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The New Economic Diplomacy explains how states conduct their external economic
relations in the 21st century: how they make decisions domestically, how they
negotiate internationally and how these processes interact. Although the previous
edition, published in 2011, was able to reflect the impact of the financial crisis and
the immediate reaction to it, a lot has happened since then, and the atmosphere of
economic diplomacy has darkened.
To capture the emergence of new trends and the intensification of old ones, the
salient features of this new edition are:

• The advance of China and other emerging powers at the expense of G7 gov-
ernments, despite some setbacks;
• Much greater activity in negotiating regional and plurilateral trade agree-
ments, while the multilateral system struggles;
• The persistence of problems exposed by the financial crisis, notably the long-
running Eurozone crisis;
• The interaction between domestic and external forces: the balance has shifted
towards the domestic axis, with international agreement more difficult to
achieve. This edition goes further in comparing the practice of different play-
ers, to reflect the greater diversity of economic diplomacy.

Based on the authors’ work in the field of International Political Economy, it is
suitable for students interested in the decision-making processes in foreign eco-
nomic policy, including those studying international relations, government, poli-
tics and economics. It will also appeal to politicians, bureaucrats, business people,
NGO activists, journalists and the informed public.

Nicholas Bayne is a Fellow of the International Trade Policy Unit of the London
School of Economics and Political Science (LSE), UK, and a former British diplomat.

Stephen Woolcock is an Associate Professor in the International Relations
Department of the LSE, UK. He is the Head of the LSE’s International Trade
Policy Unit and course coordinator since 1999 for the master’s option on economic
diplomacy that he co-founded with Nicholas Bayne.

Global Governance
Series Editor: John J. Kirton, University of Toronto, Canada
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Global governance is growing rapidly to meet the compounding challenges of a
globalized 21st-century world. Many issues once dealt with largely at the local,
national or regional level are now going global, in the economic, social and political-
security domains. In response, new and renewed intergovernmental institutions are
arising and adapting, multi-level governance is expanding, and sub-national actors
are playing a greater role and create complex combinations and private-partnerships
to this end.
This series focuses on the new dynamics of global governance in the 21st cen-
tury by:

• Addressing the changes in the structure, operation and impact of individual
intergovernmental institutions, above all their innovative responses to the
growing global challenges they confront.
• Exploring how they affect, are affected by and relate to non-state actors of
global relevance and reach.
• Examining the processes of cooperation, competition and convergence among
international institutions and the many global governance gaps where global
challenges such as terrorism, transnational crime and energy do not confront
powerful international institutions devoted to their control.
• Dealing with how global institutions govern the links among key issues such
as climate change and health.

In all cases, it focuses on the central questions of how global governance institu-
tions and processes generate the effective, legitimate, accountable results required
to govern today’s interconnected, complex, uncertain and crisis-ridden world.

1 Local Politics, Global Impacts
Steps to a multi-disciplinary analysis of scales
Olivier Charnoz, Virginie Diaz Pedregal

2 The G8-G20 Relationship in Global Governance
Edited by Marina Larionova and John J. Kirton

3 China’s G20 Leadership
John J. Kirton

4 The New Economic Diplomacy
Decision-making and negotiation in international economic relations
Edited by Nicholas Bayne and Stephen Woolcock

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Decision-making and negotiation in
international economic relations
Fourth Edition

Edited by Nicholas Bayne
and Stephen Woolcock

Fourth edition published 2017
by Routledge
2 Park Square, Milton Park, Abingdon, Oxon, OX14 4RN
and by Routledge
711 Third Avenue, New York, NY 10017
Routledge is an imprint of the Taylor & Francis Group, an informa business
© 2017 selection and editorial matter, Nicholas Bayne and Stephen
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Woolcock; individual chapters, the contributors
The right of the Nicholas Bayne and Stephen Woolcock to be identified
as the authors of the editorial material, and of the authors for their
individual chapters, has been asserted in accordance with sections 77 and
78 of the Copyright, Designs and Patents Act 1988.
All rights reserved. No part of this book may be reprinted or reproduced
or utilised in any form or by any electronic, mechanical, or other
means, now known or hereafter invented, including photocopying and
recording, or in any information storage or retrieval system, without
permission in writing from the publishers.
Trademark notice : Product or corporate names may be trademarks
or registered trademarks, and are used only for identification and
explanation without intent to infringe.
First edition published by Ashgate Publishing Limited 2003
Third edition published by Ashgate Publishing Limited 2011
British Library Cataloguing in Publication Data
A catalogue record for this book is available from the British Library
Library of Congress Cataloging in Publication Data
Names: Bayne, Nicholas, 1937- editor. | Woolcock, Stephen, editor.
Title: The new economic diplomacy : decision-making and negotiation
in international economic relations / edited by Nicholas Bayne and
Stephen Woolcock.
Description: Fourth edition. | Abingdon, Oxon ; New York, NY :
Routledge, [2017] | Revised edition of The new economic diplomacy,
c2011. | Includes bibliographical references and index.
Identifiers: LCCN 2016028166 | ISBN 9781472483164 (hbk) |
ISBN 9781472483195 (pbk.) | ISBN 9781315555188 (ebk)
Subjects: LCSH: International economic relations. | International
cooperation. | Commercial policy. | Negotiation in business. |
Decision making. | International economic relations—Case studies.
Classification: LCC HF1359 .N4685 2017 | DDC 337—dc23
LC record available at
ISBN: 978-1-4724-8316-4 (hbk)
ISBN: 978-1-4724-8319-5 (pbk)
ISBN: 978-1-315-55518-8 (ebk)

Typeset in Bembo
by Apex CoVantage, LLC

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List of illustrations vii
Notes on contributors viii
Preface to the fourth revised edition xi
List of abbreviations xiv

1 What is economic diplomacy? 1
Nicholas Bayne and Stephen Woolcock

2 Challenge and response in the new economic diplomacy 15
Nicholas Bayne

3 Factors shaping economic diplomacy: An analytical toolkit 38
Stephen Woolcock

4 How governments conduct economic diplomacy in practice 59
Nicholas Bayne

5 NGOs in economic diplomacy 82
Duncan Green and Celine Charveriat

6 Serving the private sector: India’s economic diplomacy 105
Kishan S. Rana

7 Continuity and change in the politics of US trade relations
with Russia 122
Craig VanGrasstek

vi Contents

8 Conceptualizing China’s economic diplomacy: Conversion
between wealth and power 138
Zhang Xiaotong

9 Brazilian economic diplomacy: Agriculture and
the WTO negotiations 152
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Braz Baracuhy

10 European Union economic diplomacy 171
Stephen Woolcock

11 Economic diplomacy and small developed economies:
The case of New Zealand 187
Vangelis Vitalis

12 The economic diplomacy of small and poor countries in
the global trading system 207
Teddy Soobramanien

13 Lessons from the G7 and G8 for the G20 summit 220
Nicholas Bayne

14 Negotiating preferential trade agreements: Motivations
and effects 238
Ken Heydon

15 International financial diplomacy and the crisis 256
Stephen Pickford

16 Climate change negotiations: Pushing diplomacy to its limits 274
Joanna Depledge

17 International investment negotiations: A case of
multi-level economic diplomacy 296
Stephen Woolcock

18 The future of economic diplomacy 310
Nicholas Bayne and Stephen Woolcock

Index 331

1 US trade and immigration from Russia and the Soviet Union (1821–2014) 124 10.1 A typology of EU competence 181 11.1 Cumulative growth in physical PTAs (1958–2015) 244 15.1 Simplified EU decision-making flow chart 178 11.2 Financial stress index 258 15.4 The G20 framework 264 Tables 7. San Diego] at 17:59 07 January 2017 Figures 3.1 Groupings in the World Trade Organization 213 12.1 Share of global GDP (in PPP) compared 157 10.2 The coordination process 216 14. ILLUSTRATIONS Downloaded by [University of California.1 Economic diplomacy and commercial diplomacy 107 9.1 Regional groups and summit chairs in the G20 233 15.1 OECD economies: Size and distance 190 13.1 The 10 largest IMF shareholders before and after the 2010 quota reforms 269 .1 International bank credit. claims on banks 257 15.3 Timeline of G20 summits 262 15.1 Diminishing marginal returns for New Zealand’s PTAs 201 12.1 A simple bargaining model 49 6.

While a member of the British Diplomatic Service from 1961 to 1996. he served as High Commissioner to Canada. Paul-Henri Spaak Fellow at Harvard University (1984–1985). available at The views expressed in his joint chapter with Celine Charveriat are their own and do not necessarily reflect Oxfam policy. Dr Duncan Green is Strategic Adviser at Oxfam GB. he was a Senior Research Fellow at Cha- tham House. Dr Stephen Woolcock is a Senior Lecturer in the International Relations Depart- ment of the London School of Economics and Political Science (LSE). She is an experienced advocate and an expert on multilateral processes . He co-founded with Stephen Woolcock the LSE master’s option on economic diplomacy in 1999. He is the Head of the LSE’s International Trade Policy Unit and course coordinator since 1999 for the master’s option on economic diplomacy that he co-founded with Nicholas Bayne. and Deputy Director for International Affairs with the Confederation of British Industry (1986–1989). is a Fellow of the International Trade Policy Unit of the London School of Economics and Political Science (LSE). Before joining the LSE. London (1979–1983 and 1989–1993). and Professor in Practice in International Development at the London School of Economics. From Poverty to Power. KCMG. Economic Director at the Foreign and Common- wealth Office (FCO) and UK Representative to the Organisation for Economic Cooperation and Development (OECD). Celine Charveriat is the Executive Director of the Institute for European Environ- mental Policy. San Diego] at 17:59 07 January 2017 Sir Nicholas Bayne. CONTRIBUTORS Downloaded by [University of California. He is author of How Change Happens (OUP: 2016) and writes a daily blog on development. Previously she was Oxfam International’s Director of Advocacy & Campaigns.

