The Case Against the Proposed Chip Security Act in Taiwan

Amid a broader global turn toward securing semiconductor supply chains, Taiwan’s main opposition party, the Kuomintang (KMT), signaled plans to pursue legislation that would further tighten oversight of Taiwanese companies’ investments abroad in the semiconductor sector. Although no bill text has yet been announced, lawmakers in Taipei have suggested that one proposed mechanism would subject certain outbound investment decisions to prior legislative approval.

The proposal follows a high-profile reform adopted in 2025 to strengthen scrutiny of outward capital flows. That reform unfolded amid recurring concerns over external economic pressure and tariff threats, alongside public debate over Taiwan Semiconductor Manufacturing Company (TSMC), the world’s leading manufacturer of advanced semiconductor chips, following its announcement of a $100 billion overseas manufacturing expansion. For many observers in Taiwan, these developments revived anxiety over preserving the industrial and technological advantages that underpin the island’s strategic position in global technology supply chains or, in local political discourse, its so-called silicon shield.

The latest proposal would give the legislature a more direct role in deciding some of Taiwan’s most consequential outbound investment cases, rather than leaving those decisions to executive agencies. Yet that institutional shift raises several questions under Taiwan’s constitution. Some concern the constitutional allocation of powers and the distinction whereby legislatures enact general rules while the executive applies and administers them in individual cases; others concern the procedural safeguards that should accompany restrictions on private economic activity. More fundamentally, however, making private parties’ investment decisions contingent on legislative approval would require lawmakers to move beyond their representative role in governing the state and into direct involvement in private affairs, thereby blurring the normative relationship between government and governed. Even setting aside these concerns, a functional analysis suggests that legislatures may also be institutionally ill-suited to undertake investment review.

None of this means the legislature lacks a meaningful constitutional role in shaping Taiwan’s outbound investment regime. Rather, Taiwan’s constitution already provides multiple avenues for legislative participation that do not require lawmakers to decide individual investment cases. Lawmakers may establish new governing frameworks or reform existing ones to demand transparency and strengthen legislative oversight, enact or amend review criteria and procedures to guide executive agencies about how to balance different equities, or redefine the institutional structure through which investment review is administered within the executive branch. Beyond lawmaking, the legislature retains the power of the purse and may use budgetary tools to check the executive. It may likewise exercise inquiry powers to monitor implementation, require reports from executive agencies, and hold the government accountable—all of which remain constitutionally permissible means of legislative involvement.

An Overview of Taiwan’s Outbound Investment Regime

As home to many of the world’s leading semiconductor firms, Taiwan has long viewed the overseas transfer of capital, technology, and industrial capabilities as a matter of economic security. Reflecting these concerns, the island has maintained an outbound investment review regime for decades. The regime is governed principally by the Industrial Innovation Act and the Regulations Governing Company’s Outbound Investments. Under this framework, covered outbound investments must be filed with the Ministry of Economic Affairs’s (MOEA’s) Department of Investment Review. Transactions meeting specified statutory criteria require a review before capital leaves the jurisdiction, whereas other reportable transactions may proceed subject to reporting after the fact. In practice, regulatory scrutiny has focused on sectors such as liquid-crystal display (LCD) panels and semiconductors, industries long regarded as central to the island’s technological edge.

In response to evolving geopolitical conditions, legislative reforms adopted in 2025 broadened the scope of outbound investments subject to mandatory prior review and integrated national security and socioeconomic considerations into the broader regulatory framework. The reforms expanded the categories of transactions requiring prior review while retaining reporting requirements for transactions outside those categories. They also codified statutory grounds for denying or conditioning approval that had previously been set out in the implementing regulations, increased penalties for noncompliance, strengthened the MOEA’s post-investment oversight and remedial powers, and authorized regulators to impose corrective measures—or, in serious cases, order divestment—after an investment has been implemented.

Meanwhile, Taiwan maintains a distinct framework governing outbound investment involving the People’s Republic of China. A separate statute governing cross-strait relations, together with its implementing regulations, requires prior approval for all Taiwanese individuals and entities investing in China, excluding its special administrative regions of Hong Kong and Macau, which are subject to separate legal arrangements. This China-specific framework imposes stricter investment restrictions and reflects Taiwan’s unique and long-standing cross-strait economic and security concerns.

Regardless of destination, however, the MOEA, acting through an interagency review committee, reviews covered transactions on a case-by-case, risk basis against statutory criteria and may approve, condition, or deny them. Although the legal mechanics differ from those of the United States’ emerging Outbound Investment Security Program, which categorically prohibits certain defined transactions while requiring notification for others, both systems share one important institutional feature: Individualized investment review is administered by executive agencies rather than legislatures.

