After all, the ultimate profit will be retained by Sitra (or said DIILI manger, subject to the investment model). Certainly, whether the industry which requires permanent support may benefit under such model still remains questionable. However, except otherwise provided in laws expressly, said special organization standing might be a factor critical to Sitra profit-seeking model. That is, Sitra is not subordinated to the administrative system but is under supervision of the parliament independently, and how its staff deal with the conflict of interest issues in the capacity other than the public sector’s/private sector’s staff is also one of the key factors to success of the system.
5. Investment Model to Deal With Policy Instruments of Other Authorities/Agencies
Sitra decides to fund a start-up depending on whether it may gain profit as one of its priorities. As aforesaid, we may preliminarily recognize that the same should be consistent with funding to starts-up logically and no “government failure” issue is involved. For example, the funding at the pre-seed-initiation stage needs to tie in with Tekes’ R&D “funding” (and LIKSA service stated herein) and, therefore, may adjust the profit-seeking orientation, thereby causing deviation in promotion of policies. The dispute over fairness of repeated subsidy/funding and rationality of resource allocation under the circumstance must be controlled by a separate evaluation management mechanism inevitably.
6. Affiliation with Enhancement of Regional Innovation Activities
Regional policies cannot be separable from innovation policies, especially in a country where human resources and natural resources are not plentiful or even. Therefore, balancing regional development policies and also integrating uneven resource distribution at the same time is indispensable to upgrading of the entire national social economic benefits. The Finnish experience indicated that innovation activities ought to play an important role in the regional development, and in order to integrate enterprises, the parties primarily engaged in innovation activities, with the R&D ability of regional academic research institutions to upgrade the R&D ability effectively, the relevant national policies must be defined for adequately arranging and launching necessary resources. Sitra's approaches to invest in starts-up, release shares after specific period, integrate the regional resources, upgrade the national innovation ability and boost the regional development might serve to be the reference for universities’ centers of innovative incubator or Taiwan’s local academic and scientific sectors[10] to improve their approaches.
For the time being, the organization engaged in venture capital investment in the form of fund in Taiwan like Sitra of Finland is National Development Fund, Executive Yuan. However, in terms of organizational framework, Sitra is under supervision of the Parliament directly, while National Development Fund is subordinated to the administrative system of Taiwan. Though Sitra and National Development Fund are both engaged in venture capital investments primarily, Sitra carries out its missions for the purpose of “promoting innovative activities”, while the National Development Fund is committed to achieve such diversified goals as “promoting economic changes and national development[11]” and is required to be adapted to various ministries’/departments’ policies. Despite the difference in the administrative systems of Taiwan and Finland, Sitra system is not necessarily applicable to Taiwan. Notwithstanding, Sitra’s experience in promotion and thought about the system might provide a different direction for Taiwan to think when it is conceiving the means and instruments for industrial innovation promotion policies in the future.
[1] Bart Clarysse & Johan Bruneel, Nurturing and Growing Innovation Start-Ups: The Role of Policy As Integrator, R&D MANAGEMENT, 37(2), 139, 144-146 (2007). Clarysse & Bruneel analysis and comparison refers to Sweden Chalmers Innovation model, French Anvar/Banque de Developpement des PMEs model and Finland Sitra PreSeed Service model.
[2] id. at 141-143.
[3] id. at 141.
[4] id. at 145-146.
[5] id. at 143.
[6] The loan to be repaid is not a concern. For example, the competent authority in Sweden only expects to recover one-fourths of the loan.
[7] Clarysse & Bruneel, super note 26, at 147-148.
[8] 彭錦鵬，〈英國政署之組織設計與運作成效〉，《歐美研究》，第30卷第3期，頁89-141。
[9] Technology foresight must work with the innovation policy road mapping (IPRM) interactively, and consolidate the forecast and evaluation of technology policy development routes. One study case about IPRM of the environmental sustainable development in the telecommunication industry in Finland, the IPRM may enhance the foresighted system and indicates the potential factors resulting in systematic failure. Please see Toni Ahlqvist, Ville Valovirta & Torsti Loikkanen, Innovation policy road mapping as a systemic instrument for forward-looking policy design, Science and Public Policy 39, 178-190 (2012).
[10] 參見李昂杰，〈規範新訊：學界科專辦法及其法制配套之解析〉，《科技法律透析》，第23卷第8期，頁33（2011）。
[11] National Development Fund, Executive Yuan website, http://www.df.gov.tw/(tftgkz45150vye554wi44ret)/page-aa.aspx?Group_ID=1&Item_Title=%E8%A8%AD%E7%AB%8B%E5%AE%97%E6%97%A8#(Last visit on 2013/03/28)
A Before and After Impact Comparison of Applying Statute for Industrial Innovation Article 23-1 Draft on Venture Capital Limited Partnerships I. Background Because the business models adopted by Industries, such as venture capital, film, stage performance and others, are intended to be temporary entities, and the existing business laws are not applicable for such industries,[1] the Legislature Yuan passed the “Limited Partnership Act” in June 2015,[2] for the purpose of encouraging capital injection into these industries. However, since the Act was passed, there are currently only nine limited partnerships listed on the Ministry of Economic Affairs' limited partnership information website. Among them, “Da-Zuo Limited Partnership (Germany) Taiwan Branch” and “Stober Antriebstechnik Limited Partnership (Germany) Taiwan Branch”, are branch companies established by foreign businesses, the remaining seven companies are audio video production and information service businesses. It is a pity that no venture capital company is adopting this format.[3] In fact, several foreign countries have set up supporting measures for their taxation systems targeting those business structures, such as limited partnerships. For example, the pass-through taxation method (or referred to as single entity taxation) is adopted by the United States, while Transparenzprinzip is used by Germany. These two taxation methods may have different names, but their core ideas are to pass the profits of a limited partnership to the earnings of partners.[4] However, following the adoption of the Limited Partnership Act in Taiwan, the Ministry of Finance issued an interpretation letter stating that because the current legal system confers an independent legal entity status to the business structure of a limited partnership, it should be treated as a profit-seeking business and taxed with Profit-Seeking Enterprise Income Tax.[5] Therefore, to actualize the legislative objective of encouraging innovative businesses organized under tenets of the Limited Partnership Act, the Executive Yuan presented a draft amendment for Article 23-1 of the Statute for Industrial Innovation (hereinafter referred to as the Draft), introducing the "Pass Through Taxation Principle" as adopted by several foreign countries. That is, a Limited Partnership will not be levied with the Profit-Seeking Enterprise Income Tax, but each partner will file income tax reports based on after-profit-gains from the partnership that are passed through to each partner. It is expected that the venture capital industry will now be encouraged to adopt the limited partnership structure, and thus increase investment capital in new ventures. II. The Pass Through Taxation Method is Applicable to Newly Established Venture Capital Limited Partnerships 1. The Requirements and Effects (1) The Requirements According to the provisions of Article 23-1 Paragraph 3 of the Draft, to be eligible for Pass Through Taxation, newly established venture capital limited partnerships must meet the following requirements: 1. The venture capital limited partnerships are established between January 1, 2017 and December 31, 2019. 2. Investment threshold of the total agreed capital contribution, total received capital contribution, and accumulated total capital contribution, within five years of the establishment of venture capital limited partnerships: Total Agreed Capital Contribution in the Limited Partnership Agreement Total Received Capital Contribution Accumulated Investment Amount for Start-up Companies The Year of Establishment 3 hundred million ✕ ✕ The Second Year ✕ ✕ The Third Year 1 hundred million ✕ The Fourth Year 2 hundred million Reaching 30 percent of the total received capital contribution of the year or 3 hundred million NT dollars. The Fifth Year 3 hundred million 3. The total amount, that an overseas company applies in capital and investments in actual business operations in Taiwan, reaches 50% of its total received capital contribution of that year. 4. In compliance with government policies. 5. Reviewed and approved by the central competent authority each year. (2) The Effects The effects of applying the provisions of Article 23-1 Paragraph 3 of the Draft are as follows: 1. Venture capital limited partnerships are exempt from the Profit-Seeking Enterprise Income Tax. 2. Taxation method for partners in a limited partnership after obtaining profit gains: (1) Pursuant to the Income Tax Act, Individual partners and for-profit business partners are taxed on their proportionally-calculated, distributed earnings. (2) Individual partners and foreign for-profit business partners are exempt from income tax on the stock earnings distributed by a limited partnership. 