He is the author of several books on diplomacy. preparing national trade strategies. He is also co-author of a collection of case studies. UNCTAD (United Nations Conference on Trade and Development) and many other international organiza- tions. The views expressed in this chapter are personal. He is the author of The History and Future of the World Trade Organization (WTO 2013) as well as other books. Braz Baracuhy. They do not necessarily reflect the official position of the Itamaraty. most recently Diplomacy at the Cutting Edge (2015). Previously with the OECD Secretariat. He holds a doctorate in political science from Princeton University and has worked in over four dozen countries on five continents. Zhang Xiaotong is Executive Director of the Wuhan University Research Centre for Economic Diplomacy. He has been a trade consultant since 1981. Mauritius and Germany. He is also chair of the OECD Committee on Trade and the Environment. Kenya. and aiding firms and govern- ments in trade disputes. according to The Economist (January 22. government agencies and private firms. covering eco- nomic diplomacy. ‘keeps a sharp eye on the politics of trade’.edu. he was Ambassador/High Commissioner to Algeria. Rana is Professor Emeritus at DiploFoundation. Vangelis Vitalis is currently New Zealand’s Permanent Representative to the WTO in Geneva. He is also Associate Professor of School of Political Sci- ence and Public Administration at Wuhan University. he has also been New . is head of the Division of Agriculture and Commodities Trade at the Brazilian Ministry of External Relations (Itamaraty) and former Doha Round negotiator at the WTO in Geneva. chapters. Contributors ix such as the World Trade Organization (WTO) and the United Nations Framework Convention on Climate Change (UNFCCC). As a member of the Indian Foreign Service (1960–1995). San Diego] at 17:59 07 January 2017 Prime Minister Indira Gandhi’s office and as Consul General in San Francisco. Dr VanGrasstek’s clients include the WTO. Kishan and was posted as economic counsellor at the Brazilian Embassy to China in Beijing. He previously worked as Trade Attaché of the Chinese Mission to the European Union and served in various positions in the Chinese Ministry of Commerce. China: xtzhang@whu. where he is chair of the agriculture negotiations. Czechoslovakia. Among his other projects have been advising countries on their free trade agreement negotiations with the United States and accessions to the WTO. journal articles and monographs. a Brazilian diplomat. as well as serving in Downloaded by [University of California. the OECD. where he worked as an economist. Craig VanGrasstek. The views expressed in her joint chap- ter with Duncan Green are their own and do not necessarily reflect Oxfam policy. designing and executing capacity-building programmes in trade policy. Economic Diplo- macy: India’s Experience (2011). 2000). He has previously served at the office of the Foreign Minister’s policy planning staff. and has taught this subject at the Harvard Kennedy School of Government since 2000.

Belarus and Kazakhstan. he was Deputy Director of the OECD Trade Directorate. Kishan S. x Contributors Zealand’s Ambassador to the European Union and NATO. San Diego] at 17:59 07 January 2017 Teddy Soobramanien is Economic Adviser (International Trade Policy) in the Trade Division of the Commonwealth Secretariat. where she was closely involved in the negotiation of the Kyoto Protocol and its follow-up. Note Duncan Green. Senior Adviser on WTO negotiations to the Mauritius Mission in Geneva (2002–2006) and Exter- nal Relations Officer of the WTO Secretariat (2001–2002). He was the UK’s Executive Director at the International Monetary Fund and World Bank between 1998 and 2001 and Economic Minister at the British Embassy in Washington. She has been following the cli- mate change negotiations for 20 years. notably ozone depletion. where he was Manag- ing Director for international finance (and the UK’s Finance Deputy for the G7 and G20 and member of the European Economic and Finance Committee) from 2007. Rana also wrote a chapter for the second edition. and maintains an interest in other global environmental issues. having joined the Ministry in 1995. and the Chief Negotiator who concluded the ASEAN–Australia–New Zealand Free Trade Agreement (FTA) and the Malaysia– New Zealand FTA. From 1999 to 2006. the Chief Negotia- tor for New Zealand’s FTA negotiations with the Customs Union of the Russian Federation. Ken Heydon is a Visiting Fellow at the LSE. International Trade and Regional Cooperation of Mauritius. Dr Joanna Depledge is an affiliated lecturer at the Department of Politics and International Studies. he was Deputy Director General of the Office of National Assessments (1990–1999) and Principal Private Secretary to the Prime Minister (1976–1979). Braz Baracuhy. including as a former staff member of the UN climate change secretariat. Rana. Downloaded by [University of California. She has published widely on climate change politics. Stephen Pickford is Senior Research Fellow in International Economics at Cha- tham House. University of Cambridge. Ken Heydon and Stephen Pickford all contributed chapters to the third edition of this book. He retired from the UK Treasury in 2010. The views contained in this chapter are those of the author alone and do not necessarily represent those of the New Zealand Ministry of For- eign Affairs and Trade. While a member of the Australian civil service (1962–1999). . Teddy Soobramanien. Previously. he was International Trade Expert at the Trade. He also held the posi- tion of Senior Trade Policy Analyst at the Ministry of Foreign Affairs. Kishan S. Senior Trade Policy Adviser to the International Trade Centre in Geneva (2006–2007).Com Facility in Brussels (2007–2013).

drawn from government. appeared in 2007. as presented in this book. to examine how states organise and conduct their international economic relations. with each chapter cor- responding to an academic lecture or a practitioner session. in which the academic lectures we gave provided the framework for a sequence of sessions with practitioners. In 1999–2000. He joined forces with Nicholas Bayne to continue what Mike Hodges had begun. A second edition. But tragically Mike died in June 1998 before he could bring his plan to fruition. then recently retired from the British Diplomatic Service. He first had the idea of bringing together the analytical skills of academics with the experience of policy practitio- ners. Yet a fourth edition is now necessary. This new edition is published by Routledge. PREFACE TO THE FOURTH REVISED EDITION Downloaded by [University of California. These practitioner contributions formed an integral part of the course. is the brainchild of the late Mike Hodges. Early on. we decided to make the course the foundation for a book. international institutions and the private sector. to reflect on the continuing impact that the crisis and the response to it has had on economic diplomacy. This economic diplomacy option became established and will soon enter its eighteenth year. . since our earlier publishers Ashgate have been absorbed into the Taylor & Francis Group. Stephen Woolcock had then just become a Lecturer at the LSE’s International Relations Department. which took account of the great financial crisis. we launched a full graduate course. revised and updated and with the same structure. He approached Nicholas Bayne. and they began planning a graduate course in economic diplomacy to reflect this idea. Senior Lecturer in the International Relations Department at the London School of Economics and Political Science (LSE). San Diego] at 17:59 07 January 2017 Economic diplomacy. A third followed in 2011. The first edition of The New Economic Diplomacy appeared in 2003.

Rana wrote for the second edition too. In addition to repeat contributions from our Australian. Florian Koebele. Seven chap- ters look at aspects of the economic diplomacy practised by specific countries or groups of countries. We shall there- fore focus on those who have helped us since the third edition appeared. and by Downloaded by [University of California. James Morrison. provide an analytical tool- kit and explain how governments organise the process. Indian and Mauritian authors. Mar- tina Langer. The third edition gave more space to inter- national institutions as compared with national actions. and continues with the United States. Matthew Goodman and Joan MacNaughton (who all wrote chapters for earlier editions). Dominic . have written chapters for this updated volume. as well as important continuities. Anja Furevold. Our greatest debt is to those who. These include Ken Heydon (who has also contributed a chapter). Once again. Robert Falkner. Our first debt of gratitude is to those who have shared the burden of teach- ing and running the course at the LSE over the last five years. In contrast. These are supplemented by chapters (as before) by Duncan Green. In this book the balance is reversed. Julius Langendorf. In addition. financial diplomacy. Alejan- dro Jara. The references at the end of each chapter make increasing use of material from electronic sources and include lists of useful websites. we want to express our thanks to those who have helped us both with the book and with the course itself. only five chapters cover international negotiations: the G7/8 and G20 summits. as well as a new American contributor. review the challenges facing economic diplomacy. Nick Joicey. San Diego] at 17:59 07 January 2017 Kishan S. Olu Fasan. This book opens like the last one. this time with Celine Charveriat. John Cooke. as listed in the Notes on Contributors. six of the contributors to this book also wrote chap- ters for the third edition. Our final joint chapter sums up and looks ahead. Leonardo Baccini. New Zealand as a small developed economy (another innovation) and small and poor developing countries. Kishan S. pref- erential trade agreements. in addition to conducting sessions. China (which finally gets its own chapter). xii Preface to the fourth revised edition This fourth edition is entirely free-standing and does not require reference back to its predecessors. The list of our benefactors is now so extensive that we can no longer name everybody involved from the beginning. Hilary Parker. In addition to ourselves. Thereafter the structure changes. Rana that examine the interaction with NGOs and the business sector. it may be worth recording the main differences from the earlier editions. Brazil. we have incurred yet more debts. intro- duced in the last edition. which focuses on India. the European Union. climate change and international investment. to reflect the observable trend over the last five years. we are most grateful to all the other speakers who have taken part in the programme since 2011: Phil Evans. Peter Chase. Four chapters by ourselves introduce the sub- ject. The geographical spread of our authors continues to expand. This sequence begins with Rana’s chapter. we thank most warmly all the practitioners and fellow-academics who have agreed to speak for us in the lecture programme. Second. Donna Lee. In producing this fourth revised edition. Nevertheless. Lauge Poulsen and Taylor St John. we welcome authors from China and New Zealand for the first time. Brazilian.

We thank all those initially at Ashgate and lately at Taylor & Francis involved Downloaded by [University of California. Thanks to all these supporters. We are also indebted to all the students who have taken part in the lectures and seminars and contributed to the development of our ideas on eco- nomic diplomacy. Preface to the fourth revised edition xiii Martin. San Diego] at 17:59 07 January 2017 with bringing this book into its published state. the ideas that we have been developing and testing in the laboratory of the LSE continue to reach out to a wider audience. Finally. Jeroen Merk. we would like to express our special gratitude to Kirstin Howgate for her support through three previous editions and her sponsorship of this fourth one. especially Brenda Sharp and Rob Sorsby. Since the first edition we have also owed much to John Kirton and Mad- eline Koch. Christopher Roberts and Yang Jiang. Nicholas Bayne Stephen Woolcock Hampton Court. Nicholas Niggli. Brussels and London May 2016 . Joakim Reiter. from the G7 and G20 Research Group of the University of Toronto.

ABBREVIATIONS Downloaded by [University of California. India. India. Caribbean and Pacific associates of the EU ADB Asian Development Bank AfDB African Development Bank AIG American International Group in insurance AIIB Asian International Infrastructure Bank AILAC Association of Latin America and the Caribbean in climate change ALBA Alliance of the Peoples of Our America in climate change ALDE Alliance of Liberals and Democrats for Europe in the EP APEC Asia-Pacific Economic Cooperation ASEAN Association of South-East Asian Nations ASSOCHAM Associated Chambers of Commerce of India B20 Business Panel linked to G20 summit Bank Short for World Bank BASIC Brazil. China BATNA best alternative to a negotiated agreement BCBS Basel Committee on Banking Supervision BDI Bundesverband der Deutschen Industrie BFA Boao Forum for Asia BI British Invisibles BIMSTEC Bangladesh India Myanmar Sri Lanka Thailand Economic Community BIS Bank for International Settlements BIT Bilateral Investment Treaty BRICS Grouping of Brazil. China and South Africa BTB Behind the Brands campaign . San Diego] at 17:59 07 January 2017 AANZFTA ASEAN–Australia–New Zealand Free Trade Agreement ACP African. Russia. South Africa.

