Taiwan's war against Uber could backfire
This should be a good time to be an American Internet company in Taiwan.
The President, Ms Tsai Ing-wen, has pledged to build an Asian Silicon Valley on the island. And the new American President, Mr Donald Trump, has threatened a trade war with Taiwan’s rival in mainland China.
The stars would appear to be aligned.
So it is surprising that on Feb 10, one of America’s most successful digital companies, Uber, had to suspend its operations in Taiwan.
The issue was a new law to impose fines of up to US$800,000 (S$1.1 million) on unlicensed transportation services such as Uber Technologies Inc.
“We have never seen anything like this, ever,” Mr Damian Alexander Kassabgi, Uber’s director of public policy for the Asia-Pacific region, told me last week.
“We received fines in total of US$8 million. We felt we had no other choice but to suspend our service until the government gave us some other options.”
So far that has not happened. The problem for Uber is that Taiwan’s taxi industry has a lot of influence with the government in Taipei. At least this is Uber’s perspective.
The company had offered its ride-sharing service for three years in Taiwan, but in August it became a target.
At first the government threatened to take away Uber’s business licence. Then, in January, the legislature passed the new law that imposed the fines.
“What we see in Taiwan is a conservative bureaucracy that has not shown willingness to accept or update laws accordingly,” said Mr Kassabgi. “The taxi industry won the day.”
The Taiwanese government tells a different story.
A Taiwanese government memo from December on the Uber controversy defends the government scrutiny of Uber.
“Most countries regulate public transport businesses because these services affect consumer rights and basic transportation safety,” it said.
“An appropriate level of government intervention is thus needed to maintain market order and protect the public interest.”
Right now, the fate of Uber in Taiwan is in limbo.
Mr Kassabgi said that while the State Department has been helpful in pressing Taiwan’s government to reconsider the anti-Uber legislation, so far nothing has changed.
There are a few reasons this is important.
First, Taiwan is one of America’s closest allies in the Asia-Pacific region.
The US is the island’s main supplier of military equipment and weapons systems.
During the transition, Mr Trump broke precedent and took a telephone call from Ms Tsai, raising the prospect that Mr Trump rejected the long-standing “One China” policy, under which the US does not recognise Taiwan as an independent nation-state.
Mr Trump has since affirmed that he does accept this policy.
“Of all the countries, you would think they would not target US companies,” said Mr Derek Scissors, an economist who specialises in Asia at the American Enterprise Institute.
“If an American friend would do this, why wouldn’t countries where the US has less of a relationship do this as well?”
The Uber saga in Taiwan is also a reminder that protectionism is a two-way street.
Mr Trump himself has threatened tariffs on companies that sell products in the US market produced outside the US. In one of his first acts as president, he withdrew the US from the Trans-Pacific Partnership, a multi-lateral trade deal with Asian countries that did not include Taiwan.
At the same time, Taiwan’s anti-Uber law bolsters Mr Trump’s arguments that America’s trading partners take advantage of the US in trade deals.
A spokesman for the Taipei Economic and Cultural Representative Office in the US told me that Taiwan was not worried about retaliation.
He said Taipei’s goal is to keep companies compliant with local laws.
In this case, though, it looks like this argument is a smoke-screen to protect Taiwan’s taxi industry. But this is not a zero-sum game.
It is true that Uber disrupts the taxi business in all the countries where it operates.
But at the same time, it is not taking jobs away from the local economy. Taxi drivers lose jobs, but new jobs are created for drivers who use Uber’s ride-sharing application.
For now, the controversy has the potential to chill trade between Taiwan and the US.
Earlier this month, Mr Michael Beckerman, the president and CEO of the Internet Association, which includes Uber and America’s other largest Internet companies, warned Ms Tsai that the fines against Uber would have wider ramifications.
He wrote in a letter from Feb 9: “Taiwan’s hard line against innovative new digital services like those in the peer-to-peer sharing economy will have a chilling effect on your goal of establishing Taiwan as the Silicon Valley of Asia, and will likely have negative effects on US investment in Taiwan more broadly.”
That is something for Ms Tsai to consider.
America now has a President who has threatened to respond in kind to countries that punish US companies to protect their own industries.
Is Taiwan’s taxi industry worth protecting if the cost is a trade war with the island’s most important ally? Uber would like to know. bloomberg
ABOUT THE AUTHOR:
Eli Lake is a Bloomberg View columnist. He was the senior national security correspondent for the Daily Beast and covered national security and intelligence for the Washington Times, the New York Sun and UPI.
