On May 14, an event was held in Sofia, Bulgaria that aimed at fostering dialogue and collaboration among Bulgaria, the European Union, and Taiwan. Organized by Taiwan’s Ministry of Foreign Affairs, the Taipei Representative Office in Greece, and the Atlantic Club of Bulgaria (a Sofia-based nongovernmental organization), the event was titled “Bulgaria/EU – Taiwan Relations: Promoting Democratic Resilience.” One of the event’s several panels focused on “collaborative strategies” for “economic development” and another on “expanding institutional ties.”
While they might sound encouraging for Taiwanese who are considering investment opportunities in Bulgaria, such events do not appear to represent the needs of Taiwanese businessmen who have already established a presence in the country. For Taiwanese entrepreneur Danny Liu, who says that his small factory in Svilengrad, Bulgaria is struggling because of Turkey’s failure to honor trade commitments with the EU, the event offers little cause for optimism. “I haven’t heard anything about it,” says Liu. “But I don’t think this type of meeting will affect our company.” [1]
When Liu set up shop in Svilengrad, Bulgaria in February 2020, he had high hopes that European Union (EU) standards would provide some much-needed stability for his Istanbul-based textile business. A confluence of circumstances had convinced him to establish a plant in the town’s industrial zone for the processing of raw materials used in polyurethane (PU) leather manufacturing.
“In Bulgaria, if we follow the rules, we can get all the required certification,” says Liu. “But in Turkey, we can pass this or that test, then in two or three years, there [are] many more rules: change this, change that. That’s why we made the decision to invest in Bulgaria.” [2]
Businesses Struggle with Government Restrictions and Custom Rules
In addition to the push factor of Turkey’s flagging economy, Svilengrad’s location close to the Turkish border was an attractive feature for Liu’s investment. Another consideration had been a contract with Spanish multinational Inditex, which required that its orders of PU leather to be free of the solvent dimethylformamide (DMF). Following the announcement of new regulations by the European Commission (EC), DMF was to become severely restricted from December 2023. As Inditex would not permit a joint-production arrangement, Liu had a decision to make: Apply for a separate license for a non-DMF facility in Turkey, where he had become increasingly disillusioned with the opaque bureaucracy, or else find a hassle-free alternative.
“Thank God, I chose the second option, because Inditex stopped PU shoe production,” says Liu. He notes that the Spanish firm has dramatically scaled down its presence in Turkey—and, like several other multinationals, looks set to exit the market due to concerns over rampant inflation. “Our last order was May 2023,” he says. “If I’d opened the second [non-DMF] factory in Turkey, I would have been screwed.” By far the biggest motivation for setting up shop in Bulgaria was Istanbul’s increasingly harsh tax regime and its seemingly arbitrary application. “When I came to Turkey more than 20 years ago, it wasn’t like this,” says Liu. “But their [value-added tax, VAT] and customs rules have become more and more ridiculous.” A series of presidential decrees in 2023 rendered the already slender margins for importers of raw materials practically unsustainable. In July, the general VAT, which covers imported goods, was raised from 18 percent to 20 percent, with manufacturers able to recoup only half that amount through sales of finished products. “There’s always 10 percent stuck in stock,” says Liu. “No one can work like that.”
While importers are, in theory, entitled to refunds, it has become almost impossible to claw anything back, in part because of the questionable use of protectionist provisions passed in December. “They call it anti-dumping,” says Liu. “But often the products are not comparable with what can be made in Turkey, and in our case, Turkey doesn’t have the know-how to produce these raw materials.” With the Turkish lira in a seemingly inexorable spiral of depreciation, any refunds that are issued are “almost worthless” by the time they materialize, added Liu.
With this in mind, Liu decided to outsource the pre-processing stage of his operations to Bulgaria, where the harmonized EU VAT system guarantees transparency and regular refunds. However, the move has not extricated him from the clutches of Turkey’s tax and trade authorities. Indeed, Istanbul appears to have acted extraterritorially in conducting inspections of Liu’s premises in Svilengrad. “They behave like the police, and even the Bulgarian Chamber of Commerce and Industry [BCCI] can’t help,” says Liu. “They just tell me when there will be inspections and say there’s nothing they can do. I don’t think Turkey should be able to behave like this in an EU country.”
In response to Liu’s objections, Turkish trade officials have told him to move the raw materials plant to Istanbul. When he explained why this is not feasible, the officials recommended relocating to a “bigger country like Germany, Italy or Spain.” Goods produced in Bulgaria, he says, are treated with suspicion. “They don’t trust the Bulgarian government and think everything is fake,” he says.