San Diego] at 17:59 07 January 2017 CER Closer Economic Relationship between Australia and New Zealand CETA Comprehensive Economic and Trade Agreement between EU and Canada CFTA Continental Free Trade Area in Africa CII Confederation of Indian Industry CNA National Agriculture Confederation of Brazil CO2 Carbon Dioxide. Abbreviations xv CAFOD Catholic Fund for Overseas Development CAMEX Chamber of External Trade of Brazil CAP Common Agricultural Policy of the EU CCP Common Commercial Policy CDM clean development mechanism of Kyoto Protocol CEO Chief Executive Officer CEPR Centre for Economic Performance of the LSE Downloaded by [University of California. principal greenhouse gas CONTAG National Agriculture Workers Confederation of Brazil COP Conference of the Parties to the UNFCCC CRA Contingent Reserve Arrangement among the BRICS CSI Coalition of Service Industries in the US CSO Civil Society Organization CUSFTA Canada–US Free Trade Agreement CVF Climate Vulnerable Forum DDA Doha Development Agenda of the WTO DFAIT Department of Foreign Affairs and International Trade of Canada DFID Department for International Development of the UK DG Directorate General of the European Commission DPA Development Partnership Association in India DSM dispute settlement mechanism EBA European Banking Authority EBRD European Bank for Reconstruction and Development EC European Commission ECB European Central Bank ECJ European Court of Justice ECOFIN Economic and Finance Council of the EU EEC European Economic Community EEU Eurasian Economic Union EEZ Exclusive Economic Zone in the Law of the Sea EFSF European Financial Stability Facility EGA Environmental Goods Agreement in the WTO EIF Enhanced Integrated Framework for trade-related technical assistance EIOPA European Insurance and Occupational Pensions Authority EP European Parliament .

finance ministers and other groups G8 Group of Eight summit and other groups G10 Group of Ten finance ministers and central banks or Group of Ten countries protecting agriculture in WTO G13 Group of Thirteen. Brazil. abortive plan for expanding G8 summit G20 Group of Twenty summit and finance ministers or Group of Twenty major developing countries in WTO G33 Group of Thirty-Three developing agricultural importers in WTO G77 Group of Seventy-Seven developing countries in the UN G90 Group of Ninety low-income countries in the WTO G110 Group of One Hundred and Ten. San Diego] at 17:59 07 January 2017 FCL Flexible Credit Line of the IMF FCO Foreign and Commonwealth Office of the UK FDI foreign direct investment Fed Short for Federal Reserve of the US FFFSR Friends of Fossil Fuel Subsidy Reform FICCI Federation of Indian Chambers of Commerce and Industry FSAP Financial Sector Assessment Programme of IMF FSB Financial Stability Board FSF Financial Stability Forum. EU. all developing countries in the WTO GAB General Agreement to Borrow in the IMF GATS General Agreement on Trade in Services in the WTO GATT General Agreement on Tariffs and Trade GDP gross domestic product GE General Electric GPA Government Procurement Agreement in the WTO GSP Generalised System of Preferences . secretive precursor of G7 G7 Group of Seven summit. ambitious and binding Downloaded by [University of California. xvi Abbreviations EPP European People’s Party in the EP ESCAP Economic and Social Commission for Asia and the Pacific ESM European Stability Mechanism ESMA European Securities and Markets Authority ETI Ethical Trading Initiative EU European Union FAB fair. predecessor of FSB or Financial Stability Facility created in the EU in 2010 FTA free trade agreement FTAAP Free Trade Area of the Asia-Pacific FTZ free trade zone Fund Short for International Monetary Fund (see also IMF) G4 Group of Four (US. India) leading negotiators in WTO G5 Group of Five finance ministers.

Australia and New Zealand IPR intellectual property rights IR International Relations (academic discipline) ISO International Standards Organization IT Information Technology ITA International Technology Agreement in the WTO ITO International Trade Organisation LDC least-developed country LOTIS Liberalization of Trade in Services Committee of BI LSE London School of Economics and Political Science MAI Multilateral Agreement on Investment in the OECD MEA Ministry of External Affairs of India or Multilateral Environmental Agreement MEP member of the European Parliament Mercosur [Spanish for] Common Market of the Southern Cone MERT Ministry of External Relations and Trade of New Zealand. also known as the Fund INGO International Non-Governmental Organization IOSCO International Organisation of Securities Commissions IPCC Intergovernmental Panel on Climate Change IPE International Political Economy (academic discipline) IPF Integration Partnership Forum of ASEAN. San Diego] at 17:59 07 January 2017 of Brazil ICSID International Centre for the Settlement of Investment Disputes IEA International Energy Agency ILO International Labour Organization IMF International Monetary Fund. Abbreviations xvii GTI [Portuguese for] Informal Technical Group in Brazil for agricultural trade GYLA Georgia Young Lawyers Association HIPC Heavily Indebted Poor Countries IAIS International Association of Insurance Supervisors IBSA India Brazil South Africa ICONE Institute for Trade and International Negotiations Studies Downloaded by [University of California. later MFAT MES Market Economy Status for China in WTO MFA Ministry of Foreign Affairs MFAT Ministry of Foreign Affairs and Trade of New Zealand MFN most-favoured-nation treatment in GATT and WTO MNC multinational corporation NAB New Arrangements to Borrow in the IMF NAFO North-West Atlantic Fisheries Organization NAFTA North American Free Trade Agreement NAMA non-agricultural market access in the WTO NAZCA non-state actor zone for climate action .

xviii Abbreviations NCSJ National Conference on Soviet Jewry in the US NDC nationally determined contribution to climate change policy NEPAD New Partnership for Africa’s Development NGO non-governmental organization NIEO New International Economic Order NTM non-tariff measure NTR normal trade relations in the US Downloaded by [University of California. EC. San Diego] at 17:59 07 January 2017 ODI Outbound Direct Investment OECD Organisation for Economic Cooperation and Development OI Oxfam International OIF Organisation Internationale de la Francophonie OLP Ordinary Legislative Procedure of the EU OPEC Organisation of Petroleum Exporting Countries P4 Pacific Four – Brunei. New Zealand and Singapore PACJA Pan-African Campaign for Climate Justice PLL Precautionary and Liquidity Line PNTR permanent normal trade relations in the US PPP public–private partnership or purchasing power parity PTA preferential trade agreement QE Quantitative Easing practised by central banks QMV qualified majority voting in the EU Quad quadrilateral of trade ministers (US. Japan and Canada) in GATT R&D Research and Development RCEP Regional Comprehensive Economic Partnership RFA regional financing arrangement RTA regional trade agreement S&D Alliance of Socialists and Democrats in the EP SDG Sustainable Development Goals SDR Special Drawing Right of the IMF SEM Single European Market SPS Sanitary and Phyto-sanitary measures in the WTO SRM Single Resolution Mechanism in the European Banking Union SSM Single Supervisory Mechanism in the European Banking Union SVEs Small Vulnerable Economies – group in WTO negotiations TBT Technical Barriers to Trade in the WTO TFEU Treaty on the Functioning of the European Union (Lisbon Treaty) TiSA Trade in Services Agreement linked to WTO TPA Trade Promotion Authority of the US TPC Trade Policy Committee of the EU TPP Trans-Pacific Partnership TRIMs trade-related investment measures agreement of WTO TRIPS Trade-Related Intellectual Property Rights agreement of WTO . Chile.

Abbreviations xix TRQ tariff rate quota TSIA Trade Sustainability Impact Assessment in the EU TTIP Transatlantic Trade and Investment Partnership UK United Kingdom UN United Nations UNCED United Nations Conference on Environment and Development UNCITRAL United Nations Centre for Investment and Trade Law Downloaded by [University of California. San Diego] at 17:59 07 January 2017 UNCTAD United Nations Conference on Trade and Development UNECA United Nations Economic Commission for Africa UNEP United Nations Environment Programme UNFCCC United Nations Framework Convention on Climate Change US United States of America USTR United States Trade Representative WEF World Economic Forum WTO World Trade Organization WWF World-Wide Fund for Nature .

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While states are at the centre of this study. while ministers and heads of government are active alongside their officials. economic diplomacy was dominated by permanent officials from the governments of a limited number of countries. emerging powers have met difficulties and the G20 summit. there are far more non-government players. For half a century after World War II. This book focuses on the methods and process of decision-making and negotiation. New emerging powers. Originally limited to measures taken at the border. All these trends will shape this book. Now. with many more countries active in it. Since 2011.1 It was shaped by the constraints of East–West rivalry. San Diego] at 17:59 07 January 2017 Nicholas Bayne and Stephen Woolcock This is a book about how states conduct their international economic relations at the start of the 21st century: how they make decisions domestically. the latest being the United Kingdom’s decision to leave. there has been a steady trend towards far more integrated markets in a single economic system covering the entire world. have made great advances. Europe and Japan have lost ground. with the advance of globalization in the 21st century. It is not intended to be a manual for negotiators. and how these two processes interact. which integrated them. it also includes non-state actors. economic diplomacy increasingly operates ‘within the frontier’ and influences domestic policy. has lost momentum. whose influence on decision-making has grown over the years. which we call economic diplomacy. There are several reasons to pay attention to the process of international eco- nomic decision-making. 1 WHAT IS ECONOMIC DIPLOMACY? Downloaded by [University of California. with China in the lead. how they negotiate with each other internationally. especially after suffering financial collapse and economic recession. but rather to explain why governments and other actors in economic diplomacy behave in the way they do. it fills a . Above all. rather than the content of policy. The European Union faces recurrent crises. We call this book The New Economic Diplomacy to emphasize how much this activity has changed in the 25 years since the end of the Cold War. First of all. while mature economies of North America. along with new ones.

