India-Taiwan free trade agreement talks were first initiated in 2001, but it has not been formally concluded even after almost a decade. In the past, India has always been sceptical about moving forward with a trade agreement with Taiwan despite the latter encouraging it for years. China’s discouragement of India-Taiwan relations because of its “One China Policy” has been the major factor behind India’s inhibition in establishing closer ties with Taiwan. In this article, I intend to highlight the economic benefits of India-Taiwan FTA while taking into consideration the “One China Policy”.
India-Taiwan bilateral trade ties have undergone extensive changes in the past decade, with trade increasing almost six times from $1 billion in 2000 to $7.5 billion in 2019. This upward trend coupled with balanced trade signifies the potential of bilateral trade between the nations which if exploited appropriately could be instrumental for both nations.
Boost to the manufacturing sector
Taiwan is a highly developed and rapidly growing capitalist economy. It specialises in high-tech manufactured goods and has a highly skilled workforce. Taiwan is the fourth largest exporter of Machine tools in the world. Indian economy is a developing mix economy with abundance in labour and low wage rates. Both countries have comparative advantages in different economical aspects and therefore increased economic cooperation would be beneficial for both nations. Taiwanese companies could shift to Indian industries as they offer manufacturing services at a lower rate and at the same time India could derive technological benefits from Taiwan’s highly skilled forces.
Taiwan has a well-established manufacturing technology sector; in fact, their highest number of export products fall under this category. On the contrary, India witnessed a fall of 39.3% in the manufacturing sector in the April-June quarter of FY 2020. It is quite evident that India’s manufacturing sector needs an impetus as it has been struggling to fight the market competition in the international market as well as domestic market. Partnering with Taiwan could bring in foreign investments and subsequently increase capital which will aid the “Make in India” campaign. Moreover, bringing in Taiwanese companies will help India diversify its export market as well as Taiwan offers technologically advanced techniques which the Indian market requires to upgrade production, especially the food processing market.
Foreign Direct Investments
Taiwan’s degrading relations with China along with market restrictions and rising domestic costs has made the Indian economy a great substitute for Taiwan. In the past few years, various Taiwan giants have entered the Indian market and have infused millions of dollars, with the investment figures going up to $360 million in the financial year 2019. Taiwan based corporations such as Wistron and Foxconn are planning to invest over ₹7500 crores in the Indian market over a span of five years, which will create thousands of employment opportunities for Indians. Investments from Taiwan has increased substantially over the past few years and signing an agreement will open the market further and provide a stable business environment for investors encouraging them to outsource their domestic operations to India.
Favourable trade balance
Taiwan and India have favourable trade balance as compared to India-China trade balance under which India incurs acute deficit that is increasing every year. A healthy and stable trade balance signifies that both nations can benefit tremendously by partnering with one another. Additionally, India-China relations are currently quite unstable as the geopolitical tensions are rising on the border and security issues are a matter of concern to India. In such conditions, it is crucial for India to establish other channels of trade within Asia to decrease its economic dependence on China. Therefore, establishing trade cooperation with another major Asian country with huge resources such as Taiwan would be beneficial for India not only in terms of economic growth but also economic security.
It can be concluded that India-Taiwan relationship’s economic potential is under-explored. Integration of Taiwan’s “New Southbound Initiative” under which Taiwan plans to engage with South Asian countries is with India’s “Act East Policy” which is an initiative to promote economic, strategic and diplomatic ties with Asia-Pacific region could lead to the formation of a highly successful and profitable economic relationship. Although Taiwan has been on the forefront and has even proposed to fast track the trade negotiations, the same kind of enthusiasm is not visible on India’s end.
China’s displeasure is the major hindrance in the implementation of India-Taiwan FTA. However, it is imperative for India to focus on its own economic development now, and not going forward with an agreement with such high economic potential would be a great miscalculation on India’s end. It is also important to note that China itself is Taiwan’s largest trading partner and Delhi and Beijing have not given any joint statement on the subject of “One China policy” on a public platform since 2011.
It is understandable that India does not want to cause friction with China by establishing closer ties with Taiwan, but it can be handled effectively through diplomacy. It is evident that there are various economic benefits in partnering with Taiwan and so through economic diplomacy, a trade pattern that will be beneficial for nations could be established. India should focus on only the trade dynamic of the relations and should not partner with Taiwan on strategic and security fronts so as to avoid tensions with China. India needs to come up with a cohesive plan on the matter in order to maintain cooperation with China whilst establishing economic partnership with Taiwan.
Chanda Malviya is a student of Masters in Diplomacy, Law and Diplomacy in Jindal School of International Affairs, Sonipat