Adding fuel to the fire? Lawyers say Pelosi’s visit to Taiwan is unlikely to make any major waves for business

US House Speaker Nancy Pelosi’s visit to Taiwan last week could well inflame already strained relations between the US and China and between China and Taiwan. But lawyers say that local and foreign businesses in Taiwan are not panicking because they are well aware of the risks and challenges associated with working in Taiwan.

“The reaction inside Taiwan is actually quite muted because they’ve been putting up with cross-strait stress for 70-odd years,” said John Eastwood, a partner at full-service Taipei law firm Eiger. has an office in Shanghai.

Eastwood added that he did not see any foreign investors or European or American companies making major moves or changes in response to the military exercises and threats coming from Beijing.

Pelosi’s visit prompted a series of responses from the Chinese government, which sees a threat in the growing alliance between the US and Taiwan. He has since announced unspecified sanctions against Pelosi and her immediate family. Beijing also shot The The People’s Liberation Army will conduct military exercises, deploying mobile missile launchers and armored vehicles that have invaded Taiwan’s airspace and territorial waters.

A Chinese foreign ministry official slammed Pelosi’s visit as a “political farce,” telling a regular state briefing: “It is Pelosi who is speaking out, but bilateral relations, regional peace and stability will suffer.

But lawyers from Taiwan echoed Eastwood’s point, saying little has changed in the corporate or business world. One partner in a local firm Law firm Tsar & Tsai told Law.com International that there is really “no need to panic” as local and foreign companies in Taiwan are “very familiar with the risks and challenges associated with working in Taiwan.”

Another Taipei partner at one of Taiwan’s largest foreign law firms said that while his firm had received several inquiries from existing clients about the current mood in Taiwan after Pelosi’s visit, no one was making rash decisions.

“They know it’s all a political game ahead of the Chinese election,” the partner said.

However, it is becoming increasingly clear that Taiwan is stepping up efforts to protect its assets and businesses.

“Local regulators have amended regulations to protect local companies from hostile takeovers by mainland Chinese companies,” explained the Tsar & Tsai partner.

In 2020, Taiwan’s government introduced new rules to increase scrutiny of Chinese investments within its borders, joining the US in efforts to prevent China from circumventing rules governing investments in sensitive technologies.

Taiwan now allows Chinese investors to own up to 30% of Taiwanese companies in sectors ranging from electronic components to solar power, and even these planned investments are reviewed on a case-by-case basis. The new rules also prohibit Chinese investors from buying these shares through a third party.

Still, for the US, further retaliatory steps by China could be burdensome. China could impose sanctions on more American companies, as it did to aerospace giants Boeing and Lockheed Martin over arms sales to Taiwan earlier this year.

American retailers could also bear the brunt of consumer boycotts encouraged by the Chinese government, similar to those of retailers Nike and H&M last year, as a result of industry statements raising concerns about the alleged use of Uyghur forced labor and other human rights abuses in their supply chains. .

According to a 2021 financial report, Nike moved most of its production from China to lower-cost countries, and now makes more shoes and apparel in Vietnam, Indonesia and Cambodia.

Despite lingering political tensions, China remains Taiwan’s largest trading partner, with two-way trade growing at least 25% year-on-year. Last year, trade between the two countries amounted to more than 328 billion dollars.

However, lawyers say even Taiwanese companies are now looking to move their operations and investments from mainland China outside of China, citing a combination of China’s zero-spread policy for COVID-19, rising labor costs in the country, and strained relations between the two governments

“These [factors] are encouraging Taiwanese companies to take their investments elsewhere as they try to get out of China and put their eggs in another basket,” Eastwood said.

But most likely won’t come out completely right away, he said. Instead, they will look at other countries when they have the opportunity to expand the new line. At that point, he explained, they can start switching and moving their molds to another facility in countries like Vietnam, Malaysia, Indonesia and India.

One of Taiwan’s most valuable companies is Taiwan Semiconductor Manufacturing Company (TSMC), which produces most of the world’s most advanced chips. Like other countries, China relies heavily on Taiwan for semiconductor supplies. But TSMC could also move its production elsewhere. It is already building one plant in the US — in Arizona — and one in Kumamoto Prefecture in Japan. TSMC Chief Executive Officer Mark Liu told shareholders at the company’s annual meeting in June that the company is evaluating whether to build one in Europe.

Notably, foreign law firms that do not have offices in Taiwan have benefited from TSMC’s expansive business. In 2020, TSMC Global, a subsidiary of TSMC, completed three tranches of bonds worth $3 billion. Sullivan & Cromwell advised TSMC and Latham & Watkins was the underwriter. Both firms handled the deal from various offices including Sydney, New York, Hong Kong and Singapore. Earlier this year, Sullivan & Cromwell acted on behalf of TSMC in a separate US$3.5 billion bond offering registered with the US Securities and Exchange Commission.

In 2019, Quinn Emanuel Urquhart & Sullivan represented TSMC in its patent infringement lawsuits against Globalfoundries in the US, Germany and Singapore. Queen Emanuel also does not have an office in Taiwan.

For companies with significant corporate practices in Taiwan — Baker & McKenzie, Jones Day, White & Case and K&L Gates — the country’s global dominance in semiconductors, the critical components used in most technologies from smartphones to cars, is crucial.

Taiwanese silicon wafer manufacturer GlobalWafers Co. recently announced a $5 billion investment to build a chip manufacturing plant in Texas. In 2016, White & Case advised GlobalWafers on its $683 million acquisition of SunEdison’s semiconductor subsidiary from US renewable energy company BryanCave’s legacy.

Earlier this year, K&L Gates and Latham advised another Taiwanese semiconductor firm, Silicon Motion Technology Corporation, in its $3.8 billion private deal with U.S. integrated circuit company MaxLinear Inc., an integrated circuit supplier, represented by Wilson Sonsini Goodrich & Rosati.

Baker & McKenzie, K&L Gates, White & Case declined to comment. Jones Day did not respond to a request for comment.

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