Hemal Shah is a senior manager for international policy at the US Chamber of Commerce’s Global Innovation Policy Center (GIPC).
The India-Taiwan relationship has been growing slowly but surely. Relatively flourishing economic and trade ties spearhead the relationship in the absence of diplomatic relations. However, India’s recent shift in observing the One China Policy (OCP), while managing to maintain stable relations with China, opens up the opportunity to inject a tactful strategy to realize the full potential of the India-Taiwan economic relationship—the focus of this paper—and further strengthen the democratic economic alternative to China.
To that extent, both India and Taiwan are at their own economic inflection points. The fastest- growing large economy today, India wants to position itself as a manufacturing and logistics hub in Asia; Taiwan is focused on transitioning its economy from a manufacturing to an innovation- driven, knowledge-based economy. Both India and Taiwan are vibrant democracies, seeking greater ties with the United States, Japan, and Southeast Asia. Furthermore, they share common security concerns over China, but also rely heavily on trade with their mutual neighbor.
THE CHINA FACTOR
China continues to claim swaths of Indian territory in the northeastern state of Arunachal Pradesh. Despite China’s fervent demands for India to reaffirm the OCP, Beijing won’t support India’s protest of the Pakistani-occupied territories in the Indian state of Kashmir. The situation with Taiwan is even more complex, as China continues to see the island as a breakaway province with the aim of reunification, contrary to majority Taiwanese perceptions.
China’s Belt and Road Initiative (BRI)—a US$1 trillion infrastructure financing mechanism spanning 60 countries—aims to consolidate its political influence through economic projects. While the BRI excludes Taipei, New Delhi chose to exclude itself to protest the BRI’s China-Pakistan Economic Corridor (CPEC) and its “encircling” effects. Unveiling the potential of an alternative geo-economic dynamic, Japan proposed to develop the Asia-Africa Growth Corridor (AAGC) with India, west of the Indian Ocean. India and Taiwan, in concert with Southeast Asia, also have the unique opportunity to solidify economic ties through their “Act East” and “New Southbound Policy” (NSP), respectively, east of the Indian Ocean.
India’s foreign policy—historically informed by the “nonalignment” rubric—is also increasingly looking to the United States and Japan as strategic partners in the Asia-Pacific region. China’s 12-week standoff with India and Bhutan at Doklam this past summer, which eventually resulted in disengagement, shows that despite India’s resistance to the idea of balancing, “it is likely to move inevitably in that direction.” It also sends a strong signal to Washington and Tokyo that, unlike before, it is willing to act.
Both Japan and the United States—democratic powerhouses of the Asia-Pacific—are bound by the belief that a strong India is in their interests to ensure China’s peaceful rise. They support India’s role as the net security provider in the Indian Ocean region, while they collaborate to protect the freedom of navigation in the East and South China Seas. In a scenario that is colored by the possibility of a retrenching United States, the limitation of Japanese power, and a rising China, it makes strategic sense for India and Taiwan to strengthen economic ties, foster relations with the broader region, yet continue to engage with China separately.
INDIA-TAIWAN RELATIONS
Three distinct periods can add perspective to the current state of the Indo-Taiwan relationship today in the context of the OCP:
1950–1991: Despite Chiang Kai-shek’s foundational visit to British India in 1942, an independent India voted in 1950 to recognize the People’s Republic of China as the sole government of China, with Taiwan as part of China’s territory. Despite India’s humiliating defeat in the 1962 Sino-Indian War, India maintained its recognition of the OCP. India’s grueling emergence from the 1991 balance of payment crisis and slumping ties with a weakened, post–Cold War Russia prompted its leaders to pivot to the “Look East” policy. Indian leaders traveled to East Asia and envisioned ways to replicate the prosperity of the Asian Tigers, including Taiwan, back home.
1992–2009: The gradual removal of nuclear test–related U.S. sanctions on India following President Bill Clinton’s visit in 2000 finally signaled a thaw in the U.S.-India relationship; the world’s oldest and largest democracies had declared themselves “natural allies.” Rapprochement with Japan followed immediately, while engagement with peers in the developing world, including China, continued.
Delhi and Taipei also established reciprocal offices on the ground and oversaw a time of slow but steady progress. In 2002, the two countries signed a bilateral investment agreement and began direct flights the following year. They also held the India-Japan-Taiwan conference in Taipei in 2004. The next few years included visits by Taiwanese legislators (2005–2006) and Ma Ying-jeou, then head of the Kuomintang, who became president of Taiwan in 2008.
2010–present: India’s recognition of the OCP took a turn in 2010 when Beijing denied a visa to an Indian military commander based in Pakistan-occupied Kashmir. In turn, Delhi demanded that China recognize a “One India Policy.” Around the same time, India’s engagement with Taiwan took off. In 2010, Taiwan hosted former Indian president Abdul Kalam, signed a deal on degree recognition in higher education, and eased visa restrictions. High-level Taiwanese diplomats visited Delhi in 2011, including then politician and current president Tsai Ing-wen.
