Publication：2023.12

Principal Investigator：顏慧欣Yen, Huai-Shing

Researchers：蘇怡文Su, Yi-Wen、鄭昀欣Cheng, Yun-Hsing、羅絜、聶廷榛、蔡晴雯、黃哲融、劉真妤

This study focuses on the regulatory mechanisms adopted by various countries in the recent years to protect critical technologies, with the aim of safeguarding national security and economic security. Firstly, the study examines the foreign investment screening mechanisms of the United States, the European Union, Germany, Japan, and South Korea. It reveals that all five nations have amended legislation within the last five years.

After the U.S. passed the Foreign Investment Risk Review Modernization Act of 2018 (FIRRMA) in 2018, the scope of the Committee on Foreign Investment in the United States (CFIUS) review has expanded, specifying that non-controlling investments and specific real estate transactions are included in the national security review, and classifying sensitive personal information, critical technologies, and critical infrastructure as TID U.S. business that should be subject to mandatory declaration before proceeding the investment.

Following the promulgation of the EU Regulation 2019/452, the EU has granted the European Commission and Member States the right to express opinions on foreign investments in the territory of other Member States or on projects or programs that may affect the interests of the EU. In addition, Germany has amended the Foreign Trade and Payments Ordinance (AWV) and Foreign Trade and Payments Act (AWG) to make alignment with the EU Regulation 2019/452. It is worth noting that the new screening threshold for "cross-sector investments" to strengthen national security and public order protection was added.

In 2019, the Foreign Exchange and Foreign Trade Act in Japan was amended, requiring the designated or core sectors to declare in advance and subjecting them to investment screening.

 In South Korea, the Regulations on Operation of Security Review Procedures for Foreign Investment enacted in 2022 requires that foreign investments that will result in gaining de facto control and fall into one of the five scenarios that may hinder the maintenance of national security should be proactively declared and subjected to screening. In addition, this study also examines factors regarding the national security and public order that each state should take into consideration for its foreign investments, concluding that each country should prioritize the following factors: "whether the transaction is under the control of a foreign government," "whether the transaction involves critical technologies, energy assets, critical raw materials, or critical technologies that could potentially impact national security," and "whether the investment poses a threat of national security or cybersecurity."

To prevent the leakage of critical technologies, this report also further analyzes various countries' dual-use export control regimes. It reveals that the majority of these countries have related rules between export control and foreign investment screening. Moreover, since the US has initiated export control against Russia and China in 2022, the European Union, Germany, Japan, and South Korea have all responded positively and further developed international cooperation initiatives or working groups with the US to regulate critical technologies.

 Moreover, this report also analyzed outbound investments screening mechanism. Out study has found that Japan and South Korea require domestic investors to obtain prior authorization or engage in prior declaration and screening procedures based on the scale of the overseas investment, on the impact to investor's home state’s national security and social/ economic aspects, and on whether or not such overseas investment involves a designated industry. On the other hand, the United States, the European Union, and Germany are still in the stage of advocating such mecahnism. Still, these policies have shown that advanced countries are highly aware of the national security risks that enterprises investing in sensitive critical technologies overseas can bring and are, therefore, expected to promulgate formal regulations on oubtound investment screening mechanisms in the near future.

Based on the above research, this study proposes three policy recommendations:

1. While various countries implement policy instruments to regulate critical technologies through their national security strategies, Taiwan should adopt a comprehensive strategic approach:

At present, Taiwan lacks a comprehensive national strategy to coordinate how the critical technologies should be protected against external national security threats and supply chain risks, as well as to maintain its leading position in developing advantaged industries. Thus, it is advisable that Taiwan establish a consensus on the technical standards or items related to critical technologies within the Ministry of Economic Affairs, and then adopt a more cohesive strategy on regulative methods to enhance the efficacy of managing Taiwan's critical technology exports.

2. The existing foreign investment screening mechanism should be modified to align with the screening threshold of China's investment review mechanism:

In recent years, various countries, including the United States, Europe, and Japan, have reassessed or amended their regulations regarding foreign investment screening mechanism considering the overall national security or public interest factors. Those countries do not differentiate between the sources of foreign investment, regardless of whether they are derived from countries such as China or Russia. Given the globalization of capital flows, this approach can strengthen the protection of domestic industrial security by not distinguishing the source of funds. Since there are differences between the existing mechanisms for screening foreign and Chinese investments in Taiwan, it is recommended that Taiwan's screening criteria for general foreign investments be appropriately incorporated into the existing standards and considerations for screening Chinese investments. It is also advisable to make an assessment and promulgate specific considerations regarding national security to enhance others’ understanding of Taiwan's policy direction for foreign investment screening and the key points for assessment.

3. Regulation of critical technologies must rely on multilateral cooperation. Apart from continuously observing international trends of development, we should take the initiative to discuss relevant cooperation with the United States: 

Taiwan should leverage its current friendly and interactive relationship with the US to further enhance cooperation and exchanges on critical technologies. This includes actively participating in standard-setting activities for critical technologies, striving to become a CFIUS Excepted Foreign State, and establishing a bilateral relationship with the US on cooperation regarding investment screening and information sharing. Additionally, Taiwan should follow the pace of export regulation implemented globally and coordinate as much as possible with the international trend in such environment of economic sanctions, aiming to secure the best interests for our nation.

Chinese：https://web.wtocenter.org.tw/Page/91/401735