to enhance prosperity. In some respects. • It sets out one interpretative approach unique to this book. notably in Syria and other parts of the Islamic world. such as the relative power of states or the structures of influence within national economies. an integral part of it is contributed by experienced practitioners of economic diplomacy. showing how the academic and practitioner chapters fit together. the problems exposed by the financial crisis and ensuing recession as well as the threat of climate change threaten the international system and still require attention to be given to economic diplomacy. and these persist. This opening chapter covers the following: • It begins by defining the scope and content of economic diplomacy.2 The classical concept of diplomacy defines it as: ‘the conduct of relations between states and other entities with standing in world politics by official agents and by . the process of decision-making and nego- tiation can determine outcomes. economic diplomacy is like sex: easier to describe if you have practised it yourself. starting at Chapter 5. 2 Nicholas Bayne and Stephen Woolcock gap in current academic studies. Taking a broader definition of security concerns. • It explains multi-level diplomacy and ‘forum shopping’ as further dimensions of economic diplomacy. New security concerns emerged after the terrorist attacks of 11 September 2001. based on three ten- sions of economic diplomacy. as Professor John Odell has pointed out in his book Negotiating the World Economy (Odell 2000). But where power relationships are balanced. Defining economic diplomacy ‘Economic diplomacy’ is the term chosen to describe the subject of this study. with the help of our colleague Ken Heydon. provide case studies and illustrations of how eco- nomic diplomacy works. So while much of this book is written by Nicholas Bayne and Steve Woolcock of the LSE. The practitioner chapters. Economic diplomacy is not just a subject for academic study. This has the advantage that ‘diplomacy’ is a broad and elastic term. The discipline of International Political Economy (IPE) focuses more on structural factors. But precisely because it admits of wide interpretation. but also in Ukraine. has been the main priority for states in most regions of the world. • It identifies useful theoretical and analytical tools for interpreting the main factors shaping economic diplomacy. rather than on process. The chapter concludes with a brief review of the structure of the book. Since the end of the Cold War economic diplomacy. It is an activity pursued by state and non-state actors in the real world of today. The examination of economic decision-making also illuminates how governments try to make their policies Downloaded by [University of California. to make clear what is and is not included in this book. some further definition is needed. San Diego] at 17:59 07 January 2017 more efficient and how they respond to pressures for greater democratic account- ability.

so as to capture its international repercus- sions. diplomacy is conducted only by people from foreign ministries. According to these stereotypes. As the following sections will show. it is elitist. governments could pursue whatever employment. None of these stereotypes apply to economic diplomacy. in the broad- est definition. For example. But the increase in economic interdependence over the last 70 years has put an end to such tidy distinctions between what is domestic and what is international policy. State and non-state actors Economic diplomacy is mainly concerned with what governments do. The international financial crisis that began in 2007 was a striking example of this. but left national autonomy untouched. it is a weak and imprecise activ- ity. As long as domestic policies did not have negative impacts on others. bringing in more issues and more actors. where conciliation leads only to meaningless compromises. and non-trade issues that were not. this should simplify the analysis. All government agencies that have economic responsibilities and operate internationally are engaging in economic diplomacy. and it is secretive and opaque. tax or industrial policy they wished. A more recent definition says that ‘[d]iplomacy is concerned with the management of relations between states and between states and other actors’ (Barston 2006: 1). when the General Agreement on Tariffs and Trade (GATT) was formed in 1948. though they might . the scope and content of economic diplomacy is much broader and more purposeful. Provided domestic policies did not discriminate against imported goods. con- ducted by an establishment of privileged officials. Globalization thus makes economic diplomacy much more complex. In principle. To do justice to economic diplomacy. since it was triggered by US policy in the housing market. GATT rules did not constrain national policy autonomy. International and domestic Economic diplomacy is concerned with international economic issues. San Diego] at 17:59 07 January 2017 not to rule-based systems and legal commitments. What is economic diplomacy? 3 peaceful means’ (Bull 1995: 156). the most domes- tic of economic sectors. This meant that the system developed rules for economic relations between states. The advance of globalization since 1990 obliges economic diplomacy to go deep into domestic decision-making. The Bretton Woods system of international eco- nomic institutions created after World War II was based on what John Ruggie has called ‘embedded liberalism’ (Ruggie 1982). as covered by this book. with diplomats striking deals in secret conclaves and emerging only to announce agreement. there was a clear distinction between trade issues that were subject to GATT rules. it applies to informal negotiation and voluntary cooperation. It goes much wider than foreign ministries or any closed circle of bureaucrats. Downloaded by [University of California. it will be necessary to stretch these definitions and dispose of some misleading stereotypes associated with the term diplomacy.

which also covers political factors. information and their regulation’ (Odell 2000: 11). This is a very wide range of issues. Hanson 1988 and Blanchard and Ripsman 2008). indepen- dent public agencies and sub-national bodies are all making their influence felt. It embraces the whole spec- trum of measures from informal negotiation and voluntary cooperation. It is a definition that is closer to what in European terms would be a ‘grand strategy’ than the more concrete negotiation on international economic issues that we see at the core of economic diplomacy. but by the economic issues that provide its content. although we would call this commercial diplomacy. investments (including official devel- opment assistance). grouped as civil society. of necessity. and this book aims to take account of them. though recently the financial sector has been forced into the limelight. Now non-governmental organizations Downloaded by [University of California. in our view. although economic diplomacy can also be confrontational. Instruments and issues Economic diplomacy uses a full range of instruments. A great variety of non-state actors also engage in economic diplomacy. Others see export and investment promotion as the principal function of eco- nomic diplomacy. A single volume could not cover them all and. like Van Bergeik (2009) and Kishan S. In the past. which arouse strong popular concern and bring out well the interplay between different actors in economic diplomacy. services. money. We follow the same categories as used by Odell in determining the scope of economic negotiation: ‘policies relating to production. parliaments. have also moved centre stage and actively seek publicity to put pressure on governments. we recognize that there are others.3 This is reflected in Craig VanGrasstek’s Chapter 7 below. However. Ministers and heads of government. One definition embraces the broad concept of economic statecraft. It concentrates on the central issues of trade. 4 Nicholas Bayne and Stephen Woolcock not describe it as such. but this book does not treat them as independent actors. this book is selective.4 Okano- Heijmans (2013) offers an elegant synthesis of commercial and economic diplo- macy. which we regard as an essential component. But it does not integrate the domestic process. to the creation and enforcement of binding rules. . movement or exchange of goods. Rana (Chapter 6 below and Rana 2015). through soft types of regulation (such as codes of conduct). economic diplomacy is best defined not by its instruments. Progress is usually made by persuasion and mutual agreement. They exerted their influence mainly behind the scenes. finance and the global environment. San Diego] at 17:59 07 January 2017 (NGOs). International organizations are impor- tant as a forum for negotiations. where economic measures are taken in the pursuit of political goals. both by shaping government policies and as independent players in their own right. While this is our preferred definition of economic diplomacy. These are topics of high political profile. Instead it focuses on how governments make use of these organizations and integrate them into their own decision-making processes. business firms tended to comprise the most active interest group. including punitive actions such as sanctions (Baldwin 1985.

and prevent them becoming a burden on the state. China and Brazil. Yet claims that the market always offers a more efficient solution have been undermined by the collapse of the financial system in indus- trial countries like the United States. Governments and regulators are now searching for pro- cesses that will discipline financial institutions. This sets economic diplomacy apart from political diplomacy and its study through foreign policy analysis. Increased economic integration has created global markets for production and investment. But this offers only an incomplete picture of the world in the early 21st century. which is concerned with the dynamic inter- action between international and domestic factors and between economic and political concerns. so that markets can punish national policies which are not in line with expectations. The disciplines of international relations or International Political Economy are influenced by a concern to develop predictive theories that are possible to test whether they are correct or not. markets can be endog- enous to economic diplomacy. for example. San Diego] at 17:59 07 January 2017 India. Theories of this kind are very challenging in economic diplomacy. It is important to make clear at the outset that there is no single theory of economic diplomacy that can provide answers on how states. where the large mature economies are losing ground. But they only work by mak- ing significant simplifications. So this fourth edition. The impact of markets A distinctive feature of economic diplomacy is that it is sensitive to market develop- ments. in that they form an integral part of the process (Odell 2000: 47–69). will conduct policy. where full references are given. under given circumstances. Earlier edi- tions concentrated on economic diplomacy as practised by the industrial states of Europe. by regarding states as unitary actors with clearly defined and stable policy preferences. like the third. National regulatory policies can change the competitiveness of different locations. and more space to small economies and developing coun- tries generally. It makes no sense to assume that states are unitary actors. influence their negotiating positions and possibly offer alternatives to a negotiated solution. Market developments will shape the actors involved in any issue. that negotiators have full knowledge of national policy preferences or that these prefer- ences will be steady and not affected by market developments. What is economic diplomacy? 5 This book also has to make choices between the countries studied. As Odell puts it. where the hubris of bankers and neglect of regulators led to disaster. only the main points are summarised here. North America and Japan. . Theories and analytical tools for economic diplomacy Theoretical aspects of economic diplomacy are the subject of Chapter 3 of this book. without stifling them. These had been the most influential countries in the international system and their decision-making practices were relatively open and easy to study. gives greater attention to rising powers like Downloaded by [University of California.

they will have their own convictions. This can then enable some generalizations to be made on the nature of economic diplomacy. A toolkit of this kind will help in sorting out the complex factors that shape decision-making and negotiation. 6 Nicholas Bayne and Stephen Woolcock The alternative use of theoretical concepts is in putting together an analytical toolkit that will make it easier to understand and interpret the process of economic diplomacy. governments seldom act as mere agents. But in fact. The main systemic factors derive from the international system. The aim is to identify the main explana- tory factors and then apply them to a range of case studies. but treat the states in the system as unitary actors. who are considered to act as agents. two domestic and one ideas based. In this context. global markets are integral to the negotiating process in economic diplomacy. and realist theories regard it as an important determinant. as follows: • Relative economic power Power can often determine the outcome of economic negotiations. This literature looks predominantly at structures of interest and power and can be applied to economic relations between states. Systemic and domestic factors are still not enough to explain outcomes. Regime theories analyse how this can be achieved. These are deployed internationally by governments. • Markets Unlike other forms of diplomacy. power alone is not enough. rationalist theories are helpful and further analyse how governments bargain with one another to achieve agreements. it is neces- sary also to reflect ideational elements. • Institutions and the two-level game In practice. but need to reconcile conflicting internal pressures and have institutions for this purpose. which is not the case in real life. based on a range . Two further domestic factors reflect the complex structure of the state. as follows: • Ideas and persuasion Negotiators are not only subject to systemic. Other particularly valuable tools can be derived from negotiation theory. • International organizations and regimes A dense international network now helps states to reach cooperative rather than coercive solutions to economic problems. societal and institutional pressures. These factors are all relevant. The interaction between this process and international nego- tiation is explained by Bob Putnam’s two-level game metaphor (Putnam 1988). as follows: • Interests and bargaining The differing interests of various societal groups will largely determine national attitudes to economic issues. These tools can be used to identify six distinct factors shaping economic diplomacy: three systemic. A range of analytical tools can be drawn from the existing literature on inter- Downloaded by [University of California. How this works is explained in theories developed by John Odell (2000). it depends on how and in what context it is exercised. San Diego] at 17:59 07 January 2017 national relations and IPE.

