Exit, Voice and International Jurisdictional Competition : A Case Study of the Evolution of Taiwan's Regulatory Regime for Outward Investment in Mainland China, 1997-2008

This Article explores the interplay of demand and supply forces in the market for law through international jurisdictional competition led by offshore financial centers. To do so it uses the example of the evolution of a regulatory regime imposed by an onshore jurisdiction, Taiwan, to control outward investment into mainland China (“China-investment”). The argument is that jurisdictional competition brought about by capital mobility or exit will provoke legal changes to prevent the departure of capital when laws reduce the value of remaining within the jurisdiction. The case study is used to examine the extent to which jurisdictional competition fuelled by capital flight can drive changes in policy. This case study first provides a stage-by-stage account of the liberalization of Taiwan's regulation of China-investment, as the Taiwanese government shifted from a strict mandatory regime to much more flexible legal regimes. This demonstrates the output of market interactions between the demand and supply sides of the international law market. Although Taiwan's government struggled to regulate China-investment it failed due to the impacts of globalization and the denationalization of financial capital. In other words, while Taiwanese politics initially supported the capital controls, the flight of capital (i.e. exit) and its effects through jurisdictional competition on Taiwan (i.e. the voice of anti-regulatory and exit-affected interest groups strengthened by exit) eventually created an effective counterforce. Although proving a causal relationship in law remains a challenge, this Article rules out the major alternative theories and finds a strong correlation between international jurisdictional competition and the liberalization process. The positive argument developed in this Article matters because, in a time of increased globalization, it demonstrates the importance of jurisdictional competition, and also because it explains an important development in Taiwan's policy for Taiwan-China relations under globalization