Separation of Powers in the National Security State

Indeed, Taiwan is not alone in expanding national security regulation in the economic sphere. Japan, South Korea, the United Kingdom, the United States, and the European Union have all adopted measures to protect critical technologies and strengthen supply-chain resilience through a range of economic tools, including, more recently, forms of outbound investment review. But these developments have largely preserved a familiar institutional logic: Legislatures establish the governing framework, whereas executive agencies implement it.

To be sure, departures from this model do occur. Comparative experience suggests that institutional boundaries are most often tested when executives invoke emergency authorities to sidestep established legal frameworks. Perhaps most memorably in this regard, President Trump’s attempted reciprocal tariffs under the International Emergency Economic Powers Act sparked the landmark case of Learning Resources v. Trump. Such disputes, however, generally concern executives stretching delegated authority, rather than legislatures assuming administrative functions.

Viewed against this backdrop, the developments in Taiwan are notable for inverting the more familiar pattern. Following the 2024 elections, the opposition majority in the legislature has demonstrated a willingness to play a more active institutional role in national security governance. Examples include reshaping defense appropriations and substantially reducing proposed military expenditures, blocking legislation that would have required elected officials to be screened before traveling to higher-risk jurisdictions, narrowing the executive’s ability to withhold information from the legislature on intelligence or other secrecy grounds, and expanding legislative oversight of executive decision-making on foreign affairs and national security.

While many of these practices have led to constitutional controversy, at least on their face, some remain within the legislature’s traditional functions. Requiring prior legislative approval for individual outbound investment decisions, however, presents a different question: not whether the legislature may regulate economic security, but whether it may do so by exercising functions constitutionally assigned to the executive.

The Arguments Against Legislative Review of Outbound Investment

The Constitutional Allocation of Powers

There are several arguments against subjecting cross-border investment decisions to legislative review. The first is that such a mechanism may be difficult to reconcile with the constitutional allocation of powers. Article 62 of Taiwan’s constitution vests the Legislative Yuan, the national legislature of Taiwan, with the power to enact laws, including the authority to deliberate and decide “by resolution upon statutory or budgetary bills.” Read together with Article 53 and the Third Constitutional Amendment, under which the Executive Yuan, the state’s highest administrative organ, is responsible for implementing legislation, these provisions reflect a fundamental arrangement underpinning the country’s constitutional order: Legislators enact rules with general applicability, while the executive administers and executes those rules in individual cases.

This institutional arrangement is deliberate. Under the separation of powers doctrine, lawmaking serves as one of the principal means through which legislatures check and constrain executive authority. Legislatures establish the general legal frameworks. The executive, in turn, operates within those frameworks through the faithful execution of the laws, adopting implementing regulations where authorized, and determining the legal consequences of individual cases under statutory constraints. This allocation of authority reflects the rule-of-law principle that administration should remain bounded by law and subject to a system of restraints designed to guard against abuses of power, excesses of authority, and unlawful inaction.

Taiwan’s Constitutional Court has accordingly articulated a two-part test for assessing whether legislation remains faithful to the constitutional allocation of powers. Where a statute regulates the powers of another branch, the legislature violates the separation of powers doctrine if it either (a) imposes obligations on that branch not authorized by the constitution or (b) substantially impedes that branch’s exercise of its constitutional functions. In either case, the legislature intrudes upon the constitutional authority of another branch, thereby violating the separation of powers doctrine.

Outbound investment review, at its core, functions as a national security screening mechanism for outward transactions. It requires applying legal standards to the concrete facts of a proposed transaction and making individualized decisions in light of case-specific circumstances. These are functions traditionally associated with the executive branch. If legislators assume both the power to enact general rules and the authority to administer them in individual cases, the result does not merely blur the distinction between legislating and administering. Rather, the legislature effectively substitutes itself for the executive in the exercise of a constitutionally assigned function, contrary to the Constitutional Court’s instruction that checks and balances do not permit one branch to substantially deprive another of its authority or simply usurp that authority.

Administrative Due Process

But embedding investment review within the legislature raises concerns that go beyond the allocation of powers. It also creates a second constitutional problem: procedural due process. Investment restrictions—like other forms of official action that affect constitutionally protected rights—require procedural safeguards before the government may intervene. While outbound investment review may not constitute a “taking” of private property rights—even where it results in the blocking or divestment of an investment—Taiwan’s Constitutional Court has recognized that constitutionally protected property rights include the rights to use and dispose of property. Government restrictions on decisions to undertake outbound investment or technology cooperation therefore implicate the exercise of those rights.

Taiwan’s Constitutional Court jurisprudence has further developed an administrative due process doctrine governing state intervention in private property rights. That doctrine requires appropriate decision-making procedures to ensure that affected parties receive timely notice and an opportunity to be heard, including, where applicable, the procedural protections provided by Taiwan’s Administrative Procedure Act (APA). Importantly, this framework presupposes a familiar constitutional division of labor: The legislature designs procedural rules, while the executive administers them.

