By embracing digitalization and best practices, streamlining border procedures, and enhancing logistics operations, Taiwan could pave the way for a more efficient and cost-effective trade relationship with the United States.
On June 1 this year, the Office of the United States Trade Representative (USTR) spokesperson Sam Michel announced the official signing of the first agreement under the U.S.-Taiwan Initiative on 21st-Century Trade. Signed by representatives of the American Institute in Taiwan (AIT) and the Taipei Economic and Cultural Representative Office in the United States (TECRO), the agreement “is intended to strengthen and deepen the economic and trade relationship between the United States and Taiwan,” stated Michel.
Of the assorted trade areas this milestone agreement seeks to address, one target is harnessing best practices regarding customs administration and trade facilitation. According to AIT, the aim is to streamline border procedures and reduce red tape, ultimately making it easier, faster, and more cost-effective for American businesses to bring their products to Taiwan.
This marked transition toward electronic documentation and systems for traders, electronic invoicing and payment, and the exchange of advanced electronic data will “establish a foundation for addressing additional trade and investment challenges and opportunities,” as stated in the agreement.
Just one month after the first agreement’s signing, Taiwan Business TOPICS sat down with the head of the Office of Trade Negotiations (OTN) John Deng to unpack existing challenges and solutions presented by the agreement. One such complication has been how to deal with the digital version of a given document and recognize the validity of copies.
The answer is “to allow more digital tools to be used in the filing of the documents and process,” says Deng, noting that the Customs Administration and Trade Facilitation chapter of the Initiative on 21st-Century Trade is designed to address just that kind of issue.
A second bottleneck occurs when Taiwan’s ports must wait for planes or vessels to arrive in order to use the onboard manifest and review the types of products being imported. These steps can now be carried out digitally through “the advanced routing before the products arrive in Taiwan,” says another OTN staff member.
Adoption of provisions that address digitalization is a welcomed development for logistics companies in Taiwan. Alex Shih, senior manager of Tonglit Logistics, which provides automotive added-value logistics in the Port of Taipei’s Free Trade Zone, is hopeful that the digitalization of Taiwan’s logistics sector will now progress faster.
Tonglit has received support from the Ministry of Transportation and Communication (MOTC) for the “Harbor 5G Vehicle-to-Everything (V2X) Digital Twin Platform Project,” which focuses on the integration of smart shuttle buses, blockchain logistics, intelligent intersection traffic monitoring, and 5G-based V2X systems to enhance the digitization of port logistics operations.
With this sizeable project underway, scaling and integrating smart solutions across all Taiwan International Ports Corporation’s (TIPC) ports are difficulties that lie ahead for Tonglit. The Initiative, however, can “support TIPC in attracting investments, promoting collaboration, and providing access to advanced technologies, thereby accelerating the implementation of smart solutions at TIPC ports,” says Shih.
But that isn’t all Tonglit expects to see. “By providing faster and more accurate services, the Initiative would enhance overall customer satisfaction,” notes Shih. Such digitalization would play a crucial role for TIPC, which has encountered obstacles in improving overall port competitiveness and enhancing the port business ecosystems to elevate the quality of Taiwan port operations. The Initiative, Shih adds, would assist in overcoming these obstacles through “collaboration, promotion of best practices, and knowledge and technology exchange between Taiwan and the United States.”
Michael Chu, managing director of FedEx operations in Taiwan, provides an even greater cognizance of the Initiative’s expansive scope. For an extremely tech-oriented and key global supply chain market, large-scale digitization would mean that Taiwan “can become a role model, if not pioneer, in this opportunity as key suppliers to many industries, especially in the high-tech sector,” says Chu.
Such a positive outlook doesn’t entirely escape a watchful eye, though. “We also wonder how and when those tactics and execution plans would be ready,” notes Chu. Building on this point, Chu flags the digitalization across government entities – not exclusively customs – as a challenge that would require the support of many government agencies.
Chu additionally emphasizes the importance of the Initiative’s call for the U.S. and Taiwan governments to continue improving regulatory practices by allocating adequate time and meaningful opportunities for public consultations and consideration of comments.