2. Benefit Analysis Before and After Applying Pass Through Taxation Method A domestic individual A, a domestic profit-making business B, and a foreign profit-making business C jointly form a venture capital limited partnership, One. The earnings distribution of the company One is 10%, 80% and 10% for A, B, and C partners, respectively. The calculated earnings of company One are one million (where eight hundred thousand are stock earnings, and two hundred thousand are non-stock earnings). How much income tax should be paid by the company One, and partners A, B, and C? (1) Pursuant to the Income Tax Act, before the amended draft: 1. One Venture Capital Limited Partnership Should pay Profit-Seeking Enterprise Income Tax = (NT$1,000,000 (earning) - NT$500,000[6])x12% (tax rate[7])=NT$60,000 2. Domestic Individual A Should file a comprehensive income report with business profit income =(NT$1,000,000-NT$60,000) x 10% (company One draft a voucher for net amount for A) + NT$60,000÷2×10% (deductible tax rate)= NT$97,000 Tax payable on profit earnings＝NT$91,500×5%(tax rate)＝NT$4,850 Actual income tax paid＝NT$4,850 - NT$60,000÷2×10% (deductible tax rate) ＝NT$1,485 3. Domestic For-Profit Business B Pursuant to the provisions of Article 42 of the Income Tax Act, the net dividend or net income received by a profit-seeking company is not included in the income tax calculation. 4. Foreign For-Profit Business C Tax paid at its earning source＝(NT$1,000,000 - NT$60,000) ×10% (earning distribution rate) ×20% (tax rate at earning source)＝NT$18,800 (2) Applying Pass Through Taxation Method After Enacting the Amendment 1. One Venture Capital Limited Partnership No income tax. 2. Domestic Individual A Should pay tax＝NT$800,000 (non-stock distributed earnings)×10% (earning distribution rate)×5% (comprehensive income tax rate)＝NT$1,000 3. Domestic For-Profit Business B Pursuant to the provisions of Article 42 of the Income Tax Act, the net dividend or net income received by a profit-seeking company is not included in the income tax calculation. 4. Foreign For-Profit Business C Tax paid at its earning source＝NT$800,000 (non-stock distributed earnings)×10%(earning distribution rate)×20% (tax rate at earning source)＝NT$4,000 The aforementioned example shows that under the situation, where the earning distribution is the same and tax rate for the same taxation subject is the same, the newly-established venture capital limited partnerships and their shareholders enjoy a more favorable tax benefit with the adoption of pass through taxation method: Before the Amendment After the Amendment Venture Capital Limited Partnership NT$60,000 Excluded in calculation Shareholders Domestic Individual NT$1,850 NT$1,000 Domestic For-Profit Business Excluded in calculation Excluded in calculation Foreign For-Profit Business NT$18,800 NT$4,000 Sub-total NT$80,650 NT$5,000 III. Conclusion Compared to the corporate taxation, the application of the pass through taxation method allows for a significant reduction in tax burden. While developing Taiwan’s pass through tax scheme, the government referenced corporate taxation under the U.S. Internal Revenue Code (IRC), where companies that meet the conditions of Chapter S can adopt the “pass through” method, that is, pass the earnings to the owner, with the income of shareholders being the objects of taxation;[8] and studied the "Transparenzprinzip" adopted by the German taxation board for partnership style for-profit businesses. Following these legislative examples, where profits are identified as belonging to organization members,[9] the government legislation includes the adoption of the pass through taxation scheme for venture capital limited partnerships in the amended draft of Article 23-1 of the Statute for Industrial Innovation, so that the legislation is up to international standards and norms, while making an important breakthrough in the current income tax system. This is truly worthy of praise. [1] The Legislative Yuan Gazette, Vol. 104, No. 51, page 325. URL:http://misq.ly.gov.tw/MISQ//IQuery/misq5000Action.action [2] A View on the Limited Partnership in Taiwan, Cross-Strait Law Review, No. 54, Liao, Da-Ying, Page 42. [3] Ministry of Economic Affairs - Limited Partnership Registration Information URL: http://gcis.nat.gov.tw/lmpub/lms/dir.jsp?showgcislocation=true&agencycode=allbf [4] Same as annotate 2, pages 51-52. [5] Reference Letter of Interpretation dated December 18, 2015, Tai-Cai-Shui Zi No. 10400636640, the Ministry of Finance [6] First half of Paragraph 1 of Article 8 of the Income Basic Tax Act [7] Second half of Paragraph 1 of Article 8 of the Income Basic Tax Act [8] A Study on the Limited Partnership Act, Master’s degree thesis, College of Law, Soochow University, Wu, Tsung-Yeh, pages 95-96. [9] Reference annotate 2, pages 52.
Brief Introduction to Taiwan Social Innovation PoliciesBrief Introduction to Taiwan Social Innovation Policies 2021/09/13 1. Introduction The Millennium Development Goals (MDGs)[1] set forth by the United Nations in 2000 are carried out primarily by nations and international organizations. Subsequently, the Sustainable Development Goals (SDGs) set forth by the United Nations in 2015 started to delegate the functions to organizations of all levels. Presently, there is a global awareness of the importance of balancing “economic growth”, “social progress”, and “environmental protection” simultaneously during development. In the above context, many similar concepts have arisen worldwide, including social/solidarity economy, social entrepreneurship and social enterprise, and social innovation. Generally, social innovation aims to alter the interactions between various groups in society through innovative applications of technology or business models, and to find new ways to solve social problems through such alterations. In other words, the goal is to use innovative methods to solve social problems.The difference between social innovation and social enterprise is that social enterprise combines commercial power to achieve its social mission under a specific perspective, while social innovation creates social value through cooperation with and coordination among technology, resources, and communities under a diversified nature. 2. Overview of Taiwan Social Enterprise Policy To integrate into the global community and assist in the development of domestic social innovation, Taiwan’s Executive Yuan launched the “Social Enterprise Action Plan” in 2014, which is the first policy initiative to support social enterprises (from 2014 to 2016).Under this policy initiative, through consulting with various ministries and applying methods such as “amending regulations”, “building platforms”, and “raising funds”, the initiative set to create an environment with favorable conditions for social innovation and start-ups. At this stage, the initiative was adopted under the principle of “administrative guidance before legislation” in order to encourage private enterprise development without excessive burden, and avoid regulations restricting the development of social enterprises, such as excessive definition of social enterprises. Moreover, for preserving the original types of these enterprises, this Action Plan did not limit the types of social enterprises to companies, non-profit organizations, or other specific types of organizations. To sustain the purpose of the Social Enterprise Action Plan and to echo and reflect the 17 sustainable development goals proposed in SDGs by the United Nations, the Executive Yuan launched the “Social Innovation Action Plan” (effective from 2018 to 2022) in 2018 to establish a friendly development environment for social innovation and to develop diversified social innovation models through the concept of “openness, gathering, practicality, and sustainability”.In this Action Plan, “social innovation” referred to “social innovation organizations” that solve social problems through technology or innovative business models. The balancing of the three managerial goals of society, environment value, and profitability is the best demonstration of the concept of social innovation. 3. Government’s Relevant Social Enterprise Policy and Resources The ministries of the Taiwan Government have been promoting relevant policies in accordance with the Social Innovation Action Plan issued by the Executive Yuan in 2018, such as the “Registration System for Social Innovation Enterprises” (counseling of social enterprises), the “Buying Power - Social Innovation Products and Services Procurement”, the “Social Innovation Platform” established by the Ministry of Economic Affairs, the “Social Innovation Manager Training Courses”, the “Promoting Social Innovation and Employment Opportunities” administered by the Ministry of Labor, and the “University Social Responsibility Program” published by the Ministry of Education. Among the above policies stands out the measures adopted by the Ministry of Economic Affairs, and a brief introduction of those policies are as follows: i. Social Innovation Platform To connect all resources involved in social issues to promote social innovation development in Taiwan, the Ministry of Economic Affairs established the “Social Innovation Platform”.