Uber’s Taiwan Trauma

Uber’s Taiwan Trauma


Zhongxiao Road and Zhongshan Road intersection in Taipei City, Taiwan. (Source: Bigmorr/Wikimedia Commons)

Zhongxiao Road and Zhongshan Road intersection in Taipei City, Taiwan. (Source: Bigmorr/Wikimedia Commons)

If you were planning to take an Uber in Taiwan, you’re too late: the ride-hailing app has ceased operations on the island. According to a company statement released on February 2, Uber decided to “press pause” on February 10 in the hope of “resetting” the conversation with Taiwan’s government over how (and whether) the company can operate in Taiwan.

The conflict between Taiwan’s government and the California-based tech company stretches back to Uber’s entry into the Taiwan market in 2013. From the beginning, there was a strong backlash from traditional taxi drivers and companies, which see Uber as direct competition. Taiwanese officials found Uber’s response – that it is not a taxi company and should not be subject to the regulations governing commercial passenger transportation services – unconvincing. They imposed escalating restrictions and sanctions aimed at forcing the company to comply with regulations governing taxi services.

For Uber, Taipei’s resistance is a textbook example of a government operating on a 20th century playbook, choosing to protect a traditional industry at the expense of consumers and workers in the “gig economy.” In its February 2 statement, the company said, “Unfortunately, the government has moved further and further away from embracing innovation and setting the stage for a 21st century transportation policy.”

From Taipei’s point of view, the problem is Uber’s refusal to acknowledge the nature of its own business or comply with relevant regulations and tax requirements. The agency responsible for the issue, the Ministry of Transportation and Communications (MOTC), questions Uber’s uniqueness (Taiwan’s existing taxi companies also use web-based dispatch services) and its ability to offer safe rides.

A ride-sharing app in Taiwan feels like a solution in search of a problem. The island has excellent transportation services, both public and private, which include competing intercity and local bus companies, extensive subway systems in its two biggest cities, and both high-speed and conventional passenger railways connecting hundreds of towns and cities. Meanwhile, taxis are ubiquitous and inexpensive. Unlike the U.S., where hailing a taxi outside of a handful of city centers is impossible, taxis prowl the streets of even small towns in Taiwan; no matter where you are, you can call a taxi and one will arrive within minutes.

Nonetheless, Uber was an attractive addition to Taiwan’s transportation landscape for many consumers. According to the company, Taiwanese have used Uber for more than 15 million trips since 2013, and there are more than 10,000 drivers signed up to use the app.

While much of the reporting on the conflict centers on taxi companies’ lobbying to block competition, the legal challenge to Uber comes from a different angle. The MOTC has challenged Uber in court, claiming it is in violation of its business registration because it is operating a passenger transport business and evading regulatory and tax requirements.

In November 2015, a court ruled that the MOTC could not ban Uber outright because its business activities included management consulting, data processing, information services, and third-party payment, but not transportation. In February 2016, a higher court reversed that ruling, finding that Uber’s core business is, in fact, hiring drivers to transport passengers for money. In other words: it’s a taxi company.

The 2016 ruling strengthened MOTC claims against Uber and its drivers, who already were subject to stiff fines when they were caught carrying passengers in their personal vehicles. By March of 2016, fines against the company and its drivers (which Uber promised to pay) totaled over $11 million.

In November, the MOTC upped the ante even further when it asked Apple and Google to remove the Uber app from their stores. Meanwhile, Uber was slapped with a bill for $4.25 million in fines and back taxes.

The company shot back with an open letter to President Tsai Ing-wen. It struck at Tsai’s image as a tech-friendly president committed to increasing employment: “President Tsai, by promoting Taiwan as ‘Asia’s Silicon Valley’ and appointing a digital minister, your commitment to establishing a tech-friendly policy environment for startups to thrive is clear.” But, the letter continued, imposing fines and asking for the app to be removed from app stores, “directly threaten the interests of over a million Taiwanese citizens, especially the mothers, fathers, retirees, professionals, and the otherwise unemployed who have come to rely on the economic opportunities Uber has created.”

Not everyone agrees that allowing Uber to disrupt Taiwan’s transportation industry is a sine qua non for tech-friendliness. Even within the tech community, some express resistance to Uber’s heavy-handedness. Its refusal to bend on key issues raises hackles among Taiwanese weary of being pushed around by multinational corporations. A comment on a Tech in Asia story from a reader identified as “Harvey Lee” captures that critique: “The role of regulation is to protect public interest. This is neither an issue about embracing innovation nor an issue about policy adjustment. The fact is that this is a foreign IT platform that profits from the Taiwanese market with minimal return to the local economy yet distributes most of the risks to the locals. Uber may need to consider a more wholistic [sic] business approach.”

In December, Taiwan’s legislature got involved, raising fines against Uber drivers to the highest in the world – and inviting passengers to turn in their Uber drivers to the police. Then, last month, Uber negotiated a deal with the taxi drivers union in Taipei to hire taxi drivers. At the same time, it asked the government to produce regulations appropriate for ride-sharing services – in effect refusing to acknowledge the government’s core position, that Uber is selling taxi services, while inviting taxi drivers to join the app.

The dueling lawsuits, open letters, and PR campaigns have the flavor of a negotiation: according to a Forbes article published after the open letter, “Uber can get away with that language and stay in Taiwan because the government lacks the resolve to kick it out formally. . . . The official hostility could amount to a bargaining chip that will get Uber to comply with government demands: set up a local company, raise driver safety standards and pay more in taxes.”

A source quoted in Forbes was optimistic that the two sides would reach an agreement: “Uber’s case is different, as it involves an innovative new business model that threatens a traditional industry and challenges the interpretation and application of old-fashioned laws. . . . It’s not surprising that matters grew confrontational, parties drew lines in the sand and dug in their heels, but there have been productive discussions and in the end I am confident sensible compromises will be reached.”

That may still be the case – after all, Uber pushed “pause,” not “stop” in February – but the obstacles to compromise appear higher than ever. Taiwan is not the only country in East Asia to challenge Uber’s business model. Japan and Thailand have banned it; South Korea suspended Uber services in order to buy time to figure out the regulatory puzzles. In mainland China, Uber’s problems were so insurmountable that it sold out to Didi Chuxing, a China-based ride-hailing company.

Whether Uber will push “play” in any of these places remains to be seen, but your next Uber ride in Taiwan may not happen for quite some time.

Update (February 16, 2017): Well, maybe you won’t have to wait so long after all. The negotiations are continuing: On Thursday, Uber announced a deal with the MOTC that might allow it to resume doing business in Taiwan. Under the new arrangement, Uber would use a partnership with car rental companies to ensure the vehicles carrying passengers through the ride-hailing service are safe. Stay tuned.