There is a case for wooing Taiwan

Dear Yashwant Sinha, When you were finance minister, you played an important role in attracting foreign direct investment. Pessimists earlier thought that FDI would dry up if the BJP ever came to power.

But you were among those who understood that FDI brings not merely hard currency but know-how, managerial capacity and export capability. You helped manage the transition of your party’s FDI policy from swadeshi gobbledygook to a more balanced, pragmatic approach.

Now that you are external affairs minister, you are in a position to plug the one big gap that still remains. This is to normalise economic relations with Taiwan. That country has the third largest foreign exchange reserves in the world after Japan and China. It is aggressively relocating its export-oriented factories to low-wage countries in Asia. Yet it invests very little in India, thanks to the traditional discouragement of your external affairs ministry. You need to change this.

Your ministry seems petrified that China will object to warmer Indo-Taiwanese relations. Why? Dozens of countries have strong commercial relations with Taiwan, without harming their ties with China. Huge flows of goods and investment pass between Taiwan and all East Asian and South-East Asian countries.

Indeed, Taiwan has a huge economic relationship even with its principal foe, China, touring trade and investment indirectly through Hong Kong. Since countries much smaller than us have strong ties with Taiwan despite formal Chinese protests, what are we afraid of?

We were very late in opening a representative office in Taiwan: We waited till 1995, long after other Asian and Western countries established themselves. Since Taiwan is not formally recognised as an independent country, foreign establishments use various fancy names to disguise what are, for practical purposes, embassies.

In our case we call it the Indo-Taipei Association. Many other countries have had air services with Taiwan for decades. We lacked the guts, but finally started air services last April.

This is progress of a kind. Yet it falls far short of the effort needed to create a major Indo-Taiwanese partnership. Taiwan is keen and willing. It views India as a huge market, as a potential location for global export production, and as a political counter to China.

It is investing billions of dollars abroad. But it gets such negative diplomatic signals from your ministry, Mr Sinha, that it is discouraged.

Silicon Valley has more Taiwanese-run firms than Indian-run ones. Taiwan is a powerhouse in computer hardware. India has come up as a powerhouse in software. The two countries could form a strong combination that straddles hardware and software.

Taiwan is now a rich country rising rapidly up the technology ladder. It spends 3 per cent of its GDP on research, and aims to compete in the top 15 emerging technologies of the world. It is on the look-out for partners. India could be one.

Nor does Taiwan’s strength lie just in high-tech areas. For many decades it was among the world’s most competitive producers of a wide range of labour-intensive goods, ranging from footwear and garments to bicycle components and plastic toys. These were produced by small and medium enterprises that have always formed the backbone of Taiwanese industry. Now that Taiwanese wages have gone up, thousands of small and medium enterprises in Taiwan are relocating to China and South-East Asia. Virtually none are relocating to India.

Why? Part of the reason is cultural. Taiwanese investors are naturally more at home with their brethren in China. They are equally at home with the Chinese diaspora that dominates business in Singapore, Malaysia, Thailand and the Philippines. All of them speak the same language, eat the same food. Now, the Taiwanese are willing to experiment with stranger locations, provided they feel welcome. India, alas, has made them feel unwelcome.

Mohammed Mahathir of Malaysia has visited Taiwan three times. Mind you, Malaysia (like other countries) has no formal diplomatic ties with Taiwan. It is very unusual for a prime minister to visit a country that he does not recognise diplomatically. But by doing so Mahathir has sent a powerful signal, and Taiwan has responded to it with ample investment. China makes angry noises, of course, but Mahathir shrugs his shoulders.

I am not suggesting, Mr Sinha, that you must visit Taiwan as a top priority. That can happen in due course. But why does your ministry not start by encouraging the visit of at least our economic ministers of state? Other countries send top leaders to Taiwan on what are politely called private visits. Why not us? Given its unique diplomatic disadvantages, Taiwan does not stand on ceremony.

The Taiwanese prime minister and his top cabinet colleagues will be very happy to visit India, with no diplomatic trimmings, as private visitors. If invited, they will bring with them the captains of Taiwanese industry. They will respond to any signal that they are welcome. Alas, there is none.

We woo South Korea, and have been rewarded with massive Korean investment. Yet we do not woo Taiwan, which has at least as much to contribute. It is time to start, Mr Sinha.

What do you think?