San Diego] at 17:59 07 January 2017 at work in economic diplomacy and reaching some broad conclusions consis- tent with the evidence provided by practitioners. Within domestic decision-making. for example in trade liberaliza- tion or protection. there is a hierarchy of actors – government and non-government. as it does not involve negotiation. governments deliberately adopt or threaten unilateral measures in order to bring about changes in other countries’ policies. Bilateralism Bilateral relations still form a major part of economic diplomacy. and the interaction between them. To recapitulate. national and sub-national – that interact among themselves. In international negotiation. But unilateral liberalization or protectionism clearly has an impact on other economies. The multiple levels of economic diplomacy As noted. by expanding or restrict- ing access to the market concerned for investors or exporters from other coun- tries. provide a major theme for this book. This can lead to a political response. and this process is interpreted by constructivist theories. in the form of imitation or retaliation. To illustrate this. there is comparable interaction between the multiple levels available in economic diplomacy – the bilateral. the plurilateral and the multilateral. or formal bilateral trade or investment treaties. Unilateral action. whether this con- sists of informal dealings between countries on a range of issues. Threats by the US Con- gress of action against imports from China unless it allows its currency to appreci- ate are an example of this. Negotiation therefore consists of persuasion as well as bargaining. This examination has shown that the available theories can provide partial explanations. Bilateral economic diplomacy is still the simplest . and Ken Heydon on preferential trade agreements in Chapter 14. this book aims to assemble a variety of analytical tools that will help in understanding the factors Downloaded by [University of California. What is economic diplomacy? 7 of different ideas or worldviews. as the ‘zero option’. is a domestic policy decision. the objective is not to identify a parsimonious theory that could be used to predict outcomes. Unilateralism should also be considered a distinct level. Instead. These levels are briefly defined below Unilateralism Unilateralism would at first sight seem to be irrelevant to economic diplomacy. Putnam’s two-level metaphor and other theories distinguish between international and domestic levels and examine the interaction between them. later academic chapters of this book apply some of the analytical tools to specific cases: Nicholas Bayne on the practice of governments in Chapter 4 and the G8 and G20 summits in Chapter 13. These different levels. the regional. but never complete ones. In some cases. Stephen Woolcock on the European Union (EU) in Chapter 10 and investment in 17.

Deals between regions are being negotiated that involve the largest economies. although often politically motivated. First. for example in the economic dispute between Brazil and the US over cotton tariffs. access to a larger regional market may be seen as a substitute for wider markets. also offer a more rapid way of opening markets. which makes it easy to explain to domestic interests. 8 Nicholas Bayne and Stephen Woolcock technique. the Financial Stability Board (FSB) and the Basel Committee for Banking Supervision (BCBS) have been charged by the G20 summit to draw up reforms to prevent a recurrence. Regional economic agreements. they can provide a forum where national governments seek to reconcile domes- tic and international economic objectives. The OECD was the forum for the preparatory work that provided the foundation for agreements on services and agriculture that are key elements of the World Trade Organi- zation (WTO). serve two important purposes in economic diplomacy. But it gives advan- tages to the stronger partner and can easily become confrontational. plurilateral agreements have been concluded on government procurement and information technology products. There are ambitious schemes in the Asia-Pacific – the Trans-Pacific Part- nership (TPP) and the Regional Comprehensive Economic Partnership (RCEP). Regional agreements often involve legally binding commitments and dispute settlement. in order to have a greater impact in international negotia- tions or global markets. the G8 and G20 summits and the Commonwealth. Regional approaches are gaining ground (see Chapters 11 and 14). like the Organization of Economic Cooperation and Development (OECD). they enable like-minded governments to develop agreed positions which can be advanced or accommodated in wider multilateral contexts. by a process of voluntary cooperation. Within the WTO. . Since the financial crisis. Plurilateralism The plurilateral level of economic diplomacy attracts less attention than either regionalism or multilateralism. They may even involve the pooling of sovereignty. as in the EU or other generally less integrated regional initiatives. For business interests. San Diego] at 17:59 07 January 2017 Regionalism The importance of the regional dimension in economic diplomacy has fluctuated over time because of the doubts about the effectiveness of the multilateral system. notably the EU’s agreements with Japan and Canada and its Transatlantic Trade and Investment Partnership (TTIP) with the United States. But plurilateral bodies. Second. or as a stepping stone to international competition.5 Downloaded by [University of California. Bilateral deals also contribute to building up more complex agreements on a regional or global level. Liberalization may be easier for national interests to accept when it occurs within a regional grouping of countries with broadly the same levels of development and similar policy preferences. where not all members want to take part. Bilateralism can be important in determining how regional or multilateral rules should be interpreted.

It incorporates the regimes embod- ied in the WTO. The WTO’s Doha Development Agenda (DDA) has ended inclusively. plurilateral for specialist topics like tax avoidance and evasion. even developed countries found it hard to come to terms with the increasing encroachment of international rules into domestic policy. In short. governments are trying to . The UN climate change negotiations finally reached an agree- ment in December 2015. 4 and 13. seeking to make progress wherever it looks most promising. the International Monetary Fund (IMF) and World Bank and the economic work of the United Nations. Countries will identify dif- ferent levels as suitable for specific policy issues: regional for trade. particularly in Nicholas Bayne’s Chapters 2. the United States first preferred plurilateralism through the OECD and then bilateral approaches. especially in the trade and environmental fields. What is economic diplomacy? 9 Multilateralism Finally. Multilateral economic diplomacy is well suited for rule-making. but only by weakening its binding force. An analy- sis of economic diplomacy in a specific policy area often reveals this. to have all countries involved. while reforms to the governance of the IMF were blocked for several years. As Chapter 17 explains. and multilateral for global environment issues. in their economic diplomacy. for example in food safety. Differ- ent countries may prefer different levels for the same subject. multilateral economic diplomacy provides for the involvement of all countries. So while the prizes are high in successful multilateral economic diplomacy. But this led the multilateral institutions into controversy: NGOs attacked them as opaque and undemocratic. The three tensions of economic diplomacy The theories and analytical tools identified so far in this chapter are based on the work of other scholars. He developed this approach from his observation of how economic diplomats themselves behave. Multi-level economic diplomacy The multi-level nature of economic diplomacy means that governments take advan- tage of the interaction between levels in various ways. though this makes it cumbersome. to gain access to neighbours’ markets. as well as a wide range of specialist organi- zations. Regional agreements in turn can provide the model for multilateral treaties or may set regulatory standards of wider application. But this book also uses a distinct analytical approach. while the EU favoured a multilateral regime for investment. the risks are high also. San Diego] at 17:59 07 January 2017 were great advances here in the 1990s. and there Downloaded by [University of California. agreements reached at one level will have implications for other levels of policy-making. The availability of different levels encourages governments to engage in ‘forum shopping’. developing countries complained that the mul- tilateral system put them at a disadvantage. Plurilateral principles for voluntary application may be converted into binding regimes at regional level. The under- lying argument is that. and new negotiations will usually have a variety of mod- els or precedents to draw upon.

10 Nicholas Bayne and Stephen Woolcock reconcile three types of tension. This obstacle is overcome by negotiating away trade barriers by reciprocity. In an ideal world. the United States launched major ini- tiatives that combined political and economic objectives. But this meets political obstacles. Today this tension is visible between mature industrial states and emerging powers like Brazil. Countries find this politically easier. so that politics con- stantly encroaches on economics in the pursuit of international objectives. Gov- ernments strive to reconcile politics and economics. The industrial states are only reluctantly giv- ing up the political advantage exercised through the G7 and allowing the economic advance of the emerging powers to be reflected in the G20 (Bayne 2011). Downloaded by [University of California. the tension between international and domestic pressures. San Diego] at 17:59 07 January 2017 Tension between economics and politics The first major tension is between international economics and international poli- tics. so that their policies become mutually reinforcing rather than conflicting with each other. by trade. when governments think that others will take advantage of the reforms they are adopt- ing. both in the objectives chosen and the methods used. The G7/G8 summit achieved comparable success in response to the end of the Cold War and in reviving Africa (Bayne 2017). direct . if economically sub-optimal. so that politics and economics successfully reinforced each other (Gardner 1980. states would be able to keep politics and economics apart. Governments have developed a variety of methods for reconciling this tension. The impact of this first tension has varied over the last 70 years. but it is always present. Most economists argue that countries benefit from removing barriers to external competition. whatever other countries do. The Bretton Woods insti- tutions and the Marshall Plan had the essentially political aims of deterring future wars and helping Western Europe to resist communist encroachment. These tensions are the following: • First. • Second. Since the political obstacles here derive from domestic pressures. The international penetration of domestic economies. the tension between politics and economics. To achieve these political objectives the Americans adjusted their economic policies accord- ingly. Tension between domestic and international pressures The second major tension is between domestic and international pressures in eco- nomic policy-making. • Third. This fundamental tension underlies all economic diplo- macy today. as in the General Agreement on Tariffs and Trade (GATT) or the WTO. In the period following World War II. But states are political entities rather than economic ones. this brings us to the second tension of economic diplomacy. China and India and is proving hard to reconcile. Marjolin 1989). the tension between governments and other forces. because they visibly get something in return for whatever they may put on the table.