[2] With visibility through the Social Innovation Platform, it has become more efficient to search for targets in a public and transparent way and to assist with the input of resources originally belonging to different fields in order to expand social influence. As a digital platform gathering “social innovation issues in Taiwan,” the Social Innovation Platform covers multiple and complete social innovation resources, which include the “SDGs Map” constructed on the Social Innovation Platform, by which we can better understand how county and city governments in Taiwan implement SDGs and Voluntary Local Review Reports, and which allow us to search the Social Innovation Database[3] and the registered organizations, by which citizens, enterprises, organizations, and even local governments concerned with local development can find their partners expediently as possible, establish service lines to proactively assist public or private entities with their needs/resources, and continue to enable the regional revitalization organizations, ministries, and enterprises to identify and put forward their needs for social innovation through the function of “Social Innovation Proposals”, which assist social innovation organizations with visibility while advancing cooperation and expanding social influence. In addition, the “Event Page” was established on the Social Innovation Platform and offers functions, such as the publishing, searching, and sorting of events in four major dimensions with respect to social innovation organization, governments, enterprises, and citizens; and encourages citizens, social innovation organizations, enterprises, and governments to devote themselves via open participation to continuously expande the influence of the (Civic Technology) Social Innovation Platform. The “Corporate Social Responsibility Report” collects the corporate social responsibility reports, observes the distribution of resources for sustainable development by corporations in Taiwan, offers filtering functions by regions, keyword, popular rankings, and or SDGs types, and provides contact information and a download function for previous years’ reports, in order to effectively assist social innovation organizations to obtain a more precise understanding of the status quo, needs, and trends with respect to their development of respective products and services. Figure 1: SDGs Map Reference: Social Innovation Platform (https://si.taiwan.gov.tw/) Figure 2: Social Innovation Database Reference: Social Innovation Platform (https://si.taiwan.gov.tw/) Figure 3: Social Innovation Proposals Reference: Social Innovation Platform (https://si.taiwan.gov.tw/) Figure 4: Event Page Reference: Social Innovation Platform (https://si.taiwan.gov.tw/) Figure 5: Corporate Social Responsibility Report Reference: Social Innovation Platform (https://si.taiwan.gov.tw/) ii. Social Innovation Database To encourage social innovation organizations to disclose their social missions, products and services, and to guide society to understand the content of social innovation, and to assist the administrative ministries to be able to utilize such information, the Ministry of Economic Affairs issued the “Principles of Registration of Social Innovation Organizations” to establish the “Social Innovation Database”. Once a social innovation organization discloses the items, such as its social missions, business model, or social influence, it may obtain the relevant promotional assistance resources, including becoming a trade partner with Buying Power (Social Innovation Products and Services Procurement), receiving exclusive consultation and assistance from professionals for social innovation organizations, and becoming qualified to apply to entering into the Social Innovation Lab.Moreover, the Ministry of Economic Affairs is simultaneously consolidating, identifying, and designating the awards and grants offered by the various ministries, policies and measures in respect of investment, and financing and assistance, as resources made available to registered entities. As of 25 May 2021, there were 658 registered social innovation organizations and 96 Social Innovation Partners (enterprises with CSR or ESG resources that recognize the cooperation with social innovation under the social innovation thinking model may be registered as a “Social Innovation Partner”).The public and enterprises can search for organizations registered in the Social Innovation Database through the above-said Social Innovation Platform, the search ability of which advances the exposure of and the opportunities for cooperation with social innovation organizations. Figure 6: Numbers of registered social innovation organizations and accumulated value of purchases under Buying Power Reference: Social Innovation Platform(https://si.taiwan.gov.tw/) iii. Buying Power - Social Innovation Products and Services Procurement In order to continue increasing the awareness on social innovation organizations and related issues and promote responsible consumption and production in Taiwan, as well as to raise the attention of the commercial sector to the sustainability-driven procurement models, the Ministry of Economic Affairs held the first “Buying Power - Social Innovation Products and Services Procurement” event in 2017. Through the award system under the Buying Power, it continues to encourage the governments, state-owned enterprises, private enterprises, and organizations to take the lead in purchasing products or services from social innovation organizations, to provide the relevant resources so as to assist social innovation organizations to obtain resources and to explore business opportunities in the markets, to practice responsible consumption and production, and to promote innovative cooperation between all industries and commerce and social innovation organizations. The aim of the implementation of the Buying Power is to encourage the central and local governments, state-owned enterprises, private enterprises, and non-governmental organizations to purchase products or services from organizations registered in the Social Innovation Database, while prizes will be awarded based on the purchase amounts accumulated during the calculation period. The winners can obtain priority in applying for membership in the Social Innovation Partner Group, with corresponding member services, in the future. Under the Social Innovation Platform, both the amount of purchase awards and the number of applicants for special awards continue to increase.So far, purchases have accumulated to a value of more than NT$1.1 billion (see Figure 6), and more than 300 organizations have proactively participated. iv. Social Innovation Mark In order to promote public awareness of social innovation, the Ministry of Economic Affairs has been charged with the commissioned task of promoting the Social Innovation Mark, and issued “ The Small and Medium Enterprise Administration of the Ministry of Economic Affairs Directions for Authorization of the Social Innovation Mark” as the standard for the authorization of the Social Innovation Mark. Social innovation organizations can use the Mark, through obtaining authorization, to hold Social Innovation Summits or other social innovation activities for promoting social innovation concepts. In order to build the Mark as a conceptual symbol of social innovation, the Ministry of Economic Affairs has been using the Social Innovation Mark in connection with various social innovation activities, such as the Social Innovation Platform, the Buying Power, and the annual Social Innovation Summit. Taking the selection of sponsors of the Social Innovation Summit in 2022 as an example[4], only organizations that have obtained authorization of the Social Innovation Mark can use the Mark to hold the Social Innovation Summit. Figure 7: The Social Innovation Mark of the Small and Medium Enterprise Administration, Ministry of Economic Affairs IV. Conclusion The “Organization for Economic Cooperation and Development” (OECD) regards social innovation as a new strategy for solving future social problems and as an important method for youth entrepreneurship and social enterprise development.Taiwan’s social innovation energy has entered a stage of expansion and development. Through the promotion of the “Social Innovation Action Plan,” the resources from the central and local governments are integrated to establish the Social Innovation Platform, the Social Innovation Database, the Social Innovation Lab, and the Social Innovation Mark. In addition, incentives such as the Buying Power have been created, manifesting the positive influence of Taiwan’s social innovation. [1] MDGs are put forward by the United Nations in 2000, and are also the goals requiring all the 191 member states and at least 22 international organizations of the United Nations to be committed to on their best endeavors, including: 1. eradicating extreme poverty and hunger, 2. applying universal primary education, 3. promoting gender equality and empowering women, 4. reducing child mortality rates, 5. improving maternal health, 6. combatting HIV/AIDS, malaria, and other diseases, 7. ensuring environmental sustainability, and 8. establishing a global partnership for development. [2] Please refer to the Social Innovation Platform: https://si.taiwan.gov.tw/. [3] Please refer to the Social Innovation Database: https://si.taiwan.gov.tw/Home/Org_list. [4] Please refer to the guidelines for the selection of sponsors of the 2022 Social Innovation Summit: https://www.moeasmea.gov.tw/files/6221/4753E497-B422-4303-A8D4-35AE0B4043A9