Once investment review is relocated to the legislature, however, that procedural architecture becomes difficult to maintain. What would an impartial decision-maker look like within a representative body? How would due process guarantees operate when the APA does not apply to legislatures? More fundamentally, how can a due process doctrine built around administrative decision-making be adapted to legislative review?

The problem extends to judicial review. If lawmakers deny an investment application, what forum would hear the challenge? Would administrative courts retain jurisdiction over what is functionally a public law dispute involving an administrative act, notwithstanding that the decision originated from the legislature? Or would applicants instead be required to seek direct constitutional review? These questions suggest that legislative investment review would do more than shift institutional responsibilities; it would challenge the procedural assumptions embedded in Taiwan’s constitutional system.

Relationship Between Government and Governed

The third, and perhaps the strongest, argument against embedding investment review within the legislature applies particularly to mechanisms that would subject private parties’ specific investment decisions to legislative approval. Requirements of legislative consent or approval can be found throughout Taiwan’s constitutional framework, although these mechanisms serve somewhat different constitutional functions. Some operate in advance as forms of joint constitutional decision-making. Examples include legislative consent and confirmation powers over presidential appointments to offices such as the Auditor General, Constitutional Court justices, and members of the Examination and Control Yuans. These mechanisms require legislative involvement in filling key government posts and reflect the constitution’s intentional division of authority between branches.

Others operate afterward as forms of institutional checks on the executive branch, including legislative approval of the invocation of presidential emergency powers and the ratification of treaties. Importantly, however, these mechanisms are envisioned as tools through which legislatures constrain or participate in the exercise of governmental power rather than directly supervising private conduct.

From the perspective of representative democracy, moreover, legislatures derive democratic legitimacy through electoral representation and, on behalf of the people, exercise constitutionally allocated powers to enact legislation and supervise the exercise of public authority. That representative function is directed toward governing the state rather than administering the affairs of private parties. In this light, if mechanisms designed to control public authority are instead redirected toward reviewing private investment decisions, they risk unsettling the legislature’s constitutional role as a representative body of the sovereign people. Any such arrangement also blurs the normative relationship between those who govern and those who are governed by placing the legislature in the position of administering private affairs rather than representing the people through lawmaking and oversight.

Functional Limits and Institutional Competence

Even setting aside the arguments addressed above, there are plausible functional reasons to question whether the legislature is institutionally suited to undertake investment review. Outbound investment control requires assessing cross-border capital flows, such as mergers and acquisitions, technology transfers, and the extent to which particular transactions implicate critical technologies or affect a country’s industrial competitiveness. Where national security concerns arise, review may also depend on access to nonpublic information and internal intelligence assessments.

These considerations are especially pronounced in semiconductor-related transactions. Assessing whether a transaction involves cutting-edge technologies often requires technical expertise and decisions as market and technology rapidly develop. Competitive advantages in the semiconductor sector may shift within months, or even weeks, such that prolonged political processes risk diminishing the practical value of intervention by the time decisions are reached.

This is precisely why, from a functional standpoint, executive agencies, rather than legislatures, are better positioned to administer investment review regimes. Legislatures are designed to operate through transparency, public deliberation, coalition-building, and political negotiation. Those institutional characteristics are valuable for establishing general policy frameworks but are less well suited to case-by-case review involving trade secrets, confidential business information, and national security assessments. Executive agencies, by contrast, are structured around specialized expertise and access to information necessary to make timely and individualized determinations. To be sure, economic security decisions inevitably involve (geo)political judgment. But individualized investment review ordinarily does not require the kind of partisan bargaining that legislative processes are designed to facilitate.

Constitutional Alternatives to Preserve the “Silicon Shield”

Still, none of this means that lawmakers are constitutionally powerless to respond. Quite the opposite: The legislature retains broad authority to shape economic security policy through legislation rather than individualized review. More specifically, the legislature may define the scope of delegated authority, specify statutory standards to guide executive decision-making, and translate concerns about national security risk into legal criteria for agencies to apply in individual cases. It may also decide which sectors of transactions warrant heightened scrutiny and require periodic review of existing control categories to reflect changing geopolitical conditions and technological developments.

Further, it may determine how review bodies are organized within the executive branch and how administrative responsibilities are allocated. It may structure review procedures and constrain executive discretion—for example, by requiring interagency investigations or findings and establishing procedural prerequisites before certain transactions may be blocked or restricted. If lawmakers believe that Taiwan’s existing outbound investment regime requires strengthening, the constitutional path is to reform that regime through legislation rather than assuming an administrative function constitutionally assigned to the executive.

Beyond structuring the regime through legislation, lawmakers may also rely on their oversight authorities, including meaningful oversight by legislative committees into the investment review process. The legislature may likewise exercise inquiry and budgetary powers to monitor implementation, demand transparency, and hold the executive accountable. What the legislature must not do, however, is depart from its institutional role or upset the interbranch balance that is instrumental in preserving the constitutional order.