A Bulgarian think-tanker with expertise in EU-East Asia trade relations offered insights into the reasons for this. She highlights cases of companies trying to dodge tariffs for heavily regulated industries in Turkey. “They import Chinese goods through Bulgarian ports, then simply repackage or relabel them in a Bulgarian factory and import them into Turkey as products made in the EU,” she says. In this way, they can “circumvent not only taxes but also certain safety standards and certification procedures.” However, the academic, who noted that the topic of Taiwan is assiduously avoided at meetings with Bulgarian government officials [3], stresses that the items in question “were definitely goods intended for direct sale or consumption and not raw materials in a production cycle.” [4]
Acknowledging the legitimacy of such grievances, Liu stresses that his Bulgarian operation handles a specific type of PU film used for processing the surface of backing textiles. “These are not finished goods but raw materials from Taiwan and China,” says Liu. “But the Turkish government doesn’t accept this and insists they are ‘Chinese products.’” To make matters worse, Liu has presented all the required documentation only to have it routinely rejected by Turkish customs officials. This includes the ATR.1 status certificate that allows businesses to benefit from lower customs duties under the EU-Turkey Customs Union; an EU-accredited and BCCI-issued Certificate of Origin; and proof of his factory’s BCCI registration. “For each of the three years we’ve been in Bulgaria, we’ve had to apply for these documents,” says Liu. “And almost every time, they say the ATR or the Certificate of Origin is not real.” To smooth things over, the customs authorities invariably demand a hefty deposit while the authenticity of the documents is supposedly assessed. The sum, says Liu, could be upwards of EUR $30,000 (USD $32,500) and the “investigation” could take anywhere from six months to a year. Once again, when the deposit is returned, depreciation has taken its toll.
“I’m lucky if I get anything back,” Liu says. “And my factory is just one small case. How about all the rest?”
Government Responses, While Moving the Right Direction, Are Still Not Enough
The obstacles that Liu continues to face indicate that the establishment of a Taiwan-Turkiye Parliamentary Amity Association in Taipei in March is unlikely to yield substantive progress. The inauguration ceremony was attended by Turkish Representative to Taiwan Muhammed Berdibek and Deputy Minister of Foreign Affairs Hsieh Wu-chiao (謝武樵) of the ruling Democratic Progressive Party (DPP, 民進黨). In her capacity as chairwoman of the association, DPP legislator Lai Hui-yuan (賴惠員) spoke of “expanding trade and cooperation in business.” For Taiwanese exporters, this will seem like more hot air.
Yet, Taiwanese exports have been welcomed with open arms when it suits Istanbul’s purposes—some of which are nefarious. In January, a joint investigation by The Reporter, an independent Taiwanese news outlet, and The Insider, a Riga-based, Russia-focused online newspaper, revealed that Taiwanese-made machine tools are being illegally transhipped to Russia via Turkey. Between January and July 2023, almost 40 percent of Taiwan’s machining centers arrived in Russia from Turkey— in direct contravention of sanctions imposed by Taipei. Business, it seems, is booming—as long as it’s the right kind.
In response to inquiries about ostensible failures by Turkey to honor its Customs Union commitments, pro-Taiwan Member of the European Parliament (MEP) Reinhard Bütikofer pledged to contact the European Commission’s Directorate General of Trade (DG Trade) “in order to flag this issue.” [5] Bütikofer, who has organized the Berlin Taiwan Conference over the past two years and serves as vice chair of the European Parliament’s Delegation for Relations with the People’s Republic of China, is a vocal supporter of Taiwan.