The third major tension in economic diplomacy. In political diplomacy. Rule-based systems require governments to surrender some of their sovereignty. they must win over the varied domestic interests. Tension between government and other forces The analysis so far has focused on governments. However. The politicization of the process may result in deadlock. has been growing steadily since the end of World War II. so that interdependence has become globalization. Each will want an international outcome that meshes with its domestic process. If these preferences change. But in the course of negotiations. Concessions in one area may be needed to achieve objectives in others. But making economic diplomacy more democratic can lead to a conflict between efficiency and accountability. It has accelerated since the Cold War ended. If markets are global. They therefore have to convince their legislatures. their legitimacy depends on the support of their elector- ates. Rule-based systems appear more predictable. the less demanding but more flexible technique of voluntary cooperation would be preferable. bargaining to achieve a common agreed view within a national government is the essential first step in economic diplo- macy. The advance of globalization and the growing number of constituencies touched by developments in the international economy has gener- ated growing pressure for greater accountability of decision-makers. domestic positions will generally have to be modified to reach an internationally agreed result. so that the rules are no longer regarded as legitimate. this tension affects the choice to be made between formal rules and ‘softer’ voluntary cooperation. which will be shaped by domestic institutional arrangements. As a result. other departments usually have the lead and foreign ministries may struggle to get their word in. All the different interests need to be reconciled in a way that still enables the government to act decisively. In such conditions. more government Downloaded by [University of California. However. As more economic issues get international exposure. San Diego] at 17:59 07 January 2017 agencies become involved. What is economic diplomacy? 11 investment and financial flows. international rules may not be able to accommodate this. establishing national policy preferences is still primarily a domestic function. This tension. and through them their electorates. Every government then sits down in international negotiations with interlocu- tors that have gone through internal bargaining that is parallel to its own. Finally. Governments need an efficient process for doing this. who may have instinctive anxieties about being vulnerable to forces outside their control. which has greatly . the rules gov- erning markets should also be internationally agreed. If the international negotiators believe the new position still advances their country’s objectives. more durable and a better protection against abuses. In economic diplomacy. much governments may be convinced of the economic benefits of international agreement. first of all. complicates domestic decision-making. foreign ministries are clearly dominant. defined to include both executive and legislature. but the international penetra- tion of their economies may have undermined their sovereignty anyway.

Some of these are constructive and well informed and have a lot of expertise to offer government. because they no longer have confidence in the formal lines of democratic accountability. investors and financiers. gathering hostile crowds at international economic meetings. explains in Chapter 6 how economic diplomacy embraces the private business sector. in fis- cal. the first part of the book – Chapters 2 to 6 exam- ine the nature of economic diplomacy. The penetration of international factors into domestic economies is led not by governments. since they also combine to operate transnationally. Economic activity has also been stimulated by government giving more oppor- Downloaded by [University of California. other groups and social movements become involved in economic diplomacy. Chapter 3. deregulation and privatization. These academic chapters are complemented by two chapters by practitioners. Craig VanGrasstek explains in Chapter 7 the economic diplomacy practised . will affect how markets view the credibility of that government. monetary or regulatory policies. The second part of the book examines how different states and groups of states conduct their economic diplomacy. Rana. As globalization advances. stimulate highly motivated and articulate NGOs. This transfer of powers has profound consequences for economic diplomacy. They argue for more transparency and claim that their involvement makes the process more dem- ocratic. San Diego] at 17:59 07 January 2017 tunities to private firms and by transferring power to them: by the removal of trade barriers. drawing on his wide experience as an India diplomat. who write from their direct experience of the role of business and civil society in economic diplomacy. Governments. as noted. Duncan Green and Celine Charveriat show in Chapter 5 how NGOs like Oxfam prepare and organize their lobbying activities. Many issues in economic diplomacy. what private business should undertake and how government and business can work together. Kishan S. But others are destructive and anarchistic. Decisions taken by a government. Chapter 4 con- siders how governments organize domestic decision-making and how this inter- acts with international negotiation. seek to cooperate with constructive NGOs in ways that allow each side to retain their independence. like the environment and world poverty. 12 Nicholas Bayne and Stephen Woolcock advanced since 1990. The structure of this book After this introductory chapter. but by private sector agents – traders. This tension has become acute in the wake of the financial crisis. NGOs may seek to bypass national governments. while answering their negative critics. combining academic and practitioner perspec- tives. Chapter 2 analyses the pressures generated by the advance of globalization and by the recent financial and economic crises and assesses the government response to them. reviews the relevant theoretical approaches and proposes an analytical toolkit. It opens the question of what responsi- bilities governments should keep. Their activities go beyond seeking to influence national governments. This is linked to the issue of how governments deal with market pressures. is between governments and other forces.

As the 1990s ended. the world financial system was in turmoil. mainly in Africa. Braz Baracuhy looks in Chapter 9 at Brazil’s economic diplomacy in the context of the WTO’s treat- ment of agriculture. Nicholas Bayne’s Chapter 13 considers whether the G7 and G8 have useful lessons to offer the G20 summit. analyses in Chapter 14 the pros and cons of preferential trade agreements. which made little progress in the first decade of the 2000s. Zhang Xiao- tong formulates in Chapter 8 a new concept for China’s economic diplomacy. drawing on his experience as a trade negotiator in Geneva. San Diego] at 17:59 07 January 2017 Vangelis Vitalis. What is economic diplomacy? 13 by the United States. respond to the changes in the international trading system. A view of climate change negotiations is offered in Chapter 16 by Joanna Depledge from Cambridge. explains how small and poor coun- tries. The terrorist attacks of 11 September 2001 and the US invasion of Iraq distracted attention from economic diplomacy. after the Asian. Yet the 2000s began with calm returning to the financial system. Stephen Woolcock analyses international investment as an example of multi-level diplomacy. formerly in the OECD Secretariat. In Chapter 12. the environment and financial regulation. So the final chapter of this book. Chapter 18. shows in Chapter 11 how a small country like New Zealand must develop distinctive strategies of eco- nomic diplomacy to meet its objectives. Conclusion Economic diplomacy is an elusive subject. This left industrial states reeling. while world growth was buoyant. . using trade relations with Russia as an example. This crisis. while the trading system needed time to recover from the disastrous WTO meeting at Seattle. Ken Heydon. drawing on long experience gained in the British Treasury. looks at financial diplomacy and the performance of the IMF in Chapter 15. is gradually sending economic diplomacy in a wholly new direction. by Stephen Woolcock. and their recovery has been slow and patchy. while the trading system looked robust. Teddy Soobramanien. exercising academic skills following posts in government. but later seemed to be losing the dynamism they enjoyed before. But the prevailing calm was shattered by the worst financial and economic crisis for 80 years. Stephen Pickford. New Zealand’s ambassador to the WTO. will offer some conclusions about where economic diplomacy may be going in the future. they focus not so much on the institutions themselves as on the use which states and other actors make of them in pursuing their national objectives. Emerging powers were at first largely unscathed by this disaster. Russian and Brazilian crises. In Chapter 17. a Mauritian in the Commonwealth Secretariat. examines the economic diplomacy practised by the European Union in trade policy. Downloaded by [University of California. The third section offers a set of case studies in negotiation. New questions are always coming to the surface and the context can change abruptly. While all these chapters frequently refer to plurilateral and multilateral institutions. like the end of the Cold War a quarter-century ago. again with academ- ics and practitioners mixed. Chapter 10.

S. N. Western Economic Statecraft in East-West Relations: Embargoes. 2 Marshall (1999: 7–8). Economic Diplomacy and the Geography of International Trade. A Political Theory of Economic Statecraft. 1988. Bull. Putnam. Marshall. 2017. Berridge. Negotiating the World Economy. 2004. References Baldwin. 1980. D. A. 379–415. M. Foreign Policy Analysis. we normally follow the European usage of ‘ministers’ and ‘officials’. Princeton: Princeton University Press. D. H. This book matches their first definition. Ithaca: Cornell University Press. G. Bayne. London: Pal- grave Macmillan. 4. K. Gardner. Ruggie. Diplomacy at the Cutting Edge. R. . Odell. 371–398. 1985. G. International Journal of Diplomacy and Economy [forthcoming]. Sanctions. International Regimes. Okano-Heijmans. 2nd edition. 3rd edition. 2003. P. 2011. Hanson. 42 (4). New York: Columbia University Press. Lee. The Diplomacy of the Financial Crisis in Context. J. San Diego] at 17:59 07 January 2017 (2003). and James. F. Positive Diplomacy. and Hudson. Architect of European Unity: Memoirs 1911–1986. J. 187–201. Modern Diplomacy. Economic Diplomacy: Japan and the Balance of National Interests. which is further explored in Lee and Hudson (2004). N. 343–360. P. 2000. P. 4 Berridge and James (2003) provide a definition of commercial diplomacy that is distinct from economic diplomacy. 30. 14 Nicholas Bayne and Stephen Woolcock Notes 1 In this book. 1995. Marjolin. 2009. Diplomacy and Domestic Politics: The Logic of Two-Level Games. New Delhi: Manas. International Organization. 6 April 2010. 1988. rather than the American terms ‘politicians’ and ‘bureaucrats’. London: Weidenfield and Nicholson. 1982. Leiden: Martinus Nijhoff. Bayne. 2015. and Ripsman. Basingstoke: Palgrave. 2013. 1989. 36 (4). Economic Warfare and Détente. R. N. Berridge and James (2003) offer two definitions of ‘economic diplomacy’. Economic Statecraft. 6 (1–2). Van Bergeik. 1999. London: Macmillan. 1986. M. Linkage. available at: www. London: Royal Institute of International Affairs. International Organization. A. A. 2nd edition. Sterling-Dollar Diplomacy in Current Perspective. London: Longmans. distinguishes six different meanings of the term diplomacy. 2008. The Old and New Significance of Political Economy in Diplomacy. Cheltenham: Edward Elgar. Rana. 5 See Business–04–06. Barston. 427–460. P. R. R. Blanchard. D. N. Translated by William Hall from Le Travail d’une Vie. Reconciling Economics and Politics: From the Marshall Plan to the G20 Summit. The Hague Journal of Diplomacy. 3 This is the second definition of economic diplomacy offered in Berridge and James Downloaded by [University of California. R. The Anarchical Society: A Study of Order in World Politics.-M. A Dictionary of Diplomacy. G. D. J. 2006. Review of International Studies. Transactions and Change: Embedded Liberal- ism in the Postwar Economic Order.

this chapter assesses the effectiveness of the strategy in reconciling the three tensions in economic diplomacy identified in Chapter 1: between poli- tics and economics. they wanted to help countries escaping from communism to put in place working . It identifies the new strategy adopted over this period and assesses its impact. and between governments and other actors. The Soviet Union itself did not survive beyond 1991. 2 CHALLENGE AND RESPONSE IN THE NEW ECONOMIC Downloaded by [University of California. • The results achieved from this strategy until it was interrupted by the financial crisis that began in 2007. In 1989. between domestic and international pressures. • The strategy for economic diplomacy developed in response to these demands. the countries of Central and Eastern Europe threw off communism. When Western governments grasped the historic changes taking place. San Diego] at 17:59 07 January 2017 DIPLOMACY Nicholas Bayne This chapter analyses the progress of economic diplomacy over the last 25 years. Forces moulding the new economic diplomacy The end of the Cold War Economic diplomacy changed profoundly when the Cold War ended and the communist empire of the Soviet Union collapsed. The Berlin Wall came down and the two halves of Germany were reunited. In conclusion. • The changes in the strategy flowing from the crisis and its aftermath. The chapter examines in successive sections: • Two powerful forces moulding economic diplomacy – the end of the Cold War and the advance of globalization – that made heavy demands on governments. as its component republics became indepen- dent states. Then it crumbled apart.

