WEN-YEE LEE

By Wen-Yee Lee, Business Weekly

 

Feb. 9, 2023

 

Thirteen years ago on a winter day, Donald Pearce was on a long-haul flight to Singapore. He had just been appointed as the first Export Control Officer (ECO) for the U.S. Department of Commerce in Singapore. Much like a scene out of a Hollywood movie, with Tom Hanks playing a detective, Pearce carried out tasks assigned by the U.S. headquarters. In Singapore, he conducted End-User Checks on businesses to ensure products and technologies from the U.S. weren't misused in other countries.

 

On one occasion, Pearce visited a small, single-operator plumbing supply house in Singapore. The owner sold metal valves resistant to corrosion, catering to clients in the semiconductor equipment industry. Pearce recalled, "He couldn't figure out why this American diplomat wanted to come and see who he sold these particular Monel valves to."

 

Pearce, who served in the U.S. Department of Commerce for over twenty years and is now a senior consultant at Torres Trade Advisory, explained to Business Weekly that the valves were critical to those used in Syrian chemical weapons. He shared, “…This guy who'd been in the plumbing business for 30 years and never heard of this, that that valve, that one of the reasons it was so expensive and one of the reasons that the United States cared about it was because the bad guys were using it to make chemical weapons.”

 

A similar story could soon unfold in Taiwan.

 

On Jan. 31, the U.S. Department of Commerce listed a new position for a "Regional Crime Investigator (Export Control Officer)" to be based in the American Institute in Taiwan's Taipei office. This is a previously unseen position in Taiwan, and the appointee could arrive as early as the second half of this year.

 

Although these officers do not have law enforcement authority when they are overseas, they are rigorously trained by the U.S. “Simply put, they are federal cops,” Mi-Yong Kim, a former U.S. Department of Commerce official and consultant at Bass Berry & Sims Law Firm, stressed.

 

It's undeniable that Taiwan now faces the reality of "American cops” in its vicinity.

 

Currently, the U.S. Department of Commerce has nine ECOs stationed in overseas regions like Dubai, Beijing, Frankfurt, Istanbul, and Singapore. Pearce pointed out that these locations are global trade chokepoints with massive transactions and potential rerouting of U.S. goods to unauthorized end users.

 

Helsinki, Finland, and Taipei, Taiwan will be the eighth and ninth new overseas points. Kevin Wolf, a former senior official at the U.S. Department of Commerce, noted, "The connect between the two is obvious – The base in Finland allows for Russia-specific investigations and end use checks. The base in Taiwan allows for easier PRC visits, investigations, and end use checks."

 

As of the publication deadline, the American Institute in Taiwan had not provided a comment regarding the underlying motives for this position. However, the timing suggests it's connected to the escalating U.S.-China semiconductor conflict.

 

In January, the U.S., Japan, and the Netherlands reached an agreement prohibiting the sale of specific semiconductor equipment to China. Last October, the U.S. Department of Commerce also expanded controls on advanced Chinese semiconductors, restricting exports of high-end chips and certain semiconductor equipment to China.

 

Over the past few years, the U.S. has increasingly regulated exports to China's semiconductor industry, especially since 2019 when Chinese companies like Huawei were added to the Entity List. U.S. and foreign enterprises wishing to export products that use American technology or software to these Chinese companies must first obtain an export license from the U.S. Department of Commerce.

 

Increased regulations mean Taiwanese companies must navigate a complex landscape to avoid regulatory missteps. For instance, in April 2021, China's Tianjin Phytium Technology, involved in supporting Chinese military modernization and weapons of mass destruction programs, was added to the U.S. Entity List. This impacted its supplier, the chip design service company Alchip Technologies headquartered in Taiwan, which saw 25% of its annual revenue target affected. Alchip has since significantly reduced its revenue share from Chinese customers and ensures compliance with regulations.

 

According to a U.S. government job posting, the ECO being sent to Taiwan will oversee checks on U.S.-origin items before licensing and post-shipment, facilitate compliance with U.S. Export Control Regulations (EAR), and collaborate with local government officials and businesses to foster understanding of the regulations.