Adopting Flexible Mechanism to Promote Public Procurement of Innovation—the Amendment of Article 27 of the Statute for Industrial InnovationAdopting Flexible Mechanism to Promote Public Procurement of Innovation—the Amendment of Article 27 of the Statute for Industrial Innovation I.Introduction To further industrial innovation, improve industrial environment, and enhance industrial competitiveness through a systematic long-term approach, the Statute for Industrial Innovation (hereinafter referred to as the Statute) has been formulated in Taiwan. The central government authority of this Statute is the Ministry of Economic Affairs, and the Industrial Development Bureau of the Ministry of Economic Affairs (henceforth referred to as the IDB) is the administrative body for the formulation of this Statute. Since its formulation and promulgation in 2010, the Statute has undergone four amendments. The latest amendment, passed by the Legislative Yuan on November 3, 2017, on the third reading, is a precipitate of the international industrial development trends. The government is actively encouraging the investment in industrial innovation through a combination of capital, R&D, advanced technologies and human resources to help the promotion of industrial transformation, hence this large scale amendment is conducted. The amendment, promulgated and enacted on November 22, 2017, focuses on eight key points, which include: state-owned businesses partaking in R&D (Article 9-1 of the amended provisions of the Statute), the tax concessions of the limited partnership venture capital businesses (Article 2, Article 10, Article 12-1 and Article 23-1 of the amended provisions of the Statute), the tax concessions of Angel Investors (Article 23-2 of the amended provisions of the Statute), applicable tax deferral of employees' stock compensation (Article 19-1 of the amended provisions of the Statute), tax deferral benefit of stocks given to research institution creators (Article 12-2 of the amended provisions of the Statute), the promotion of flexible mechanism for innovation procurement (Article 27 of the amended provisions of the Statute), the establishment of evaluation mechanism for intangible assets (Article 13 of the amended provisions of the Statute), and forced sale auction of idled land for industrial use (Article 46-1 of the amended provisions of the Statute). This paper focuses on the amendment of Article 27 of the Fourth Revision of the Statute, which is also one of the major focuses of this revision—promoting flexible mechanism for innovation procurement, using the mass-market purchasing power of the government as the energetic force for the development of industrial innovation. II.Explanation of the Amendment of Article 27 of the Statute 1.Purposes and Descriptions of the Amendment of Article 27 of the Statute The original intent of Article 27 (hereinafter referred to as the Article) of the Statute, prior to the latest amendment (content of the original provisions is shown in Table 1), was to encourage government agencies and enterprises to give a priority to using green products through the "priority procurement" provisions of Paragraph 2, which allow government agencies to award contracts to green product producers using special government procurement procedures, so as to increase the opportunities for government agencies to use green products, and thereby promote the sustainable development of the industry. In view of the inherent tasks of promoting the development of industrial innovation, and considering that, using the large-scale government procurement demand to guide industrial innovation activities, has become the policy instrument accepted by most advanced countries, the IDB expects that, with the latest amendment of Article 27, the procurement mechanism policy for software, innovative products and services, in addition to the original green products, may become influential, and that "innovative products and services" may be included in the scope of "Priority Procurement" of this Article namely, make “priority procurement of innovative products and services” as one of the flexible mechanisms for promoting innovation procurement. A comparison of the amended provisions and the original provisions is shown in Table 1, and an explanation of the amendment is described as follows:[1] Table 1 A Comparison of Article 27 Amendment of the Statute for Industrial Innovation Amended Provisions Original Provisions Article 27 (I) Each central government authority in charge of end enterprises of a specific industry shall encourage government organizations (agencies) and enterprises to procure software, innovative and green products or services. (II) To enhance the procurement efficiencies, as effected by supply and demand, the central government authority shall offer assistance and services to the organizations (agencies) that handle these procurements as described in the preceding paragraph; wherein, Inter-entity Supply Contracts that are required for the aforesaid procurements, the common requirements shall be decided, in accordance with policy requirements, upon consultation between the central government authority and each central government authority in charge of end enterprises of a specific industry. (III) Where the software, innovative and green products or services, as described in Paragraph 1, must be tested, audited, accredited and certified, their associated fees and charges may be reduced, exempted, or suspended. (IV) Government organizations (agencies) may specify in the tender document the priority procurement of innovative and green products or services that have been identified to meet the requirements of paragraph 1. However, such a specification shall not violate treaties or agreements that have been ratified by the Republic of China. The measures concerning specifications, categories, and identification procedures of software, innovative and green products or services as prescribed in Paragraph 1; the testing, auditing criteria, accreditation and certification as prescribed in paragraph 3; and the Priority Procurement in paragraph 4 and other relevant items, shall be established by each central government authority in charge of end-enterprises of a specific industry. Article 27 (I) Each central government authority in charge of end enterprises shall encourage government agencies and enterprises to give priority to green products that are energy/resources recyclable/renewable, energy and water saving, non-toxic, less-polluting, or able to reduce the burden on the environment. (II) Agencies may specify in the tender documents that priority is given to green products meeting the requirement set forth in the preceding Paragraph. (III) The regulations governing the specifications, categories, certification procedures, review standards, and other relevant matters relating to the green products as referred to in the preceding Paragraph shall be prescribed by the central government authorities in charge of end enterprises. Source: The Ministry of Economic Affairs (I).Paragraph 1 In order to compel each central government authority in charge of end enterprises of a specific industry to motivate industrial innovation activities and sustainable development on the basis of requirements, and to support the development of the software industry in Taiwan, the provision, that such an authority should encourage government organizations (agencies) and enterprises to procure software and innovative products and services, is added in paragraph 1. (II).Paragraph 2 This procurement, as described in paragraph 1, is different from the property or services procurement of general affairs as handled by various organizations. To enhance procurement efficiencies, as effected by supply and demand, the central government authority, i.e., the Ministry of Economic Affairs, shall provide relevant assistance and services to organizations (agencies) handling these procurements, hence the added provisions in paragraph 2. For purchases using inter-entity supply contracts, which are bound by the requirements of this Article, due to their prospective nature, and that the common demand of each organization is difficult to make an accurate estimate by using a demand survey or other method, the Ministry of Economic Affairs shall discuss the issues with each central government authority in charge of end-enterprises of a specific industry, who consult or promote policies, and are in charge of end enterprises of a specific industry, and then make decisions in accordance with the policy promotion requirements. (III).Paragraph 3 The fee schedule for testing, auditing, accrediting and certifying software, innovative and green products or services is covered by Article 7, Administrative Fees of the Charges And Fees Act. The authorities in charge should determine relevant fee standards.However, considering that the test, audit, accreditation and certification may be conducted during a trial or promotional period, or circumstances dictate that it is necessary to motivate tenderer participation, the fee may be reduced, waived or suspended; hence, paragraph 3 is added. (IV).Paragraph 4 Paragraph 2 of the original provision is moved to paragraph 4 with the revisions made to paragraph 1, accordingly, and the provision for using Priority Procurement to handle innovative products or services is added. However, for organizations covered by The Agreement on Government Procurement (GPA), due to Taiwan's accession to the WTO, ANZTEC, and ASTEP, their procurement of items covered in the aforesaid agreements with a value reaching the legislated threshold, shall be handled in accordance with the regulations stipulated in the aforesaid agreements; hence the stipulation in the proviso that the procurement must not violate the provisions of treaties or agreements ratified by the Taiwan government. (V).Paragraph 5 Paragraph 3 of the original Article is moved to paragraph 5 with the revisions made to paragraph 1, accordingly, and the provision, that authorizes each central government authority in charge of end enterprises of a specific industry to determine appropriate measures concerning the methods of defining software, innovative and green products and services, as well as matters relating to test, accreditation, certification and priority procurement, is added. 