The advance of globalization Economic interdependence. especially among OECD (Organisation for Economic Cooperation and Development) member countries. Removing the external political threat made it harder for the Western countries to resolve eco- nomic disputes. Now the International Monetary Fund (IMF). As long as Western countries faced a security threat from a hostile superpower. Financial support given to ex-communist states sometimes came at the expense of aid to developing coun- tries elsewhere.1 Governments opened their economies to external competition: sometimes through international negotiation. Thus world trade grew about twice as fast as world output. there was no real alternative to the market-based system favoured by the West. like the United Nations. but hitherto the Cold War had constrained it. Progressively the barriers came down: first to trade across borders. economic friction between them was kept in check. The European Union (EU) offered member- ship to its Central European and Baltic neighbours. This benign process had some adverse side-effects. These trends persisted till the financial crisis. Hitherto the open regime of the West and the centrally planned system of the East had competed in the international economic system. technology and qualified people. then to direct investment. so that foreign firms became embedded in the economy. and the economic and political conversion of Russia proved much more difficult. After communism collapsed in Europe. and foreign portfolio investment grew twice as fast as direct invest- ment. Firms spread their operations around the world. Globalization also shifted economic power from governments towards the private sector. and finally to foreign exchange transactions and capital flows. though of course growth varied from year to year (Cable 1999: fig 1. New technologies. This improved efficiency brought greater scope for friction with other countries. Now interdependence devel- oped worldwide and was renamed ‘globalization’. had steadily grown since the 1950s. World Bank and new World Trade Organization (WTO) all became truly universal. Many developing countries Downloaded by [University of California. Up till then. many communist states and some developing countries had stayed out of international economic institutions. It became the dominant eco- nomic current of the age. The consequences of the end of the Cold War spread much wider than Europe. Complex products often relied on ‘global value chains’ between many countries. more often by unilateral action in their own interests. 16 Nicholas Bayne democracies and market economies. flows of foreign direct investment grew twice as fast as trade. San Diego] at 17:59 07 January 2017 positioned themselves between the two. International activities thus occupied more and more of a country’s economy. Commercial firms that operated internationally enjoyed advantages denied to governments that depended on national electorates and national firms that depended on national markets.1). seeking access to capital. But this was not available to the rest of the former Soviet Union. like .

San Diego] at 17:59 07 January 2017 and resources. so that international institutions had to serve their entire membership. often arousing strong popular concern. Challenge and response 17 aviation. Success was rewarded. Some NGOs also came to regard globalization as a malign influence. Above all. were the United States and the countries of East Asia. they easily became contagious. International financial markets outstripped the ability of the authorities to control them. but many did not and risked being mar- ginalized. • The relative power and resources of governments were shrinking. Governments ‘privatized’ many activities formerly under state control and adopted other practices of the private sector. with many more actors involved inside and outside government. Globalization also had its dark side. in different ways. requiring tight budgets and low inflation. so that governments sometimes had to give in to popular pressure. The removal of barriers created opportunities not just for honest citizens but for criminals too. speeded up transactions and accelerated change. This not only determined macroeconomic policy. From this search a new strategy emerged. • It penetrated deep into domestic policies. The aim was to compensate for their relative loss of power. The star performers. For all these reasons. with four elements: • Involving ministers. They feared the impact of external forces outside their control. Small and poor countries were at a great disadvan- tage. new subjects became active. • Bringing in non-state actors. and manage a global system accessible to all countries. globalization proved a Darwinian process. Governments sought to create competitive conditions in their countries. • Developing and ex-communist countries were integrated into the world sys- tem. but eroded their own powers Downloaded by [University of California. money-laundering. they were often trying to do more with less. especially China. when crises happened. but mistakes were punished. They thus became more efficient. A new strategy for economic diplomacy Globalization made heavy demands on economic diplomacy: • Its range greatly increased. stimulated the process. but also employment policy and education. Governments therefore searched for ways to improve their decision-making and negotiation. Drug trafficking. electorates became uneasy about the effects of globalization. These changes brought great advances in wealth and prosperity to many states. A few profited from globalization. so that. . telecommunications and information technology (IT). They shrank distances. tax evasion and the financing of terrorism all became subjects for economic diplomacy. address international issues integral to domestic interests.

They were usu- ally elected members of the legislature. Here the challenge for the government was to spread the load.2 Ministers made their contribution not only at international meetings. and these could become violent (Green and Griffith 2002). There also had to be close coordination between bureaucratic and political levels. Now economic summits happened constantly. Involving ministers Downloaded by [University of California. Agreements concluded between ministers thus had strong authority and popular backing. These sessions were buttressed by informal groups like the G7 in finance. since there were established parallel channels aimed at facilitating agreement between govern- ments. When the G7 summit and the European Council began in the 1970s they were almost alone of their kind. • Using international institutions. As their own powers and resources shrank. plurilateral and regional levels. The heads of international institutions. San Diego] at 17:59 07 January 2017 The first element was the greater involvement of ministers. both at home and abroad. Now ministers met regularly at the WTO. think-tanks and advocacy groups in policy formation. heads of government increasingly intervened in economic diplomacy. while remain- ing in control of the agenda. Governments sought help with inputs to economic diplomacy and with diffusing the results. Heads of government – prime ministers and presidents – had even more to contribute. thus raising the politi- cal profile of economic diplomacy. at multilateral. They found it simpler to deal with private business. who used to be former officials. for example. In environmental issues they engaged academic experts. 18 Nicholas Bayne • Greater transparency. they encouraged the use of private capital for investment and worked with charities like Oxfam and Médécins sans Frontières. Yet NGOs made much . In development. NGOs often used mass demonstrations to put pressure on governments. governments tried to get non-state actors to share their burdens. but also by their impact on the domestic decision-making process. Even between summits. with their supreme responsibility and explicit capacity to reconcile external and domestic policies. but wanted to keep responsibility for negotiation. Bringing in non-state actors The second element was to involve players from outside government (O’Brien and others 2000). But their domestic preoccupations increased the risk of failing to agree. Each will be examined in turn. Formerly international economic negotiations had been conducted by bureaucrats. which gave them democratic legitimacy. IMF and World Bank to take substantive decisions. Ministers came together rarely for formal ceremonies. now all had ministerial experience. which could create particular difficulties for the EU.

which looked like an effective response to the advance of globalization. Governments would make a tentative proposal. like Brazil. to be confirmed only in the light of a positive response. Where govern- ments’ individual powers were shrinking. The 1990s were the most active decade in institution-building for 50 years. China and India. San Diego] at 17:59 07 January 2017 NGOs alike. Challenge and response 19 more impact on decision-making when their public protests were complemented by direct contacts with both governments and international institutions. . But emerging powers. they became more open to external disciplines. However. Then it ran into obstacles. and this process did not run smoothly. greater clarity and more publicity. It also changed the way governments made use of them in support of their domestic objectives. when they gave higher priority to domestic interests. but because they were made public via the internet. Using international institutions The fourth element was the greater use of international institutions. but also justify their domestic actions and share the burden of politically difficult decisions. since both sought publicity and used it to mobilize support. As governments reduced their ability to intervene nationally. it made sense to act collectively. Premier Zhu Rongji was embarrassed not because US President Bill Clinton declined his proposals. The aim was to make developing countries constructive players in the economic system. During negotiations before China joined the WTO. finance and the environment. NGOs complained about the secrecy of negotiations and wanted more public scrutiny. Business also advocated transparency as an alternative to formal rules. the market could be relied on to produce an efficient outcome. The pressure for this came from ministers and Downloaded by [University of California. They argued that if everything was in the open. This element of the strategy did not just affect the number and range of institu- tions. Negotiation was like courtship: private exploration was needed before the parties were ready for public commitment. They wanted the institutions not only to extend their reach internationally. wanted to acquire political influence to match their economic strength. so as to counter popular anxieties about globalization. Governments sought to respond to this. they increased the risk that international negotiations would fail. Governments too favoured this approach with issues like cross-border tax avoidance. Results from the strategy: Promise and frustration The new strategy delivered some striking achievements at first. creating new insti- tutions and transforming old ones in trade. This was much harder if conducted in public. Greater transparency The third element was the drive for greater transparency: better information. Transparency was useful but could inhibit agreement. Institutions like the IMF and the WTO tried to explain their activi- ties better.

WTO ministers met in Seattle to launch new negotiations from 2000. China. Croome 1999). The political threat from the recent terrorist attacks on the United States stimulated economic agreement. They covered all areas of trade. as being easier to negotiate (Heydon and Woolcock 2009). Developing countries rebelled against what they were being offered. After five years’ experience. reforms were agreed but not fully implemented. but the omens were poor. later joined by China. The East European countries joined the WTO (Russia followed later) and developing countries also accepted the new obligations of membership. the G20 (not connected with the G20 summit). wanted to put labour and environ- ment standards on the agenda. while indus- trial states failed to understand the demands of globalization (Bayne 2000. the DDA was suspended for a year and progress remained elusive after it resumed. Some were compact. Despite the efforts of informal ministerial groups. and set rules that applied to all members. while in finance. . China began negotiations to join and used the process to drive market-opening reforms in its domestic economy. both developed and developing. Canada and Mexico. including agriculture and services. many developing countries found the Uruguay Round agreements burdensome and biased against them. In 2003. created an effective grouping. The industrial states accepted that the new round should focus on the concerns of developing countries. of the Uruguay Downloaded by [University of California. early in 1994. International trade The first major achievement was the conclusion. The next WTO ministerial succeeded in launching the Doha Developing Agenda (DDA) in November 2001. but soon found them tough negotiators. the negotiations dragged on inconclusively. multilateral negotiations ran out of steam. Countries gave priority to regional trade arrangements. San Diego] at 17:59 07 January 2017 Round of trade negotiations in the GATT (Preeg 1995. The Uruguay Round agreements converted the relatively weak and limited GATT into a more formal and robust WTO. others spread widely. adding new barriers to the exports of developing countries. which defied the United States and EU. 20 Nicholas Bayne In trade and the environment. including Australia. Ostry 1997. The new dispute settlement mechanism became the only judicial process operating in the multilateral economic system. under pressure from NGOs. like the North American Free Trade Agreement (NAFTA) covering the United States. This section of the chapter looks at each policy area in turn. Emerging powers. The agreements were more demanding than any previous trade regime and brought international disciplines deep into politically sensitive areas like agriculture and health and safety stan- dards. led by Brazil and India. Yet industrial states. like Asia-Pacific Economic Coopera- tion (APEC) embracing 21 Pacific Rim economies. even those that had stayed out of the GATT. telecommunications and financial services. The WTO later concluded agreements on IT products. The Seattle meeting was a disaster and broke up with nothing agreed. Bhag- wati 2001). The WTO still settled trade disputes efficiently but could no longer drive trade liberalization.

