Classified By: AIT Director Douglas Paal; Reasons: 1.4 (B/D) ¶1. (C) Summary: Taiwan dreams of parlaying closer economic, political, and educational ties with India into an economic and even strategic counterweight to China's regional dominance. India seeks Taiwan investment along with manufacturing and commercial expertise but rejects the idea of forming any sort of counterweight to China as &pure fantasy.8 Both sides' expectations have proven overly optimistic as bilateral economic relations encounter frictions and restrictions. Educational, scientific and technical exchanges remain fruitful. End summary. A History of No Relations ------------------------- ¶2. (C) India-Taipei Association (ITA) Director General Vijay Gokhale told AIT in a November 9 meeting that the relatively undeveloped state of relations between Taiwan and India was largely due to India's complicated and sensitive ties with the PRC. India was among the first countries to formally recognize China in 1949. Gokhale said that in spite of the 1962 Sino-Indo War and China's "covert and overt" military assistance to Pakistan, India maintained a policy of non-recognition of the Republic of China (ROC) that resulted in almost total non-contact with Taiwan. Throughout the Cold War years even low-level Taiwan officials were not issued visas to visit India. Economic Basis of India-Taiwan Relations ---------------------------------------- ¶3. (C) It was not until 1991 after the end of the Cold War and India's financial crisis that economic pragmatism began to play a more important role in India's foreign policy according to Gokhale. He explained that economic factors such as the potential for trade and investment were the only reasons India finally ended its no-contact policy with Taiwan. When India opened its unofficial representative office in Taiwan in 1995 total bilateral trade was only USD700 million. By 2003 the bilateral trade volume had doubled to USD1.4 billion. In spite of this growth, Taiwan's exports to India still only account for 0.6 percent of its total exports. Likewise, Taiwan's imports from India are less than 0.6 percent of total imports. Taiwan's total cumulative investment in India through 2002 was only about USD110 million (according to Indian sources) compared to USD1.1 billion Taiwan investment in the Philippines, USD4.3 billion in Singapore, and USD100 billion in China (according to unofficial estimates). In April 2002 a Taiwan airline began direct flights between Delhi and Taipei and in October 2002 India and Taiwan signed an investment promotion and protection agreement. Economic Relations Have Limitations ----------------------------------- ¶4. (C) India hopes Taiwan will invest in high-tech manufacturing operations in India instead of the current Taiwan practice of importing Indian engineers to work in Taiwan's science parks, universities, and research institutes. Director General Gokhale said he believed the two economies are highly complementary but it would be more effective for Taiwan manufacturers to establish R&D centers in India rather than hiring Indians to work in Taiwan R&D centers. Gokhale said that from his experiences in China he understood why Taiwan investors were reluctant to invest in India instead of China. He thought India's economy was more restrictive than China's economy and had fewer incentives for foreign investors. He also believed Taiwan investors had unrealistic expectations of preferential treatment from the Indian government, similar to the preferential treatment he thought they received in China. Gokhale admitted that Taiwan's complaint to the WTO over India's excessive use of anti-dumping duties as a trade barrier was probably justified. (Note: India has imposed anti-dumping duties on seven Taiwan products. Taiwan claims the duties are "unjust" and were imposed without any investigation. Taiwan has requested formal consultations with India under WTO dispute resolution procedures. End note.) Gokhale noted that Taiwan restrictions on Indian fruit, chemicals, and bulk pharmaceuticals were also unfair trade barriers. Rising China No Threat? ---------------------- ¶5. (C) Director General Gokhale said that while India did not view China's rise as a threat, its relations with China were still (since the 1962 war) a very sensitive issue in India's domestic politics. Chinese companies were not permitted to work on construction of airports, ports, telecommunications, or road projects because of the strategic implications of having a rival power build India's infrastructure. India hesitated to sign a tax agreement with Taiwan to eliminate double taxation on Taiwan investors because such an agreement would need parliamentary approval. The Indian government feared that opposition parties in parliament could use an agreement with Taiwan to claim the government was jeopardizing hard-won rapprochement with China. Gokhale expected that within a few years greater China (i.e., Hong Kong, Taiwan, and Mainland China) would overtake the U.S. in importance as a trade partner to India and become the dominate economy in east Asia. Strategic Relations Just a Fantasy ---------------------------------- ¶6. (C) ITA Director General Gokhale told AIT that Taiwan officials were "living in fantasy" with their inflated expectations for India-Taiwan relations serving as a counterweight to the pull of China. He said India had no interest in relations with Taiwan outside of the economic sphere. India had repeatedly refused Taiwan's requests to permit its Vice Minister for Foreign Affairs to visit India. India had flatly rejected Taiwan's inquiries about a Free Trade Agreement saying it was "simply not going to happen," and &far beyond the realm of the possible.8 Taiwan Still Dreams of a Deeper Relationship -------------------------------------------- ¶7. (C) Oblivious to India's open and adamant rejection of political ties, some Taiwan officials still believe they can use economic ties to develop a political or strategic relationship with New Delhi. Ministry of Foreign Affairs Section Chief in the Department of East Asian and Pacific Affairs Ben Chen told AIT that Taiwan's strategy is to push the economic relationship and then the political ties will come naturally. Chen said Taipei is also focusing on cultural and educational exchanges to give Indians a better understanding of Taiwan. Chen added that he believes New Delhi is reaching out to Taiwan to counterbalance the PRC. He asserted the PRC is promoting relations with India's neighbors so New Delhi is doing the same thing to Beijing. Taiwan's Minister of Economic Affairs Ho Mei-yueh in May 2004 spoke of the need to reduce dependence on the PRC by increasing investment in Eastern Europe and India. Taiwan's Board of Foreign Trade has repeatedly urged manufacturers to develop markets in India as part of its efforts to diversity Taiwan's export markets away from the PRC. Common Democratic Values or Common Fear of China? --------------------------------------------- --- ¶8. (C) In mid-November 2004, Taiwan Thinktank (a think tank closely associated with former Taiwan President Lee Teng-Hui's pro-Taiwan independence policies) sponsored a seminar entitled &Taiwan-India-Japan Democratic Values, Cooperation, and Prospects.8 Taiwan President Chen Shui-bian received the Indian delegation. In his remarks at the seminar, the Indian delegation head former Defense Minister George Fernandes (known, according to Gokhale, for his views that China poses a threat to India), called for closer economic and security cooperation between Japan, India, and Taiwan. Taiwan Premier Yu Shyi-kun urged closer cooperation based on shared values in freedom, democracy, human rights protection, and economic prosperity. Yu also mentioned that Taiwan fully supports Japan's and India's bid to become permanent members of the United Nations Security Council. Taiwan Thinktank Chairman Chen Po-chih said in his opening remarks that by forging partnerships with Japan and India Taiwan can break the Beijing-imposed diplomatic embargo and gradually form alliances with even more Asian democracies. High-Level Contacts, Unrealized Hopes ------------------------------------- ¶9. (C) India now permits high-level Taiwan economic officials to travel to India and sends high-level economic and science officials to Taiwan. Taiwan Vice Minister of Economic Affairs Yiin Chii-ming has visited India twice this year. In mid-November Yiin led a trade and investment mission of 30 executives from Taiwan telecommunications, electronics and trading firms to Bombay and New Delhi. In March 2004 an Indian Vice Minister for Science and Technology visited Taiwan. During the visit the two sides agreed to conduct at least two science and technology seminars each year. Taiwan's National Science Council (NSC) plans to establish a separate India office to handle science and technology cooperation with India. NSC Section Chief Fu Hsien-da told AIT that Taiwan has established numerous other channels for technology exchange with India including a Taiwan-India Forum, a Science and Technology Advisory Group, educational exchanges, and think tanks. India had been assisting Taiwan to develop space technology but abruptly shut down the program according to the NSC. NSC Section Chief Fu thought India pulled back in response to PRC complaints. Indian Engineers Contribute to Taiwan's Technology --------------------------------------------- ----- ¶10. (C) Each year the NSC invites about 200 Indian post-doctoral researchers and guest scholars to Taiwan. There are currently some 500 Indian post-doctoral researchers at Taiwan universities. Although Taiwan's Hsin Chu Science Park officially employs only 70 Indian engineers it holds an annual Indian culture festival for the many Indian expatriates employed in the park. Taiwan's Institute for Information Industry (III) signed a strategic alliance memorandum in February 2004 with India's Software Industry Association to jointly develop software. III Manager Tsai Mei-ching told AIT that Taiwan information industry executives regularly travel to India to discuss opportunities for technical cooperation and exchange. Acer and BenQ are among Taiwan's leading companies that have established offices in India as windows for technical exchange. Taiwan's largest distributor of IT products Synnex Technology International announced on November 18 that it will invest USD24 million for a 36 percent stake in Redington Group, the second largest distributor of IT products in India. However, Synnex Vice President Lee Li-sheng told AIT his company has no plans to conduct manufacturing in India. ¶11. (C) Comment: Taiwan companies can offer India not only access to cutting edge manufacturing technology in key information industries but also precious investment capital. However India clearly has no intention of risking its delicate relations with China over political ties with Taiwan, and even the trade and investment relation between Taiwan and India has serious frictions. Taiwan hears what it likes in statements of Indian nationalists like Fernandes who advocate a bilateral strategic alliance but this view is adamantly rejected by Indian officials. The future of Indian-Taiwan relations will likely be determined by two factors: will Taiwan and India's high-tech companies be able to find ways to cooperate based on their complementary strengths in hardware and software; will Taiwan be able to build on substantial linkages with India and restrain its desire for symbolic gestures that could cause India to pull back.
