Taipei is taking steps to close a legal loophole that has allowed advanced AI chips to reach China through third countries, with lawmakers proposing to make unauthorized exports a criminal offense. The amendment to the Foreign Trade Act, discussed at a public hearing on Monday, would impose prison terms of up to 10 years and fines of NT$5 million to NT$10 million (US$155,000 to US$310,000) on violators.
The proposed legislation, backed by the ruling Democratic Progressive Party (DPP), targets not only finished chips but also key wafer materials, components, and chipmaking equipment. It explicitly covers shipments routed through third countries, a tactic that has become common in recent smuggling cases.
Loophole exposed by Nvidia server smuggling
The urgency stems from a case in Keelung, where prosecutors indicted nine people in August, including the general manager of Flying Tiger Technology and staff at local units of Nvidia and Super Micro Computer. They allegedly diverted 74 Nvidia B300 servers to Chinese buyers, earning over NT$600 million (US$18.5 million). However, none of the nine faced export charges—prosecutors relied on breach of trust and document forgery, as selling the servers to China violated company policies and US export controls but not Taiwanese law.
That legal gap has drawn criticism from officials and commentators. William Liu, director-general of the International Trade Administration, said at the hearing that export controls have evolved from preventing weapons proliferation to a strategic tool for protecting technological edge and national security. He added that the ministry is studying a comprehensive package to bring high-end chips under control, which would help block illegal transshipments and safeguard Taiwan's "silicon shield."
Liu also detailed increasingly sophisticated smuggling methods, including laundering goods through third countries, setting up shell companies in Southeast Asia and the Middle East, misdeclaring high-end chips as ordinary consumer electronics, and dismantling chipmaking tools for export in parts.
Wang Guo-chen, an associate research fellow at the Chung-Hua Institution for Economic Research (CIER), said the amendment aligns with the US-Taiwan reciprocal trade agreement and Taiwan's security interests. However, he warned that Taiwanese firms operating in China could face a dilemma: Chinese fines if they comply with US law, or US export controls if they follow Beijing's directives.
Not all experts are convinced. Tseng Chih-chao, deputy secretary-general of the Association for Chinese Economic and Financial Research, argued that the amendment singles out mainland China while the US trade agreement also covers North Korea, Iran, and Russia. He suggested that adjusting existing control mechanisms under the Foreign Trade Act would be more flexible than writing specific countries and technologies into law.
Smuggling routes multiply
Since 2024, Nvidia-powered servers have repeatedly slipped through Taiwan to China via Thailand, Indonesia, Japan, and Hong Kong. In March 2026, the US Department of Justice charged Super Micro co-founder Yih-Shyan "Wally" Liaw, Taiwan sales manager Ruei-Tsang "Steven" Chang, and contractor Ting-Wei "Willy" Sun with conspiring to divert servers containing restricted Nvidia chips to China. US prosecutors alleged that about US$2.5 billion worth of servers were sold to a Thailand-based company, with at least US$510 million diverted to China between late April and mid-May 2025.
In a separate operation, Taiwan's Coast Guard Administration, acting on Keelung prosecutors' orders, searched 12 locations in May and seized about 50 Supermicro servers worth over US$15 million, along with luxury cars and NT$9 million in cash. Three Taiwanese men were detained on suspicion of forgery after shipping servers from a northern Taiwan port with documents listing a Northeast Asian destination.
The proposed amendment is part of a broader effort to strengthen Taiwan's export controls, which have come under international scrutiny given the island's central role in the semiconductor supply chain. As Taiwan's experience shows, the challenge of preventing technology leakage is not unique to the island, but its position makes it a critical front in the global competition over advanced computing power.
While the bill has yet to pass, its introduction signals a shift in Taipei's approach—from treating export violations as paperwork issues to recognizing them as serious threats to national security. The debate also highlights the delicate balance Taiwan must strike between maintaining its technological edge and preserving its economic ties with the mainland, a tension that some analysts argue requires careful navigation.
