On November 9, 2010, the National Development and Reform Commission (NDRC), the Ministry of Commerce (MOFCOM) and the Taiwan Affairs Office of the State Council (TAO) issued “The New Regulations Governing Mainland Enterprises Making Investments in Taiwan” (the “New Regulations”), which supersede the “The Notice of Provisions Concerning the Regulations of Investment Projects by Mainland Enterprises in Taiwan” issued by NDRC and TAO and “The Notice Regarding Certain Issues Related to Mainland Enterprises Making Investments or Establishing Non-Enterprise Legal Persons in Taiwan” issued by MOFCOM and TAO (collectively, the “Notices”).
The New Regulations made certain key changes to the Notices. The New Regulations (Rule 18) made it clear that any investments by a Mainland enterprise into Taiwan even through an offshore entity would be subject to the New Regulations and approval by NDRC and filing with MOFCOM would be required. The New Regulations no longer specify that NDRC, MOFCOM TAO should monitor the Mainland enterprises’ investments in Taiwan but Rule 19 states that NDRC, MOFCOM and TAO are empowered to impose unspecified “penalty” on any Mainland enterprise that violates the relevant regulations concerning investing in Taiwan. Lastly, the New Regulations no longer require that “key investment projects” be approved by the State Council after they have been approved by NDRC in consultation with TAO.
Separately, on December 27, 2010, the Supreme People’s Court of China issued “The Rules Concerning Choice of Law to Adjudicate Civil and Commercial Cases Involving Taiwanese Parties,” which became effective on January 1, 2011 (the “Rules”). Section 1 of the Rules provides that when adjudicating a case involving both Taiwan and Mainland persons, the People’s Court shall apply the civil laws of Taiwan if it is determined under the choice of law principle that the Taiwanese laws should govern the dispute. However, Section 3 of the Rules provides that Section 1 shall not apply if the law so chosen contradicts with the fundamental principles of the laws of the PRC or public interests. Due to the significant amount of discretion vested upon the People’s Court pursuant to Section 3, when a Mainland enterprise enters into an agreement with a Taiwanese party, including any agreement related to any investment in Taiwan, it may be advisable to specify in such agreement the governing law, the jurisdiction and the venue for any dispute arising from such an agreement to avoid any unnecessary surprises.