2.The Focus of the Amendment of Article 27 of the Statute—Promoting a Flexible Mechanism for Innovation Procurement As previously stated, the amendment of this Article aims to stimulate activities of industrial innovation by taking advantage of the huge demand from government agencies. With the government agencies being the users of the innovative products or services, government's procurement market potential is tapped to support the development of industrial innovation. The original intention of amendment is to incorporate the spirit of Public Procurement of Innovation[2] into this Article, and to try to introduce EU's innovation procurement mechanism[3] into our laws. So that, a procurement procedure, that is more flexible and not subject to the limitation of procurement procedures currently stipulated by the Government Procurement Act, may be adopted to facilitate government sector action in taking the lead on adopting innovative products or services that have just entered their commercial prototype stage, or utilizing the demand for innovation in the government sector to drive industry's innovative ideas or R&D (that can not be satisfied with the existing solutions in the marketplace). However, while it is assessing the relevant laws and regulations of our government procurement system and the practice of implementation, the use of the current government procurement mechanism by organizations in the public sector to achieve the targets of innovation procurement is still in its infancy. It is difficult to achieve the goal, in a short time, of establishing a variety of Public Procurement of Innovation Solutions (PPI Solutions) as disclosed in the EU's Directive 2014/24 / EU, enacted by the EU in 2014, in ways that are not subject to current government procurement legislation. Hence, the next best thing: Instead of setting up an innovative procurement mechanism in such a way that it is "not subject to the restrictions of the current government procurement law", we will focus on utilizing the flexible room available under the current system of government procurement laws and regulations, and promoting the "flexible mechanism for innovation procurement” paradigm. With the provisions now provided in Article 27 of the Statute for Industrial Innovation, the government sector is authorized to adopt the "Priority Procurement" method on innovative products and services, thus increasing the public sector's access to innovative products and services. With this amendment, in addition to the "green products" listed in the original provisions of paragraph 1 of the Statute, "software" and "innovative products or services"[4] are now incorporated into the target procurement scope and each central government authority in charge of end enterprises of a specific industry should now encourage government organizations and enterprises to implement; however, the provisions of this paragraph do not have the specific effect of law, they are declaratory provisions. Two priorities are the１ primary focus of the provisions of paragraph 2 and paragraph 4 of this Article for promoting flexible mechanism for innovation procurement: (I)The procurement of software, innovative and green products or services that uses Inter-entity Supply Contracts may rely on the "policy requirement" to establish the common demand. According to the first half of the provisions of paragraph 2 of this Article, the Ministry of Economic Affairs, being the central government authority of the Statute, may provide assistance and services to organizations dealing with the procurement of software, innovative and green products and services.This is because the procurement subjects, as pertaining to software, products or services that are innovative and green products (or services), usually have the particularities (especially in the software) of the information professions; different qualities (especially in innovative products or services), and are highly profession-specific. They are different from the general affairs goods and services procured by most government agencies. Hence, the Ministry of Economic Affairs may provide assistance and service to these procurement agencies, along with the coordination of relevant organizations, in matters relating to the aforesaid procurement process in order to improve procurement efficiency as relates to supply and demand. Pursuant to the second half of Paragraph 2 of this Article, if the inter-entity supply contract method is used to process the procurement of software, innovative products and services, green products (or services) and other related subjects, there could be "Commonly Required" by two or more organizations concerning the procurement subjects, so in accordance with the stipulations of Article 93 of the Government Procurement Act, and Article 2 of the Regulations for The Implementation of Inter-entity Supply Contracts[5], an investigation of common requirements should be conducted first. However, this type of subject is prospective and profession-specific (innovative products or services in particular), and government organizations are generally not sure whether they have demand or not, which makes it difficult to reliably estimate the demand via the traditional demand survey method[6], resulting in a major obstacle for the procurement process. Therefore, the provisions are now revised to allow the Ministry of Economic Affairs to discuss procurement with each central government authority in charge of end enterprises of a specific industry, who consult or promote policies (such as the National Development Council, or central government authority in charge of end enterprises of a specific industry relevant to the procurement subjects), and then make decisions based on the quantities of goods and services of common requirements in accordance with the demand for promoting the policy. The provisions explicitly stipulate such flexibility in adopting methods other than the "traditional demand survey" method, as is required by laws for the common demand of Inter-entity Supply Contracts. Thus, agencies currently handling procurement of prospective or innovative subjects using inter-entity supply contracts, may reduce the administrative burden typically associated with conducting their own procurement. In addition, with a larger purchase quantity demand, as generated from two or more organizations, the process can more effectively inject momentum into the industry, and achieve a win-win situation for both supply and demand. (II)Government organizations may adopt "Priority Procurement" when handling procurement of innovative and green products or services. Prior to the amendment, the original provision of paragraph 2 of this Article stipulates that organizations may specify in the tender document Priority Procurement of certified green products; Additionally, a provision of paragraph 3 of the original Article stipulates that each central government authority in charge of end enterprises of a specific industry is authorized to establish the specifications, categories and other relevant matters of the green products[7] (according to the interpretation of the original text, it should include "Priority Procurement" in paragraph 3 of the Article).After the amendment of the Article, paragraph 2 of the original Article is moved to paragraph 4. In addition to the original green products, "innovative products or services" are included in the scope of "Priority Procurement" that organizations are permitted to adopt (but, the "software" in paragraph 1 was not included[8]). However, for organizations covered by The Agreement on Government Procurement (GPA), due to Taiwan's accession to the WTO, ANZTEC, and ASTEP, their procurement of items covered by the aforesaid agreements with a value reaching the stated threshold, shall be handled in accordance with the regulations stipulated in the aforesaid agreements; hence the stipulation in the proviso that the procurement must not violate the provisions in treaties or agreements ratified by the Taiwan government. Additionally, paragraph 3 of the original Article is moved to paragraph 5. Each central government authority in charge of end enterprises of a specific industry is authorized to use their own judgment on matters concerning the specifications, categories, certification processes of software, innovative and green products or services and the method for Priority Procurement of paragraph 4. In accordance with the authorization in paragraph 5 of the amended provision of this Article, each central government authority in charge of end enterprises of a specific industry may, depending on the specific policy requirement that promotes innovation development of its supervised industry, establish methods of identification and the processes of Priority Procurement for “Specific categories of innovative products or services", especially on products or services fitting the requirements of the method of using the demands of government organizations to stimulate industrial innovation. The established "Regolations for priority procurement of Specific categories of innovative products or services" is essentially a special regulation of the government procurement legislation, which belongs to the level of regulations, that is, it allows the organizations to apply measures other than the government procurement regulations and its related measures to the procurement process, and adopt "Preferential Contract Awarding" for qualified innovative products or services. Any government agency that has the need to procure a particular category of innovative product or service may, in accordance with the provisions of paragraph 4 of this Article, specify the use of Priority Procurement in the tender document, and administer the procurement, in accordance with the process of this particular category of innovative products, or priority procurement. The agency is now enabled to follow a more flexible procurement process than that of the government procurement regulations to more smoothly award contracts for qualified innovative products or services. Citing two examples of this applied scenario: Example one, "innovative information services": The central government authority in charge of information services is IDB. Thus, IDB may, according to the authorization provided for in paragraph 5 of the Article, establish the identification methods for innovative information services (the purpose of which is to define the categories and specifications of innovative services covered in the scope of priority procurement) and priority procurement processes, pertaining to emerging information services that are more applicable to the requirements of government agencies, such as: cloud computing services, IoT services, and Big Data analysis services.Example two, "Innovative construction or engineering methods": The central government authority in charge of construction affairs is the Construction and Planning Agency of the Ministry of the Interior. Since the agency has already established the "Guidelines for Approval of Applications for New Construction Techniques, Methods, Equipment and