 

“The most important role of the ECO is to conduct end user verifications," Pearce said. U.S. officials will hold voluntary meetings with Taiwanese companies. If businesses cooperate and the U.S. finds their actions align with their words, they'll be deemed trustworthy. However, if a company consistently refuses to let the ECO in, they might be added to the Department of Commerce's Unverified List, potentially damaging their operations and stock prices.

 

Yangtze Memory, a memory chip manufacturer in China, was added to the Unverified List in October and to the Entity List in December last year.

 

However, the posting of such an official in Taiwan doesn't necessarily imply the U.S. sees Taiwanese businesses as more likely to break the law. The real target remains China.

 

Pearce expressed concerns that the move might be perceived as the U.S. viewing Taiwan as the “Wild, Wild West.” Instead, he clarified, “It’s the United States looking at Taiwan as being the key node in the semiconductor manufacturing industry. [This should be seen as] protecting U.S. and Taiwanese technology from being illicitly diverted to end users worldwide. But let's face it, China is probably the biggest threat.”

 

Pearce emphasized that Taiwan and China have strong commercial ties, and some matters can only be understood through communications on the ground. He cited an instance from when he was stationed in New York: he visited a company selling laser components to the United Arab Emirates and immediately grew suspicious because the components were later shipped to a free trade zone. Concurrently, they sent overseas colleagues to investigate in Dubai, discovering ultimately that the goods were sold to Iran.

 

American officials, already stationed in both Beijing and Hong Kong, encounter substantial obstacles while operating on Chinese soil. Pearce noted that most end-user checks in China amount to a “dog and pony show,” where companies, prepped by their government on what to express, present a meticulously orchestrated display to U.S. officials. However, he said, “To have someone that's outside of China that can operate with the potential middlemen in these transactions, it's a force multiplier.”

 

In other words, Taiwan is the strategic linchpin in this equation.

 

To Taiwanese businesses unfamiliar with U.S. export regulations, frequent visits from U.S. officials can be intimidating. However, the Export Control Officer's presence will also help them understand and navigate the complex regulatory landscape.

 

Lawrence Ong, an executive consultant at KPMG Taiwan, said that beyond semiconductors, many Taiwanese companies in industries such as materials and communications are wondering whether their products and services are restricted by U.S. export controls, preventing them from exporting to certain countries like China.

 

“The placement of a representative from the U.S. Bureau of Industry and Security (BIS) in Taiwan underscores the critical importance the U.S. attributes to the nation, reflecting its key role in semiconductor production, other leading technologies, and the prevailing geopolitical dynamics between the U.S. and China,” Ong added.

 

A senior executive from one of Taiwan's top three IC design firms told Business Weekly that many small and medium-sized businesses don't have the resources to hire expensive U.S. lawyers to explain the regulations. But with a U.S. export control officer in Taiwan, there's a direct channel for businesses to seek advice, enabling them to navigate the increasingly complex U.S. export control regulations.

 

Pearce suggests that Taiwanese businesses should better understand their customers, knowing the final use of the products and any significant temporary changes, to avoid violations. He also encourages companies to obtain the contact information of the U.S. export control officer, to ask questions when necessary, since one of the officer's duties is to ensure that local businesses operate safely.

 

“BIS gives great weight mitigation to what we call a voluntary self-disclosure. If you realize that something went wrong and you tell us before we start an investigation, we're going to say, all right, you know, don't let it happen again. Let us know what you're doing and fix this,” said Pearce.

 

By the second half of this year, once the officer is in position in Taiwan, whether they will be seen as a "good friend" to the Taiwanese industrial sector or a vigilant overseer remains to be seen. What's certain, however, is that amidst the escalating U.S.-China chip war, Taiwan's role has once again been thrust to the forefront.

 

Link: https://www.businessweekly.com.tw/Archive/Article?StrId=7007411&rf=google

(Chinese)