On February 7, 2023, the Ministry Of Economic Affairs (below, the “MOEA”) announced amendments to High-Tech Commodities List for Exportation to Russia and Belarus (below, the “List”), and reminded manufacturers to avoid circumventing regulations by transshipping machine tools through third countries.

Background

The List is established by the MOEA, in accordance with Article 13, Paragraphs 1 and 3, of the Foreign Trade Act, with the intention of preventing high-tech goods from being exported from Taiwan to Russia and Belarus and being used for inappropriate purposes. Goods on the List shall not be exported to Russia and Belarus without a permit. Because machine tools are capable of machining many materials and can be used in both military and civilian applications, governmental entities such as the European Union and the United States have been gradually strengthening export controls on machine tools since 2023. In January 2023, Taiwan added machining centers, high-end lathes machines, and other items to the List, but did not include items such as electric discharge machines. Compared with other international regulations, there was a clear gap in the scope of Taiwan's controls. Additionally, manufacturers in Taiwan have transshipped machine tools to Russia through third countries (such as Turkey, the United Arab Emirates, and Central Asian countries). Based on Russian customs statistics, from March to September 2023, Russia imported at least 193 Taiwanese-made machining centers, with a total value of nearly US$29 million. This caused concerns for many governments. With the aim of fulfilling international cooperation obligations and to align with international regulations, the MOEA has announced amendments to the List, and requires manufacturers to fulfill their due diligence obligations.

Measures Taiwan has adopted to strengthen controls on machine tools

In order to prevent Russia from using Taiwan-manufactured precision machine tools to manufacture weapons, the MOEA has taken action to strengthen machine tool export controls. Below are highlights of recent measures:

1.Amending the List: The MOEA has announced amendments to expand the scope of machine tool export controls. In addition to the existing Export Control Classification Numbers (ECCN), 77 items related to machine tools, including electric discharge machines and metal machining, have been added to the List based on the six-digit Harmonized System (HS) Code standard. Exports of these 77 machine tool categories from Taiwan to Russia in 2023 amounted to approximately US$45 million, accounting for 1.47% of Taiwan's total exports to Russia. Considering the impact on manufacturers, a one-month transition period is provided; the newly-amended List officially takes effect March 8th, 2024.

2.Requiring manufacturers to undertake due diligence obligations and sign affidavits, preventing illicit transshipment: Pursuant to Article 13, Paragraph 1, subsection 3 of the Foreign Trade Act, businesses are required to accurately declare ultimate end-users. To prevent Russia from obtaining high-tech goods manufactured in Taiwan through third countries, the MOEA now requires manufacturers to sign affidavits that they have conducted due diligence and affirm that high-tech goods will not be re-exported to Russia or Belarus via third countries that have a high risk of such re-exportation. In the event of related disputes in the future, manufacturers will be required to demonstrate that they have undertaken due diligence and have effectively restricted third-country businesses from re-exporting to Russia or Belarus. Otherwise, such manufacturers may be deemed to have intentionally re-exported to Russia via third countries and face penalties for doing so.

3.Enhancing baseline penalties: The MOEA has significantly increased penalties for violating the ban on exporting to Russia and Belarus. The penalty for a first-time violation has been increased by approximately 15 times, to NT$1 million.

Manufacturers must improve legal compliance systems

The recent measures regarding export controls toward Russia and Belarus affect all domestic machine tool products. To mitigate the impacts and address geopolitical risks, while developing their global market deployment, manufacturers must also promptly improve their internal export control systems to comply with domestic and international export control regulations. Manufacturers must fulfill their duty and avoid violations that could affect their reputations and interests.

On November 27, 2023, the Ministry of Digital Affairs (“MODA”) announced a draft version of the "Mandatory and Prohibitory Provisions of Standard Contracts for Crowdfunding Platforms" (the “Draft”) in an attempt to create an environment that is favorable for crowdfunding. The Draft’s public comment period ends on January 26, 2024.

Background

As crowdfunding platforms have grown popular in the last few years, they have given rise to many legal problems. The most important characteristics that set a crowdfunding platform apart from an ordinary online shopping platform are that crowdfunding projects are subject to minimum thresholds, and present a risk of default on performance or impossibility of performance. The Draft was therefore introduced to enforce a sponsor protection mechanism that works across crowdfunding platforms to protect sponsors' interests and ensure that they exercise rational judgment while being fully informed of the risks involved.