After repeated follow-up e-mails from the author and Bütikofer’s office, DG Trade finally responded more than two months after the initial inquiry. Nele Eichhorn, head of DG Trade’s Unit E2, which is responsible for the EU’s southern neighbors, the Middle East, Turkey, Russia and Central Asia, wrote that the EU’s engagement with Turkey was “focused on providing for the smooth functioning of the Customs Union [CU], ensuring that CU rules are fully and correctly implemented, and addressing trade irritants.” [6]
Thanks to ongoing negotiations, Eichhorn wrote, more than half of the 26 barriers that had been identified had been “effectively addressed,” with “progress under way” on the remaining obstacles. Among the concrete achievements was the removal of “additional duties on 500 product groups coming from third countries in violation of the EU-Türkiye Common Customs Tariff.” [7]
However, while addressing irritants related to Turkey’s import surveillance regime, including in the areas of textiles, Eichhorn observed that both Turkey and the EU were entitled to “use trade defense measures in line with the WTO rules.” The EC was tasked with monitoring whether trade defense instruments were being legitimately applied, Eichhorn wrote. Therefore, formal complaints about perceived violations of bilateral agreements could be registered via the Single Entry Point – a mechanism under DG Trade for handling complaints related to non-compliance and trade barriers. [8]
For Bulgarian MEP Andrey Kovatchev, who is vice chairman of the European Parliament-Taiwan Friendship, such problems highlight the need for “a more formalized trade agreement” between Taiwan and the EU. He highlights EU rejection of a bilateral investment agreement (BIA) with Taiwan last year as a missed opportunity. “Bulgaria cannot take the lead on this,” says Kovatchev, who led an EU delegation to Taiwan in November 2023. “We’re always going to follow developments on the European level.” While the official reason for the rejection of the BIA was a lack of demand on both sides, Kovatchev and other Taiwan-friendly MEPs believe the “terminology” and proposed content of the agreement made it politically sensitive. Still, he remains hopeful that a reformulated version can pass muster. [9]
Meanwhile, the passage of resolution 2023/2829 (RSP) by the European Parliament in December gives some cause for optimism. The decree relates to Taiwan-EU trade and investment ties, and requires the EU to sign a deal on supply chain resilience and Taiwan’s participation in international organizations.
As for the May event in Sofia, even Taiwanese representatives in Bulgaria seem lukewarm about the prospects of it yielding significant change, especially with Bulgaria mired in political instability. “At least it’s something,” says one individual with a Taiwanese quasi-governmental organization. “But we have another election coming up [in June] after parliament was dissolved [in February], so …” With Sofia facing its fifth change of government in two years, no long-term policy changes can be expected, he suggests. [10]
Other Challenges for Taiwan-Owned Businesses
Elsewhere, Taiwanese businessmen with operations in Bulgaria have highlighted disparate work cultures as a factor in the teething troubles they have faced. Taiwanese OEM Davmore has been supplying components to a Bulgarian bicycle frame manufacturer for five years now, and is in the process of establishing its own manufacturing plant in Sofia.
However, it has been from smooth sailing, as the Bulgarian firm is often reluctant to adapt to the unfamiliar but tried-and-trusted methods offered by its Taiwanese partner, says Davmore head Tim Chen. “It’s difficult to get them to adapt and follow a new, better SOP,” says Chen. “They just stick to what they know.” He gives the simple example of a production line set up where each worker has a specific role, and the frames are welded “station by station.” While this is standard practice in manufacturing, the Bulgarian factory insisted on “one person, one complete frame,” says Chen. “After three years, they realized this was just too slow,” he says. “Now, things have become much more stable.” [11]
Still, Chen is hopeful that the incentives that drove his decision to establish a presence in Bulgaria will bear fruit. Like Liu, he cites favorable tax conditions as a major factor, as the EU seeks to encourage manufacturers from the bicycle industry—which is centred on Taiwan, China, and Southeast Asia—to relocate parts of their supply chains to Europe. “We’ve been consulting with European brands over the past few years, and they want more ‘made in the EU’ [products],” says Chen. “Depending on the percentage manufactured in the EU, the tax is different, so that’s why we set up the factory in Bulgaria.”
While this may bode well for the future, it is of scant consolation for Liu and other Taiwanese businesspeople who are struggling in the face of lax enforcement of existing regulations. “We hoped Bulgaria would [be a base to] expand into the EU market,” says Liu. “But we’re in a bad situation now. At this point, with such high barriers, we can’t do much more there.” [12]
The main point: Despite tax incentives encouraging Taiwanese businesses to settle in Bulgaria, lax custom rules and Turkey’s import surveillance both cause difficulties for Taiwanese companies. While recent events, such as the May 14 conference held in Sofia, show interest in deeper cooperation between Bulgaria, the European Union, and Taiwan, more practical solutions like the establishment of an EU-Taiwan bilateral investment agreement are needed.
[1] From conversations with the author via WhatsApp, April 24, 2024. The name “Danny Liu” is a pseudonym.
[2] Interview at company office in Taichung, February 20, 2024.
[3] From conversations with the author via e-mail, December 22, 2023 and interview via Zoom, December 28, 2023.
[4] From conversations with the author via e-mail, February 12, 2024.
[5] From conversations with the author via e-mail, February 24, 2024.
[6] From an email from Nele Eichhorn to Reinhard Bütikofer, April 29, 2024; forwarded to the author on May 3, 2024.
[7] Ibid.
[8] Ibid.
[9] Interview via Zoom, January 5, 2024.
[10] From conversations with the author via e-mail, April 25, 2024.
[11] Interview via Microsoft Teams, January 15, 2024.
[12] Interview via Microsoft Teams, January 16, 2024.
