Economic diplomacy:

A foreign policy strategy

Harun RASHID

In the traditional sense, diplomacy is political diplomacy. This means that diplomats are primarily engaged in political relations because close or strong political relations lead to relations in other areas including economic and trade. Empirical evidence suggests economic relations are not initiated in a significant way in a political vacuum in which there is a lack of trust.

In earlier times, trade diplomacy was accompanied by gunboat diplomacy. That meant that if any country failed to pay back the money for goods sold, warships would go to threaten that country. For example in 1902-03, naval units from Britain, Germany and Italy blockaded the coast of Venezuela to compel that country to make payment to them.

In modern times, New York Times columnist, Thomas Friedman, the 2002 Pulitzer Prize winner, wrote that “the hidden hand of the market will never work without the hidden fist.

McDonald’s cannot flourish without McDonnell Douglas—the first designer of the F-15 war aircraft and the hidden fist that keeps the world safe for Silicon Valley’s technologies is called the US Army, Air Force, Navy and Marine Corps.”

What do they indicate? This means trade is backed always by might. If trade is not successful, other coercive measures are adopted to make it successful.

Modern economic diplomacy

It seems that the term “economic diplomacy” did not emerge before the seventies. Economic diplomacy in the past was known as trade diplomacy.

Economic diplomacy is concerned with economic policy issues, e.g. work of delegations at standard setting organisations such as WTO. Economic diplomats also monitor and report on economic policies in foreign countries and give the home government advice on how to best influence them.

Economic Diplomacy employs economic resources, either as rewards or sanctions, in pursuit of a particular foreign policy objective. This is sometimes called “economic statecraft”.

Economic diplomacy is the decision-making, policy-making and advocating of a country’s business interests. Economic Diplomacy requires application of technical expertise that analyse the effects of a country’s economic situation on economic interests of other countries. Versatility, flexibility, sound judgment and strong business skills are all needed in the execution of Economic Diplomacy.

In brief, economic diplomacy engages contacts in foreign institutions, businesses, and international organizations, to advance country’s economic interests seeks to resolve bilateral trade disputes and negotiate with trading partners to liberalise world trade.

It seeks to formulate official policy for development and facilitates negotiation on trade-related agreements and treaties engages development partners and transnational companies to promote markets co-ordinate trade policy, oversee enforcement export and import controls promote policies and interests in international and bilateral arena.

In the seventies, nationalization of industries took place in South Asia.

The economy of South Asia was one of the most regulated economies outside the Communist bloc. Sri Lanka first liberalised it in 1977, Bangladesh in 1980, Nepal in 1986, Pakistan in 1989 and India in 1991.

Nationalization of industries brought in turn the embassies in picture. That means if jute products are to be sold to other countries, assistance of embassies were sought and Commercial Wing of the embassy was directly involved in making it easier to sell that product either to government-owned industries or to private sector. Thus an embassy was directly involved in selling a product.

Economic globalisation has increasingly made economic diplomacy a significant factor in foreign policy. Economic globalisation has made it increasingly difficult to draw a clear cut distinction between what are domestic and what are international components of a product as economies of various countries are integrated. For example, the parts of Airbus A380 are being manufactured not only in Europe but also in Australia.

Issues in economic diplomacy

One of the features of economic diplomacy is that private sectors are involved in the decision-making process to retain products in the global or regional competitive market. Since productivity per hour is the main ingredient in making a product competitive, modern industrial technology is important. That is why government and private sector cooperation is imperative.

Economic diplomacy may face certain issues within the country. First, there is a tussle between politics and economic interests. For example, can Bangladeshi private sector export or import any product from Israel? Here political considerations outweigh economic interests.

International pressure

Second, when government chooses policies, private sectors are not often consulted and in certain cases government has to adhere to international pressure to reach an internationally good result. Such pressure is not comfortable to private sectors.

For example business enterprises favour protectionism and do not want to face competition from foreign products in the country. However, international obligation makes government de-regulate market to foreign products.

Economic diplomacy may operate in three levels: (a) bilateral, (b) regional and (c) global. Bilateral economic diplomacy is a major part of economic relations.

Governments facilitate a favourable environment for private sectors to conduct business or trade. It is the private sector that does business. For example, Indian rice of 5 lakh tones to Bangladesh is being imported through private sectors.

Regional economic diplomacy is ordinarily carried through regional free trade agreements. For example, SAFTA (South Asia Free Trade Agreement) has been agreed by all SAARC countries. That means liberalization of economies may be easier to accept if it is done through regional grouping.

WTO trade talks under the Doha Round are part of economic diplomacy.

Negotiation needs skill and adequate understanding of the complexities of trade rules. Although WTO promotes free trade, critics say it does not promote fair trade as it has become a vehicle of corporate hegemony.

In economic diplomacy, the civil society and NGOs monitor and evaluate the performance of governments and business enterprises and demand greater accountability and transparency of their actions.

Economic diplomacy is after all the means to advance trade and economic interests at all levels. Therefore government and private sector must cooperate and work hand in hand. The distinction between internal and foreign affairs has been replaced by a multi-actor participation in economic diplomacy headed by Foreign Office.

During the Cold War, an absence of armed conflicts was considered a success.

At the dawn of the 21st century, there is a different definition of success.

It is judged by interactions through economic diplomacy to advance country’s economic gains in the globalised and competitive world.

(The author is former Bangladesh Ambassador to the UN, Geneva.)

Daily Star, Bangladesh