Data from the Taipei Economic and Cultural Center (TECC) in India shows that bilateral trade has grown fivefold, from US$1.9 billion in 2001 to over US$5 billion in 2016, with India’s exports to Taiwan jumping from US$550 million to US$2.2 billion. By the end of 2016, 90 Taiwanese companies had set up shop in India and 72 projects and joint proposals had been carried out. Educational exchanges are rising, and over 4,000 Indian students have taken Mandarin Chinese lessons in India provided by the Taiwan Education Centers (TEC). Taiwan also included India as part of its NSP in addition to a host of Southeast Asian nations.
A BALANCING STRATEGY
It is imperative that India and Taiwan continue to drive their unofficial relationship through trade and commerce. While they engage with China separately, they could pursue a version of a “better balancing” strategy adapted from Ashley Tellis’s 2014 monograph, “Balancing without Containment.”
Tellis originally shapes this strategy in the context of China’s erosion of the United States’ global hegemony to reshape the extant political order to serve its interests. In this case, China’s relative gain through its economic relationship with both India and Taiwan makes a strong case for both countries to further boost their own overall gross domestic product, develop and maintain their prowess in technological innovation, and shift away to “raising up” their allies or natural partners in the Asia-Pacific region. Instead of provoking China, both India and Taiwan should focus on forging a free trade deal, informally but selectively cut down trade barriers, and reduce their dependence on China.
The informal institutionalization of a better balancing strategy, for instance, could not only provide an alternative for Taiwan to shift its manufacturing base from China to India, but also enable India to use Taiwanese manufacturing competence. For instance, both countries could benefit through partnerships that pool in Taiwan’s hardware prowess with India’s software knowledge in the information communication technology sector. This will also help boost high-quality jobs and economic growth to help maintain India’s position as the fastest-growing large economy and solidify Taiwan’s participation in building a strong economic rules-based order in the region.
Taiwan could play an important role in reifying India’s Act East policy, which aims to counter the strategic influence of China through strengthened economic relations with Southeast Asia; in turn, India can serve as an important conduit for Taiwan’s NSP to reduce Taiwan’s economic depen- dence on China and expand its influence in South and Southeast Asia, further strengthening the democratic alternative to China’s BRI.
With Taiwan’s help India could also better understand the psyche of the Chinese Communist Party and sharpen its own strategic thinking to inform a meaningful engagement with China. Above all, a burgeoning yet complementary economic relationship between India and Taiwan could further enhance India’s role as a strong economic and democratic counterweight in Asia, while looping in Taiwan unofficially to help preserve a rules-based order in the Indo-Asia-Pacific region.
However, for Taiwanese business to shift to India as its manufacturing and export base, India needs to step up to address the lack of transparency, predictability, and stability in its investment environment. Taiwanese investors should share best practices in doing business to help shape the direction of Prime Minister Modi’s business-friendly initiatives—“Make in India,” “Digital India,”
“Start-Up India,” and “Skill India”—to position India as an attractive investment destination.
POLICY RECOMMENDATIONS
Improve Connectivity to Link South Asia, Southeast Asia, and East Asia
As China expands its footprint in the Indian Ocean region—from logistics bases in Djibouti in Africa, to Gwadar in Pakistan, and Hambantota in Sri Lanka—India and its partners should consider greater connectivity among South Asia, Southeast Asia, and East Asia. India represents a large market that cannot be ignored; however, foreign investors often run into challenges navigating the country’s fragmented logistics and supply chain network.
As an ICRIER-CIER study points out, companies from India and Taiwan could collaborate to develop regional production and supply chain networks in East Asia to link India with Southeast Asia, where Taiwanese companies are looking to build their manufacturing bases. Taiwan’s economy is also characterized by a strong “trade-investment-services linkage.” Their investments in China’s manufacturing sector are often supplemented by investments in supporting service industries, including financing, logistics, and retail, enabling them to expand and develop their supply chains.
Partners like Japan are working with India to develop transport infrastructure along strategic pathways running through the country. At the same time, Taiwan can help lend its expertise in cooperatively building an integrated logistics network in India. While Japan helps India enhance strategic connectivity in the northeast, Taiwan can pick up from there to extend the trade routes through Myanmar into Southeast Asia. This will also allow Japan to focus on developing the AAGC in the west. Japan and Taiwan should strategically collaborate in India to craft win-win strategies for all.
Make in India Rather Than China
China has long been Taiwan’s top trading partner and investment destination. Taking advantage of China’s large market, low labor costs, and shared language and culture, Taiwanese entrepreneurs set up bases in China, risking the volatile political situation. Rising wages in China present a strategic opportunity for Taiwanese businesses not only to take advantage of India’s and Southeast Asia’s competitive markets, but also to diversify out of China.
Taipei is increasingly advocating for India as an attractive alternative to China, but Taiwanese companies have been slow to invest in India. Although India presents opportunities with a large market and lower labor costs, it is not yet ready to serve as an export base to developed Western markets and is poorly integrated with Southeast Asia. While Taipei looks to enhance its ties with India through the NSP, it should also advocate for best practices in common priorities such as reforms to India’s tax system, banking sector, logistics and distribution system, intellectual property rights, infrastructure financing, and land acquisition. This would spur more Taiwanese businesses to treat India as an attractive alternative.
