- Lead. Democratic Progressive Party lawmakers have proposed an amendment to Taiwan’s Foreign Trade Act that would criminalise the unauthorised export of advanced integrated circuits, wafer materials, and chipmaking equipment to mainland China, carrying penalties of up to 10 years in prison and fines of NT$5 million to NT$10 million (approximately US$155,000 to US$310,000).
- Fact. The proposal explicitly covers third-country routing — the technique that has allowed servers to travel from Taiwan through Indonesia, Japan, Hong Kong, and Thailand before reaching Chinese buyers — and mandates confiscation of illegal proceeds. Under current law, prosecutors have been limited to breach-of-trust and forgery charges because only 12 categories of wafer-fab equipment are formally restricted.
- Stake. The opposition Kuomintang and Taiwan People’s Party hold a combined legislative majority and have not stated a position, meaning the bill could stall; but the proposal itself has been prompted by an August 2026 indictment that exposed the scale of the enforcement gap.
Taiwan’s Legislative Yuan Economics Committee held a public hearing on the proposed Foreign Trade Act amendment, according to a report by Asia Times published Tuesday. The hearing follows a series of enforcement cases that have revealed what officials describe as a systematic effort to route restricted AI servers through third countries in order to reach Chinese buyers.
The August Case That Prompted the Bill
Keelung prosecutors indicted nine people in August 2026, including the general manager of Flying Tiger Technology and staff at local units of Nvidia and Super Micro Computer. The defendants allegedly diverted 74 Nvidia B300 servers to Chinese buyers and earned over NT$600 million — approximately US$18.5 million — from the transactions. Because no specific law prohibited the export at the time, prosecutors relied on breach of trust and document forgery, based on falsified end-user certificates.
The same investigation grew out of a May 20, 2026 Taiwan Coast Guard raid that searched 12 locations, seized about 50 Supermicro servers worth more than US$15 million, luxury cars, and NT$9 million in cash, and detained three individuals on suspicion of forgery. B300 chips have since appeared on China Telecom’s network, suggesting shipments reached Chinese state infrastructure. A parallel US case filed in March 2026 described approximately US$2.5 billion in servers sold to a Thailand-based shell company, with at least US$510 million allegedly diverted to China.
What the Proposed Law Would Change
Under the current Foreign Trade Act, Taiwan’s economy ministry can restrict exports to China via administrative notice — the method used for the 12 existing wafer-fab equipment categories — with penalties of up to five years in prison. The DPP amendment would double the maximum sentence to 10 years, explicitly close the third-country routing loophole that existing rules do not address, and make confiscation of illegal gains mandatory rather than discretionary. Only legislation, rather than ministerial notice, can achieve all three changes simultaneously.
Prosecutors and customs officials have argued that the absence of a dedicated criminal statute made it difficult to build cases because investigators had to fit chip-smuggling conduct into misappropriation or forgery frameworks — charges that required proving a different set of facts than the actual export violation. The proposed amendment would create a specific offence, simplifying both investigation and prosecution.
Legislative Path Uncertain
The DPP does not hold a majority in the Legislative Yuan. The KMT and TPP, which together control enough seats to block or reshape legislation, have not publicly stated whether they support the bill. Some KMT members have argued in past debates that overly broad export restrictions would damage Taiwan’s commercial relationships in Southeast Asia, where many of the third-country shell companies operate. The DPP will need to either win over coalition partners or build a broader cross-party consensus before the amendment can advance to a vote.
Taiwan’s economy ministry could add AI servers and chips to the restricted list by public notice at any time, applying the existing five-year maximum — a step that would not require legislative approval. Officials have signalled that the ministerial route remains an option if the bill stalls, but DPP lawmakers argue that the stronger criminal penalties in the proposed amendment are necessary to deter the well-organised smuggling networks now operating at scale.