The linchpin to Taiwan’s logistics and customs modernization, digitalization, and further enhancement has become increasingly evident: interoperability. Striving for a single uniform system rather than aiming to establish uniformity across various systems could lead to varying degrees of success, with a potential disadvantage for the latter approach. Elements of interoperability already exist within the island’s logistics industry but have yet to find true coalescence.
“Taiwan has a lot of industrial parks, manufacturing parks, and even science tech parks,” says Charlie Chang, CEO of Taipei-based Ally Logistic Property (ALP). “But you never hear about Taiwan having a logistics park.” Chang explains that the two primary functions of industrial land property in Taiwan have been manufacturing and warehousing, with greater areas of land allocated to manufacturing.
Warehousing is often relegated to small sheds of questionable legality, built without permits alongside factories. Traditionally warehouses in Taiwan have been operated by individual manufacturers, and a lack of capital has kept operations from reaching a larger scale and greater technological sophistication. “And that was the genesis of our ideas,” says Chang. “Why not do a logistic park? Because people need it.”
Creating a large, fully legal facility under an infrastructure service model invites investment to put in the next generation of ideas. Performance is shared, automation expands, and ALP’s flexible IT systems allow for a “plug and play” setup so that scientists and companies can link up their own systems.
“This is pretty much like cloud computing, where you don’t operate your own servers anymore,” says Chang. Instead, he explains, companies can rent storage space, adapt it according to fluctuating needs, and outsource the management. “This is exactly what we’re talking about – smart infrastructure.”
Technological advancements and increased efficiency in the logistics sector are met with an understandable eagerness. Chang stresses that the logistics sector is already facing staff shortages and says the repetitive nature of working in a warehouse is unsuitable for people but perfectly suited for machines. “In a way, if you don’t automate or digitalize soon, one day you won’t find the right workers or even find any workers to work anymore,” says Chang.
Finding the intersection between automation and the evolution of warehouse and logistics workers in Taiwan comes during a prolonged period of labor issues and shortages. In response to these developments, German multinational package delivery and supply chain management company DHL Group has set out to harness the potential of both entities within its core logistics businesses.
“Through DHL’s Strategy 2025, we will be comprehensively modernizing IT systems, integrating new technologies, offering employees targeted advanced training to enable them to use these technologies, and thus steadily improving services, processes, and standards between now and 2025,” says DHL Supply Chain Taiwan’s Managing Director, D.J. Shieh. Future iterations of these programs across the industry have a chance of fostering a specialized, transferable labor pool built for the long-term implementation of more automation.
“A good example is the Vertical Lift Module (VLM) we just installed in our Tainan warehouse in June this year,” says Shieh. “VLM is a goods-to-person technology, which enables our staff to save 50-60% from traveling inside the warehouse to pick up goods in different distant locations.” Shieh notes that through this technology alone, DHL can hire fewer employees while boosting productivity and space utilization.
For manufacturers and international customers, however, one trade barrier remains even after the implementation of these government and industry initiatives. Many companies enhance logistics efficiency through drop shipping, a retail business model where the seller takes customer orders without maintaining inventory. Instead, the seller forwards order and shipping specifics to either the manufacturer, wholesaler, another retailer, or a fulfillment center, which directly ships the products to the customers.
But when a foreign company ships products from a contract manufacturer in Taiwan directly to its foreign customers, the transaction is considered a sale within Taiwan and is subject to domestic income tax. This treatment of drop shipments differs from that of the U.S. and many other countries, raising concerns regarding double taxation on drop-shipped goods.
Foreign companies in Taiwan would rather have their products first sent back to an overseas distribution center before shipping them to the ultimate customer in a move to avoid double taxation. In the 2023 edition of AmCham Taiwan’s White Paper, the Chamber’s semiconductor committee notes that “this approach greatly reduces logistics efficiency and unnecessarily increases transportation costs and carbon footprints.” The semiconductor industry, which accounts for 15% of Taiwan’s GDP, has been particularly affected by this issue.
“At present, demand for drop shipping from global customers continues to rise and the trend is likely to remain,” states the committee. “By significantly cutting transportation costs and shortening delivery times, eliminating barriers to drop shipping would further incentivize foreign companies to place contract manufacturing orders with, and invest in, Taiwan’s semiconductor industry.”