Materials", the agency may establish a priority procurement process for new construction techniques, methods or equipment, in accordance with the stipulations in paragraph 5 of the Article. Government agencies may conduct procurement following any of these priority procurement practices, if there is a requirement for innovative information services, or new construction techniques, methods or equipment. In addition to the two aforementioned flexible mechanisms for innovation procurement, where government agencies are granted flexible procedures to handle the procurement of innovative products or services via the use of the flexible procurement mechanism, paragraph 3, concerning the incentive measures of concessionary deductions, is added to the Article to reduce the bidding costs for tenderers participating in the tender. For the Procurement of software, innovative and green products or services encouraged by each central government authority in charge of end-enterprises of a specific industry (not limited to those handled by the authorities themselves, using inter-entity supply contracts or priority procurement methods), if the procurement subjects are still required to be tested, audited, accredited and certified by the government agencies, such a process falls under the scope of administrative fees collection, pursuant to paragraph 1 Article 7 of the Charges And Fees Act. However, considering that the item subject to test, audit, accreditation and certification may be in a trial or promotional period, or that it may be necessary to motivate tenderer participation, the provisions of paragraph 3 are thusly added to the Article to reduce, waive, or suspend the collection of aforementioned fees. Executive authorities in charge of collecting administrative fees shall proceed to reduce, waive, or suspend the collection pursuant to the stipulations of paragraph 3 of the Article and Article 12 subparagraph 7 of the Charges And Fees Act.[9] III.The direction of devising supporting measures of flexible mechanism for innovation procurement The latest amendment of the Statute for Industrial Innovation was promulgated and enacted on November 22, 2017, it is imperative that supporting measures pertaining to Article 27 of the Statute be formulated. As previously stated, the flexible mechanism for innovation procurement, as promoted in this Article, is designed specifically for the products or services that are pertinent to the government procurement requirements and are capable of stimulating industrial innovation, and providing a more flexible government procurement procedure for central authorities in charge of a specific industry as a policy approach in supporting industry innovation. Thus, the premise of devising relevant supporting measures is dependent on whether the specific industry, as overseen by the particular central authority, has a policy in place for promoting the development of industrial innovation, and on whether it is suitable in promoting the flexible mechanism for innovation procurement as described in this Article. The purpose of this Article is to promote the flexible mechanism for innovation procurement. Supporting measures pertaining to this Article will focus on the promotion of devising an "Innovation Identification Method", and of the "Priority Procurement Process" of the innovative products or services of each industry that central government authorities oversee. The former will rely on each central government authority in charge of a specific industry to charter an industry-appropriate and profession-specific planning scheme; while, for the latter, the designing of a priority procurement process, in accordance with the nature of the various types of innovative products or services, does not have to be applicable to all. However, regardless what type of innovative products or services the priority procurement process is designed for, the general direction of consideration should be given to - taking the different qualities of innovative products or services as the core consideration. Additionally, the attribute of the priority procurement procedures focusing specifically on the different qualities of the innovative subjects relates to the special regulation relevant to the government procurement regulations. Thus, the procurement procedures should follow the principle that if no applicable stipulation is found in the special regulation, the provisions of the principal regulation shall apply. The so-called "Priority Procurement" process refers to the "Preferential Contract Awarding" on tenders that meet certain criteria in a government procurement procedure. The existing Government Procurement Act (GPA, for short) and its related laws that have specific stipulations on "Priority Procurement" can be found in the "Regulations for Priority Procurement of Eco-Products" (Regulations for Eco-Products Procurement, for short), and the "Regulations for Obliged Purchasing Units / Institutions to Purchase the Products and Services Provided by Disabled Welfare Institutions, Organizations or Sheltered Workshops" (Regulations for Priority Procurement of Products or Services for Disabled or Shelters, for short). After studying these two measures, the priority procurement procedures applicable to criteria-conformed subjects can be summarized into the following two types: 1.The first type: Giving preferential contract awarding to the tenderer who qualifies with "the lowest tender price”, as proposed in the tender document, and who meets a certain criteria (for example, tenderers of environmental products, disabled welfare institutions, or sheltered workshops). There are two scenarios: When a general tenderer and the criteria-conformed tenderer both submit the lowest tender price, the criteria-conformed tenderer shall obtain the right to be the "preferential winning tender" without having to go through the Price Comparison and Reduction Procedures. Additionally, if the lowest tender price is submitted by a general tenderer, then the criteria-conformed tenderers have the right to a "preferential price reduction” option, that is, the criteria-conformed tenderers can be contacted, in ascending order of the tender submitted, with a one time option to reduce their bidding prices. The first tenderer who reduces their price to the lowest amount shall win the tender. Both the Regulations for Eco-Products Procurement[10] and Regulations for Priority Procurement of Products or Services for Disabilities or Shelters[11] have such relevant stipulations. 2.The second type: It is permitted to give Preferential Contract Awarding to a criteria-conformed tenderer, when the submitted tender is within the rate of price preference. When the lowest tenderer is a general tenderer, and the tender submitted by the criteria-conformed tenderer is higher than the lowest tender price, the law permits that if the tender submitted is "within the rate of price preference ", as set by the procuring entity, the procuring entity may award the contract preferentially to "the tender submitted by the criteria-conformed tenderer." The premise for allowing this method is that the tender submitted by the criteria-conformed tenderer must be within the preferential price ratio. If the submitted tender is higher than the preferential price ratio, then the criteria-conformed tenderer does not have the right to preferential contract awarding. The contract will be awarded to theother criteria-conformed tenderer, or to a general tenderer. This method is covered in the provisions of the Regulations for Eco-Products Procurement[12]. However, the important premise for the above two priority procurement methods is that the nature of the subject matter of the tender is suitable for adopting the awarding principle of the lowest tender (Article 52, Paragraph 1, Subparagraphs 1 and 2 of the Procurement Act), that is, it is difficult to apply these methods to the subjects if they are different qualities. Pursuant to the provisions of Article 66 of the Enforcement Rules of the Government Procurement Act, the so-called "different qualities" refers to the construction work, property or services provided by different suppliers that are different in technology, quality, function, performance, characteristics, commercial terms, etc. Subjects of different qualities are essentially difficult to compare when based on the same specifications. If just looking at pricing alone it is difficult to identify the advantages and disadvantages of the subjects, hence, the awarding principle of the lowest tender is not appropriate. The innovative subjects are essentially subjects of different qualities, and under the same consideration, they are not suitable for applying the awarding principle of the lowest tender. Therefore, it is difficult to adopt the lowest-tender-based priority procurement method for the procurement of innovative subjects. In the case of innovative subjects with different qualities, the principle of the most advantageous tender should be adopted (Article 52 Paragraph 1 Subparagraph 3 of the Procurement Act) to identify the most qualified vender of the subjects through open selection. Therefore, the procedure for the priority procurement of innovative subjects with different qualities should be based on the most advantageous tender principle with focus on the "innovativeness" of the subjects, and consideration on how to give priority to tenderers, who qualify with the criteria of innovation. Pursuant to the provisions of Article 56 Paragraph 4 of the Procurement Act, the Procurement and Public Construction Commission has established the "Regulations for Evaluation of the Most Advantageous Tender". The tendering authorities adopting the most advantageous tender principle should abide by the evaluation method and procedures delineated in the method, and conduct an open selection of a winning tender. According to the Regulations for Evaluation of the Most Advantageous Tender, in addition to pricing, the tenderers' technology, quality, function, management, commercial terms, past performance