On June 30, TaiwanPlus reported on an ongoing investigation by Taiwanese prosecutors into allegations involving employees of Supermicro’s Taiwan branch smuggling chips to China. The report cited analysis by Tsai-Yi Wang, a non-resident fellow at DSET, to explore loopholes in the current legal framework.
When asked by the host about the significance of this case, Wang highlighted two main points. First, if high-level executives of the company are indeed collaborating with Chinese buyers and smuggling rings, then the KYC (Know Your Business) protocols that the government has long been educating businesses to implement would have very little effectiveness.
Second, the case underscores Taiwan’s limited options for punishing chip smuggling. Despite having multiple export control measures in place, under Taiwan’s Foreign Trade Act, exporting “strategic high-tech goods” to “non-restricted regions” only incurs a maximum administrative fine of NT$3 million, with no criminal liability [1]. Crucially, Wang noted that prosecutors have very few occasions under the administrative regulation that the prosecutors can detain the suspects. If a suspect flees to China, it becomes virtually impossible for either the Taiwanese or U.S. governments to move the investigation forward.
In response to the host’s follow-up question on how Taiwan and other countries can counter the flow of AI chips to China, Wang drew on her research to provide insight. A comparison of export control measures among various allies reveals that Taiwan shares the highest overlap with the U.S. Entity List and possesses stronger actual enforcement power. While some countries have established entity lists, their regulatory focus is mostly concentrated on restrictions on capital flows rather than export controls on technology and goods.
The DSET Economic Security Research Program continues to closely monitor reforms to Taiwan’s export control regulations and plans to publish a comparative report on the export control and entity list systems of Taiwan and other countries in the second half of the year.
[1] Under Taiwan’s current Foreign Trade Act, illegally exporting controlled goods to a “restricted area” carries a maximum penalty of up to five years in prison. However, Taiwan does not currently classify China as a “restricted area.” Consequently, such violations can only be penalized with administrative fines under regulations governing unauthorized exports to “non-restricted areas.” According to a Bloomberg report on June 9, the Taiwanese government is considering further tightening export controls on artificial intelligence chips to China, and the Ministry of Economic Affairs has responded that it will continue to strengthen management mechanisms.