Content of the Draft

The Draft outlines 13 provisions that must be included in a crowdfunding platform contract, along with 8 provisions that cannot be included. The Draft conveys the following key messages to crowdfunding platform operators: (1) Creation of a review and supervisory system: Operators are required to conduct reviews on whether a crowdfunding project conforms with legal requirements; proposers are required to provide a plan that ensures smooth implementation of the crowdfunding project, and to outline methods for handling instances of default on performance or impossibility of performance. (2) Disclosure of project information: The crowdfunding project's page must explain detailed crowdfunding project information, and provide an appropriate web page interface for sponsor searching and browsing. (3) Creation of a risk prompting system: Each sponsors must be reminded, in red text or other prominent ways, of the crowdfunding risks when making a commitment to sponsor; and there must be mechanisms for sponsors to confirm their agreement to the crowdfunding project’s content. (4) Creation of a remediation system: Operators must implement a remediation system that covers inquiry, complaint Q&A, and reporting of violations. (5) Robust dispute resolution: In the event of a dispute, operators must contact and arrange to have the proposer appear in a remediation meeting, and provide required assistance.

Subsequent effects

If the Draft is enacted, it will provide greater protection and reduce unnecessary risks, thus giving sponsors more reason to trust crowdfunding platforms. Furthermore, by having platform operators serve as responsible gatekeepers who keep an eye on proposers, information will be disclosed more truthfully and in greater detail; this will put sponsors’ minds at rest, and in turn attract more crowdfunding projects and raise the professionalism of the industry as a whole. The Draft will also enable the government to supervise crowdfunding activities more effectively, giving investors a robust and healthy environment that supports innovation.

To promote comprehensive data-sharing mechanisms and establish a trusted data altruism ecosystem that fosters sustainable development, the Ministry of Digital Affairs announced drafts of the Data Altruism Operation Guidance and the Privacy Enhancement Technology Application Guidance on September 11, 2023, for public consultation. The two Guidance papers were then officially announced on January 26, 2024, setting a milestone for data governance in Taiwan.

Data Altruism Operation Guidance

The Data Altruism Operation Guidance is an administrative guidance that explains voluntary and cost-free operational mechanisms for using electronic data that is not classed as personal information. The Guidance starts by setting out definitions (such as data altruism operators, data holders, data users, and stakeholders) and the fundamental principles of data altruism operations. The Guidance also recommends establishing data management systems, consent withdrawal mechanisms, mechanisms for notifying of improper data use, outsourcing supervision, and educational training.

The following are the principles of data altruism operations. First, the Guidance emphasizes compliance with relevant legal regulations, such as the Personal Data Protection Act, and regulations governing government information disclosure, intellectual property rights and trade secrets protection. Second, activities should be conducted in an honest and trustworthy manner that respects stakeholders’ rights and interests. Third, appropriate management measures should be implemented to ensure that data utilization aligns with altruism purposes. Last, to ensure transparency in data collection, processing, and utilization, privacy enhancement technologies should be adopted and information should be disclosed in a manner that does not increase risks (see “Privacy Enhancement Technology Application Guidance”).

Regarding data management, once data altruism operators define their objectives and operational domains, they should then establish management systems that cover data reception, processing, utilization, recordkeeping, and disclosure to ensure compliance and effectiveness. The Guidance also recommends that written contracts be established between data holders, data altruism operators, and data users, with such contracts specifying rights, obligations, compensation, and limitations on commercial use. Additionally, the Guidance recommends that data utilization conditions be proportionate to factors such as data content, altruism goals, and utilization methods. While non-exclusive utilization is preferable, exclusive arrangements are acceptable if necessary, but the key terms must be publicly disclosed beforehand. Furthermore, if the collection, processing, or utilization of data is outsourced, the Guidance recommends establishing contracts for appropriate supervision, including on-site audits, explanations, or reports, to ensure strict compliance and implementation of data security measures.

Privacy Enhancement Technology Application Guidance

The Privacy Enhancement Technology Application Guidance provides an overview of privacy enhancement technologies (PETs), technology implementation processes, technology classifications, and applications, as well as the challenges associated with their implementation. Detailed explanations and case studies are also given for five pivotal PETs – differential privacy, synthetic data, federated learning, homomorphic encryption, and secure multiparty computation. As PETs can facilitate sensitive data usage while also ensuringdata protection and privacy, PETs are looked to globally as one of the keys to realizing the benefits of data altruism.