of contract fulfillment, financial planning, and other matters pertaining to procurement functions or effectiveness, maybe chosen as evaluation criteria and sub-criteria. According to the three evaluation methods delineated in the provisions of Article 11 of the Regulations for Evaluation of the Most Advantageous Tender (overall evaluation score method, price per score point method, and ranking method), pricing could not been included in the scoring. That is, "the prices of the subjects" is not the absolute criterion of evaluation of the most advantageous tender process. The priority procurement procedures designed specifically for innovative subjects with different qualities may adopt an evaluation method that excludes "pricing" as part of the scoring criterion so as to give innovative subject tenderers the opportunity to be more competitive in the bidding evaluation process, and due to the extent of their innovativeness, obtain the right to preferential tenders. If it must be included in the scoring, the percentage of the total score for pricing should be reduced from its usual ratio[13], while stipulating explicitly that "innovation" must be included as part of the evaluation criteria. In addition, its weight distribution should not be less than a ratio that highlights the importance of innovation in the evaluation criteria. Furthermore, when determining how to give preference to tenderers who meet certain innovation criteria in the contract awarding procedures, care should be taken to stay on focus with the degree of innovation of the subject (the higher the degree of innovation, the higher the priority), rather than giving priority to arbitrary standards. In summary, with consideration of priority procurement procedures designed specifically for innovative subjects with different qualities, this paper proposes the following preliminary regulatory directions: 1.Adopt the awarding principle of the most advantageous tender. 2.Explicitly stipulate the inclusion of "innovation" in the evaluation criteria and sub-criteria, and its ratio, one that indicates its importance, should not be less than a certain percentage of the total score (for example 20%). 3.Reduce the distributed ratio of "price" in the scoring criteria in the open selection. 4.After the members of the evaluation committee have concluded the scoring, if more than two tenderers have attained the same highest overall evaluated score or lowest quotient of price divided by overall evaluated score, or more than two tenderers have attained the first ranking, the contract is awarded preferentially to the tenderer who scores the highest in the "innovation" criterion. 5.When multiple awards (according to Article 52 Paragraph 1 Subparagraph 4 of the Procurement Act) are adopted, that is, there is more than one final winning tender, the procuring entity may select the tenderers with higher innovation scores as the price negotiation targets for contract awarding, when there are more than two tenderers with the same ranking. Using the above method to highlight the value of innovative subjects will make these suppliers more competitive, because of their innovativeness ratings in the procurement procedures, and not confine them to the limitation of price-determination. So that, subject suppliers with a high degree of innovation, may attain the right to the preferential contract awarding that they deserve due to their innovativeness, and the procuring entity can purchase suitable innovative products in a more efficient and easy process. It also lowers the threshold for tenderers with innovation energy to enter the government procurement market, thus achieving the goal of supporting industrial innovation and creating a win-win scenario for supply and demand. [1] Cross-reference Table of Amended Provisions of the Statute for Industrial Innovation, The Ministry of Economic Affairs, https://www.moea.gov.tw/MNS/populace/news/wHandNews_File.ashx?file_id=59099 (Last viewed date: 12/08/2017). [2] According to the Guidance for public authorities on Public Procurement of Innovation issued by the Procurement of Innovation Platform in 2015, the so-called innovation procurement in essence refers to that the public sector can obtain innovative products, services, or work by using the government procurement processes, or that the public sector can administer government procurement with a new-and-better process. Either way, the implementation of innovation procurement philosophy is an important link between government procurement, R & D and innovation, which shortens the distance between the foresighted emerging technologies/processes and the public sector/users. [3] The EU's innovative procurement mechanism comprises the "Public Procurement of Innovation Solutions" (PPI Solutions) and "Pre-Commercial Procurement" (PCP). The former is one of the government procurement procedures, explicitly regulated in the new EU Public Procurement Directive (Directive 2014/24 / EU), for procuring solutions that are innovative, near or in preliminary commercial prototype; The latter is a procurement process designed to assist the public sector in obtaining technological innovative solutions that are not yet in commercial prototype, must undergo research and development process, and are not within the scope of EU Public Procurement Directive. [4] The "software, innovative and green products or services", as described in paragraph 1 of Article 27 of the amended Statute for Industrial Innovation, refers to, respectively, "software", "innovative products or services", and "green products or services" in general. There is no co-ordination or subordination relationship between the three; the same applies to "innovative and green products or services" in paragraph 4. [5] Article 93 of the Government Procurement Act stipulates: "An entity may execute an inter-entity supply contract with a supplier for the supply of property or services that are commonly needed by entities." Additionally, Article 2 of the Regulations for The Implementation of Inter-entity Supply Contracts stipulates: "The term 'property or services that are commonly needed by entities' referred to in Article 93 of the Act means property or services which are commonly required by two or more entities. The term 'inter-entity supply contract (hereinafter referred to as the “Contract”)' referred to in Article 93 of the Act means that an entity, on behalf of two or more entities, signs a contract with a supplier for property or services that are commonly needed by entities, so that the entity and other entities to which the Contract applies can utilize the Contract to conduct procurements." Therefore, according to the interpretation made by the Public Construction Commission, the Executive Yuan (PCC, for short), organizations handling inter-entity supply contracts should first conduct a demand investigation. [6] In general, organizations in charge of handling the inter-entity supply contracts will disseminate official documents to applicable organizations with an invitation to furnish information online about their interests and estimated requirement (for budget estimation) at government's e-procurement website. However, in the case of more prospective subjects (such as cloud services of the emerging industry), it may be difficult for an organization to accurately estimate the demand when filling out the survey, resulting in a mismatch of data between the demand survey and actual needs. [7] In accordance with the authorization of paragraph 3 of the Article, the IDB has established "Regulations Governing Examination and Identification of Advanced Recycled Products by Ministry of Economic Affairs" (including an appendix: Identification Specification for Resource Regenerating Green Products), except that the priority procurement process was not stipulated, because the Resource Regenerating Green Products, that meet the requirements of the Ministry of Economic Affairs, are covered by the "Category III Products" in the provisions of Article 6 of the existing "Regulations for Priority Procurement of Eco-Products", set forth by the PPC and The Environmental Protection Administration of the Executive Yuan. Hence, organizations that have the requirement to procure green products, may proceed with priority procurement by following the regulations in the "Regulations for Priority Procurement of Eco-Products". [8] After the amendment of the Article, the "software" in the provisions of paragraph 1 was excluded in paragraph 4, because the objective of paragraph 4 is to promote industry innovation and sustainable development with the use of a more flexible government procurement procedure. Thus, the subjects of the priority procurement mechanism are focused on "innovative" and "green" products or services, which exclude popular "software" that has a common standard in the market. However, if it is an "innovative software", it may be included in the "innovative products or services" in the provisions of paragraph 4. [9] According to the provisions of Article 12 of the Charges And Fees Act: "In any of the following cases, the executive authority in charge of the concerned matters may waive or reduce the amount of the charges and fees, or suspend the collection of the charges and fees: 7. Waiver, reduction, or suspension made under other applicable laws." [10] Refer to Article 12, Paragraph 1, Subparagraphs 1 and Article 13, Paragraph 1 and 2 of Regulations for Priority Procurement of Eco-Products. [11] Refer to Article 4 of Regulations for Obliged Purchasing Units / Institutions to Purchase the Products and Services Provided by Disabled Welfare Institutions, Organizations or Sheltered Workshops. [12] Refer to Article 12, Paragraph 1, Subparagraphs 2 and Article 13, Paragraph 3 of Regulations for Priority Procurement of Eco-Products. [13] The provisions of paragraph 3 Article 16 of the Regulations for Evaluation of the Most Advantageous Tender stipulates: Where price is included in scoring, its proportion of the overall score shall be not less than 20% and not more than 50%.