Some large Taiwanese companies are already reaffirming this balancing strategy. New Delhi’s focus on “Make in India” and the promise of a better business environment prompted Foxconn, one of the world’s largest hardware manufacturers, to invest US$5 billion in India as an attempt to downsize and diversify away from China. Taiwanese companies could also look to auto- component and cell phone manufacturing in India and use it as an export base as India looks to reduce its dependence on Chinese manufacturing firms. New Delhi should also consider extending industrial clusters or special economic zones to smaller Taiwanese companies to incubate and scale up as they develop their bases in India, in turn creating good-quality jobs for the 1 million Indians entering the labor market every month.
Capitalize on Complementary Industry Sectors
Both Taiwan and India can gain from each other—through market access and transmission of best practices—to expand their economic relationship and strategic goals in the region. Two areas are of rising importance: information technology (IT) and food processing.
India can complement Taiwan’s IT hardware manufacturing prowess with its value-added software capabilities. The ICRIER-CIER study shows that companies from both countries could collaborate in many areas—cloud computing, digital technology–enabled design, and green environment—to secure new global business and cater to developed markets.Movement of skilled Indian IT professionals is an opportunity, though limited due to language barriers. Moreover, India’s onerous local content and manufacturing requirements need to be addressed to harness the full potential of this symbiosis.
In agriculture, Taiwan has an advanced food-processing industry despite a low agricultural base and limited natural resources. India, on the other hand, has a broad base and abundant resources but a labor-intensive food-processing sector coupled with obsolete technology. Importing Taiwanese technology would make sense, but would need to be further customized. The absence of a trade secrets law and onerous security testing regulations in India hinder high-quality technology transfer. As a model member of the World Trade Organization, Taiwan should also socialize India into adhering to trade facilitation standards as well as avoiding the lowest common denominator approach on regional trade deals. Furthermore, Taiwan and India should agree to mutually acceptable product standards if India is to export raw materials for processing in Taiwan. This could be further institutionalized through the recent India-Taiwan memorandum of understanding on agriculture and allied sectors as part of the NSP.
LONG-TERM STRATEGY
India’s transition from a nonaligned foreign policy to one that is driven by national interest is telling. With the recent Doklam standoff with China in the Himalayas, India has shown that it is willing to stand up for smaller neighbors like Bhutan to preserve a rules-based order in the region. By ratcheting up economic and trade links with Taiwan, continuing to host the Dalai Lama, and directly reaffirming the need to protect freedom of navigation in joint statements with the United States, Australia, and Japan, India is sending a strong signal to China that it will not accept unilateral changes to the status quo.
Both India and Taiwan are bound by the common values of a liberal, democratic, rules-based order with shared security concerns. A growing economic yet unofficial India-Taiwan relationship will only strengthen India’s economic development and bolster its position as the net security provider in the Indian Ocean region. It will also give Taiwan an opportunity to forge stronger relations with the fastest-growing large economy by reducing its dependence on China.
As India tactfully toes the line on the OCP, it should look at its relationship with Taiwan through a strategic lens, without using it as a bargaining chip. India should extend its base for Taiwanese manufacturing and exports, absorb business best practices, build trade links with the neighborhood, understand China better through intelligence sharing with Taiwan, and collaborate with like-minded neighbors to build a democratic alternative to China’s BRI.
[1] Beijing also clashes with its Southeast Asian neighbors over its 3,200 acres of land features in the South China Sea, and with Japan over the Senkaku/Diaoyu Islands in the East China Sea. See CSIS Asia Maritime Transparency Initiative, Country: China, https://amti.csis.org/island-tracker/chinese-occupied-features/.
[2] Harsh V. Pant, “India Challenges China’s Intentions on OBOR,” YaleGlobal, June 22, 2017, https://yaleglobal.yale.edu/content/india-challenges-chinas-intentions-one-belt-one-road-initiative.
[3] Thomas Lynch and James Przystup, “India-Japan Strategic Cooperation and Implications for U.S. Strategy in the Indo-Asia-Pacific Region,” Strategic Perspectives, March 2017, https://ndupress.ndu.edu/Portals/68/Documents/stratperspective/inss/Strategic-Perspetives-24.pdf?ver=2017-03-14-123654-447. The “Look East” policy was a product of the post–Cold War world, when Indian prime ministers visited China, South Korea, and later the broader East Asian region to recognize the fact that India was changing its foreign policy quickly to be a part of the East Asian story. The ultimate goal of the policy that subsequently evolved into “Act East” was to ensure a multipolar Asia, according to Dhruva Jaishankar, “Actualizing East: India in a Multipolar Asia,” Institute of South Asian Studies Insights, No. 412–23, May 2017, https://www.brookings.edu/research/actualising-east-india-in-a-multipolar-asia/.
[4] Tien-Sze Fang, “India-Taiwan Relations: A Comprehensive Security Perspective,” India Defense Review 30, no. 4 (October–December 2015).
[5] ICRIER-CIER, Enhancing Trade, Investment and Cooperation between India and Taiwan.