Executive Yuan roll-out The Policy of “The Free Economic Pilot Zones”Executive Yuan roll-out The Policy of “The Free Economic Pilot Zones”1.Executive Yuan approved a Bill titled “The Free Economic Pilot Zones Special Act”The “Free Economic Demonstration Zones” (hereinafter as FEDZs) is a critical part to improve the liberalization and internationalization of the economy of Republic of China (R.O.C). By deregulation, FEDZs was conceived as trial zones. Once the results of the program were promising, it would be expanded to the entire country. In order to engage in the regional economic and trade integration, the Executive Yuan approved a Bill titled “The Free Economic Pilot Zones Special Act” (hereinafter as Bill) on April 26th, 2013.On Mar 6th, 2014, the Joint Economic, Internal Administration , and Finance Committee of the Legislation Yuan (the Congress) discussed the Bill for reports and questions. By the end of the March, 2014, the Congress will hold five public hearings. Not until the discussion of the Bill item by item and the passage in the Congress, the second stage of the FEDZ program would not be initiated. There are five main points, including the treatments on foreigners and people from mainland China, tax incentives for Taiwanese businessman, foreign professionals and foreign companies, regulations on untaxed goods and labor, regulations on industrial development, such as the agriculture and the medical, and certain new items on education and professional services.For the reason that the government considered the need of human resources to sustain the operation of the industries, the Executive Yuan is trying to promote innovative education in FEPZs. Since the education requirements for both of public and private universities are unified in local, colleges and universities were restrained and missed some great opportunities to discover their own niches in education. Hence, innovative education in FEPZs is trying to help higher education system to introduce foreign education resources and foresight concepts, and to attract more international students. The innovative educational projects within FEPZs will also facilitate the cooperations among domestic and foreign universities, and set up experimental branch campuses, colleges, degree programs or professional courses. Besides, the financial service sector is also included. Since FEDZs is an important pusher for R.O.C to move forward in regional economic integration, accordingly, the most significant liberate item for the financial industry in the FEPZs is to allow offshore banking units and offshore security units to provide financial products and service (e.g. OSU and OBU). Meanwhile, the financial industry is predicted to receive an NTD$140 billion or more in revenues over the next five year.In summary, FEPZs is regarded as a engine propelling liberalization and internationalization. To gain the international competitiveness, the government will continue to promote policies and measures. By establishing the free economic demonstration zone, it is expected to create innovative effects into the education system and to create more job opportunities.2.Legislation Yuan has reviewd “The Free Ecomonic Pilot Zones Special Act”The Republic of China (R.O.C) have been carried out “free economic” recent years, by promoting “Free Economic Pilot Zone” (hereinafter as FEPZs) to encourage every industrial and foreign investment. Besides, FEPZs will not only keep talents and technologies in R.O.C but also liberalize and internationalize our economic.The Executive Yuan had approved a Bill titled “The Free Economic Pilot Zones Special Act” (hereinafter as the Bill) on Dec. 26th, 2013. At the end of May, the Joint Economic, Internal Administration, and Finance Committee of the Legislation Yuan (the Congress) have taken five public hearings for the Bill, and amended the Bill according to the advices proposed by specialists. Not until the deliberation of the Bill item by item and its passage in the Congress, the second stage of the FEDZ program would not be initiated. There are five main points, including the treatments on foreigners, tax incentives for R.O.C businessman, foreign professionals and foreign companies, regulations on untaxed goods and labor, regulations on industrial development, such as the agriculture and the medical service, and certain new items on education and professional services.The government considers that there have to be enough human resource to sustain the opened industries, so Executive Yuan is trying to promote innovative education in FEPZs. The core concept of FEPZs is foresight, liberalization and internationalization, the premier said, and the higher education systems belong to high-end service and have much more marketability and variability compared to other education systems. Through innovative and efficient way to manage the school could let University being much more liberalized. Furthermore, the higher education systems in R.O.C. have to connect with international education to avoid being marginalized. Our first stage of education innovation will promote to set up “degree programs” and “professional courses”. The first phase for the Ministry of Education is going to found “degree programs” or “professional courses” through collaboration way. The Ministry of Education will also draw up related regulations or guidance on standards for school cooperation, co-regulation, setup conditions, supervision, enrolling new student, and recruiting staff.? Once the Bills pass, The Ministry of Education plans to establish “branch school” and “independence campus” helping R.O.C. higher education goes internationalized.On the other hand, Our medical service also has strong international competitiveness. R.O.C is engage in developing international medical and health industry. The premier said, the Ministry of Health and Welfare have proposed some measures, such as limitation to the number of medical centre, medical personnel working hours, and NHI is not allow to use in the zones.The premier added, on the extemporaneous sittings, “The Free Economic Pilot Zones Special Act” will be the priority bills and be deliberated in the end of June By establishing the free economic demonstration zone, it is expected to propel R.O.C take part in Trans-Pacific Partnership (TPP) and the Regional Comprehensive Economic Partnership (RCEP).3.Executive Yuan’s rapid roll-out of “The Free Economic Pilot Zones”, and has published a report concerning the legal and economic implications of its the BillThe “Free Economic Pilot Zones” (hereinafter as FEPZs) plays a pivotal role in promoting market liberalization, especially at an international level. Premier of the Executive Yuan, Mr. Jiang Yi-Hua has stated that the “market economy” and “innovation economy” allows for tremendous economic prosperity to be embraced by the Republic of China (hereinafter as R.O.C). The seizing of such opportunity has been the goal of government efforts, which can be attested by the recent proposal of the “The Free Economic Pilot Zones Special Act” (hereinafter as the Bill), currently undergoing review and consultation proceedings. The Premier further stressed that the national economy should not be left excluded from international commerce, on the other hand, it is imperative that closer economic bonds with other nations are forged, therefore allowing itself open up to wider scope of opportunities for growth. The key in rendering this possible is through the enactment of laws. At a time, when Trans-Pacific nations, including the United States of America, Japan and countries from Southeast Asia, are working towards regional economic cooperation, if R.O.C. is to be left out, it is feared that its position in the global market would further be marginalized.The core innovative strengths of the FEPZs include “Smart Logistics”, “International healthcare services”, “Value added agriculture”, “Financial Services”, “Education Innovation”, all of which are implemented by employing R.O.C.’s finest workforce, knowledge, information and communications technology (ICT), geographical position and cross-strait relationship advantages, leading way for an advantageous basis for pioneering economic development. The first stage of development will be based on 6 locations proximal to the sea (including Keelung Port, Taipei Port, Kaohsiung Port, Suao Harbor, Anping Port, Taichung Port) and Taoyuan Aerotropolis and Pingtung Agricultural Biotech Park. The second stage of development would only commence after the Bill have been approved by the legislative Yuan, which would attract much capital investment, hence boosting high employment rates. Presently, besides the aforementioned regions opened up for the FEPZs, other cities and industrial sites (including those from offshore islands), are striving to gain membership of the FEPZs, or applying for empirical research of the FEPZs.The Executive Yuan has published a report concerning the legal and economic implications of its the Bill on May 2014. The report largely consists of assessments made by varying governing bodies, such as Ministry of Home Affairs, Financial Supervisory Commission etc., on the implications of the draft concerning real estate, employment, fiscal income, logistics, conditions for medical care, agriculture, higher education, social environment and social wealth redistribution etc.Furthermore, international attention has been closely centered on the progress of FEPZs. During the “The third review of the trade policies and practices of Chinese Taipei” after R.O.C accession to the World Trade Organization (WTO) held on the 17th of September 2014 in Geneva, each member state has demonstrated expectations arising out of the direction and planning undertaken for the FEPZs. National economic and international commercial reforms are under way and have seen much progress in further promoting the overall strength of the economic system, in an effort to respond to the rapid global political and economic developments, for example, through the signing of Economic Cooperation Framework Agreement (ECFA), and the implementation of FEPZs policies. In the future, it will be expected that R.O.C. will strive for a more integral international commercial system, allowing much capital investment inflows as well as the cultivating of high-caliber human resources.To promote more liberal and internationalized development of Taiwan economy, government of Republic of China (R.O.C) approved the “Free Economic Pilot Zone (FEPZ) Plan,” which the Bill is currently censored in Legislation Yuan and the measures would be implemented in two phases. The first phase of FEPZs would be initiated within six free trade ports, Taoyuan airport free trade zone, and Pingtung Agricultural Biotechnology Park; other industries that match up with the idea of liberalization, internationalization and foresight can all be incorporated into FEPZ through continuing examination under Execution Yuan. After this special legislation is passed, the set-ups of demonstration zones can be applied by authorities either of central or of local government and the related promotion works of the second phase will be unfolded immediately.Heading to the target of becoming Kin-Xiao (Kinmen and Xiaomen) Free Trade Zone, Kinmen government planned to apply to be one of the FEPZs and thus cooperated with Taiwan Institute of Economic Research (TIER) on December 11, for a commissioned research (which was later released on the conference of accelerating Kin-Xia FTZ on December 19) on evaluating if Kinmen is qualified for an application of FEPZs. Kinmen’s critical location and the featured industries have composed a perfect environment complying with the ideas such as value-added agriculture, international healthcare and innovative education for FEPZ. For instance, the white liquor industry in Kinmen represents the international management and promotion of agricultural products, and is the best example for value-added agriculture. “Long-term Healthcare Village in Kinmen,” which is currently developing in Kinmen, would also be a drive for international healthcare industry. Based on the Taiwan-featured culture, “International Education City” could be developed with a liberal and innovative atmosphere, which would attract famous schools in world to set up their branch school in Kinmen. Above all, Kinmen County vice Mayor, Wu Yo-Chin, indicated that Kinmen would be the first choice for FEPZ and would hold the key to open a new gate for the Cross-Strait. The vice Mayor emphasized that Kinmen government has well budgeting and financial management, which needn’t the extra aids from central government, yet Kinmen was excluded in the first phase of FEPZs. Although Kinmen would apply to be a FEPZ in the second phase after the special legislation passed, Kinmen still strived for taking part in the first phase of FEPZs due to the uncertain schedule for implementation of regulations on FEPZs.National Development Council (NDC), however, gave an opinion on issue of Kinmen applying to be in the first phase of FEPZs, which declared again the original plan for the first phase only included six free trade ports, Taoyuan airport free trade zone, and Pingtung Agricultural Biotechnology Park. NDC also suggested Kinmen could still follow after the first phase and apply to be a FEPZ in the second phase.
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