Yet every continent had one or more regional trade networks. Developing countries. Long preparations led up to the annual conference of the parties to the UNFCCC in December 2009. led by China. The aim was to agree a global target for stabilizing greenhouse gases later in the century. the Kyoto Protocol of 1997 obliged industrial states to reduce greenhouse gas emissions. implementing the broad commitments made at Rio proved harder than expected. to ease the transition. There were deep divisions between Europe and North America: policy in Europe was driven by ‘green’ NGOs. a framework for individual emission limits on all key countries. . it had 27 members. This Copenhagen summit was needed to create a new regime. Russia and the NAFTA partners. By 2006. Only a non-binding understanding emerged. these comple- mented the earlier Montreal Protocol on preserving the ozone layer. after the Cold War was over. the position of devel- oping countries was transformed. the international regime marked time. In climate change. Downloaded by [University of California. who urged action to protect the planet. But the meeting failed to meet its objectives. Bush later openly opposed it. Any new agreements would have to contain commitments by them too. Challenge and response 21 Japan. Global envi- ronment issues of this kind needed agreements in which all countries participated. San Diego] at 17:59 07 January 2017 The global environment The environment regime was a second area of achievement. developing countries held the industrial world responsible for the problem. like China. They were reluctant to limit their economic growth and sought financial compensation for any environmental commitments. However. Emerging powers. The Rio Conference concluded the UN Framework Convention on Climate Change (UNFCCC) and a parallel treaty on biodiversity. By the time US policy changed under President Barack Obama. influential energy and food industries argued against any restraints on production. including nine from Eastern Europe. However. though not developing countries. but refused to accept international commitments. and a programme of transfers from rich states to poorer ones. as parts of the Kyoto commitments would expire in 2012. and President George W. Congress still limited what the US could offer. The prospects for reducing greenhouse gas emissions to a safe level remained uncertain. were taking domestic action on their own initiative. had become major emitters. This often led to a tangle of overlapping commitments. Without the world’s largest emitter at the time. insecurely linked to the UN process. in the United States and Canada. the US Senate would not ratify it. these were only possible in conditions of globalization. even as successive reports from the Intergovernmental Panel on Climate Change (IPCC) confirmed the scientific basis for man-made global warming. Meanwhile. Many issues came together at the UN Conference on Environment and Development (UNCED) at Rio in June 1992. and operated a single market for goods and services. where some countries benefitted at the expense of others.3 The EU was by far the most ambitious.

managed by the new European Central Bank (ECB). But this happy picture was shattered by a severe financial crisis that affected the whole of East Asia and brought widespread economic hardship. especially in China. yet they failed to avert the financial crisis just over the horizon. Growing demand for energy and raw materials. the countries affected by the crisis recovered and resumed their expansion. In spring 1997. called Basel II. so that private capital flooded in. India and Brazil contributed 80 per cent of the growth in the world economy in this period and were catching up with the G7. Within the EU a majority of mem- bers (the ‘Eurozone’) adopted the euro as their common currency. it imposed austere fiscal and monetary conditions. With the dollar falling. The United States remained buoyant and soon regained confidence after the terrorist attacks of 2001. But when the dollar strengthened. Indonesia and South Korea. 22 Nicholas Bayne Finance and economics: The Asian crisis Globalization at first had a beneficial effect on macroeconomic performance. As usual. which conducted reviews of 111 countries over five years. where the Fund had less expertise than the World Bank. The new architecture laid down stricter standards for supplying economic data and conducting fiscal and monetary policies. had been provoked by government. It intro- duced new sources of IMF finance for those at risk from a contagious crisis. the deals turned sour and capital flooded out again. Their weakness lay in financial regulation. like Thailand. The 1997 Asian crisis was the first to be caused by the private sector. as in Mexico. even though the Asian governments were pursuing prudent macroeconomic policies.4 The Asian countries resented the IMF strategy. The IMF launched a Financial Sector Assessment Programme (FSAP). Independently. the IMF was forecasting buoyant growth everywhere. Evans 2000. so that Downloaded by [University of California. Initially. Previous financial crises. In East Asia. These were wide-ranging measures. The G20 finance ministers’ group associ- ated ‘systemically important’ emerging markets with the mature economies of the G7. banks in dynamic East Asian countries made profits by financing local deals in foreign currency.5 Governments. Contagion later spread further. to avoid calling in the Fund in future. which was widely criticized (Feldstein 1998. calm returned to the financial markets and strong growth to the world economy. The IMF mobi- lized $115 billion for the countries in trouble. they earned large external surpluses and piled up massive reserves. Emerging powers like China. Kenen 2001). There were several institutional innovations. boosted the growth of oil. San Diego] at 17:59 07 January 2017 Russia defaulted on its government debt and Brazil needed a huge IMF bailout. central banks and regulators from the G7 came together in a new Financial Stability Forum (FSF). however.and commodity- exporting countries. negotiations began in the Basel Committee on Banking Supervision (BCBS) to produce an updated set of capital adequacy rules for banks. Blustein 2001). . Thereafter. subdued infla- tion and ‘no dangerous tensions in the world economy’ (IMF 1997). The Asian crisis stimulated the G7 countries to devise ‘new international finan- cial architecture’ for adoption by the IMF and World Bank (Eichengreen 1999.

The authorities . but much less Downloaded by [University of California. A UN summit in 2000 consolidated these as the Millen- nium Development Goals. but little went to poor countries in Africa. as donors corrected budget deficits or diverted funds to Eastern Europe. Thereafter the G8 gave less attention to Africa. with half the new aid earmarked for Africa (Bayne 2005: 127–137). and other donors matched their efforts. Yet aid to poor countries had declined in the 1990s. This led to disaster. like the Asian crisis 10 years before. with average growth in Africa reaching 5 per cent. and promised $50 billion more aid per year by 2010. partly from greed but mainly from incompetence. The copious reserves of East Asian countries. drove down interest rates. but the G8’s programme needed new impetus. The G8 summit adopted an Africa Action Plan to support the collective efforts of the Africans. There was more private finance for investment. working with private business and NGOs. The G8 summit leaders gave priority to development initiatives. though China and other emerging powers increased their trade. They encouraged the use of IT to accelerate devel- opment and created the Global Fund to fight AIDS. good progress was visible in East Asia. To satisfy this demand and increase their profits. The Gleneagles summit agreed on 100 per cent relief for poor countries’ debts to international institutions. offering support without political conditions. unless corrective measures were taken. In 2001 African leaders launched the New Partnership for Africa’s Development (NEPAD). Challenge and response 23 Development and the poorest countries Globalization appeared good for the rich but bad for the poor. was provoked by the private sector (Davies 2010. banks created new financial instru- ments. getting children into school and lowering child and maternity mortality rates by the year 2015. deposited in Western markets. as well as governments. San Diego] at 17:59 07 January 2017 in Africa (DFID 2000). while their cheap exports encouraged consumption and demand for credit. Most important. Many of these initiatives were slow to take effect and the aid effort was poorly coordinated. The financial crisis and its consequences The economic diplomacy of financial disaster The financial upheaval that began in 2007. The US vowed to attack the causes of terrorism. The United States. without realising what they were doing. malaria and tuberculosis. The terrorist attacks on the United States of September 2001 generated new political motivation. Bayne 2011). the Africans learnt to rely on their own efforts. EU and Canada undertook to increase their aid by $12 billion per year over five years. There were some promising results by 2005. UN conferences in the 1990s set targets for reducing world poverty. including poverty and economic marginalization. The banks made fatal mistakes. again half for Africa. to improve political and economic governance and stimulate develop- ment throughout the continent. aid and investment. convincing themselves and their clients that all forms of debt were safe.

In development and the environment NGOs were the most visible players. Involving ministers had become standard practice in other areas. In the Finan- cial Stability Forum. They ended up believing what they were told by market operators. Gov- ernments hesitated to challenge them. Authority became fragmented and did not chal- lenge the prevailing view that the market was benign. Central banks and regulators preferred to operate in secret. Bringing in non-state actors was widespread in other areas of economic diplo- macy. As banks with huge resources developed new. like monetary policy. The Fund’s Financial Sector Assessment Programme had limited impact. They poured in liquidity in growing amounts. Greater transparency. On 9 August 2007. like Northern Rock in the United Kingdom and Bear . They cut interest rates. the ECB had to provide 128 billion euros in liquidity to unfreeze the banking system in the Eurozone. They guarded their autonomy and did not welcome outside intervention. 110–126). Private financial interests thus obtained a position of intel- lectual dominance and exploited it to the full. They provided funds to rescue banks threatened with collapse. The banks lost confidence in assets backed by American mortgages. the United States discouraged original work and others did not resist. believing that financial stability. Finance ministries would not intervene as long as the banks were creating jobs. was not practised in finance. especially the ECB. sometimes acting in concert. But in finance there were few well-informed NGOs tracking the financial system. so as not to unsettle the markets. Thereafter the central banks. which were widely held internationally. Using international institutions went into decline in finance. The revision of capital adequacy rules (Basel II) was largely shaped by input from the private banks (Davies and Green 2008: 32–48. with the Fed acting most aggressively. were the weakest pillar in the structure. this was reversed. Chairman of the US Federal Reserve (Greenspan 2008). thinly staffed regulators struggled to understand them. earning profits and paying Downloaded by [University of California. San Diego] at 17:59 07 January 2017 high taxes. The autonomous financial regulators. The reputation of the IMF was undermined by the attacks on its Asian strategy and its staff hesitated to intervene. though prevalent elsewhere. often newly created. but in finance. Most central banks focused on monetary policy and gave less priority to financial stability. but its warnings were ignored. as admitted even by Alan Greenspan. complex and opaque financial instruments. battled the credit crunch for over a year. In the financial sector the established strategy for economic diplomacy was mismanaged or turned on its head. 24 Nicholas Bayne accepted their assurances that all was well. Central banks and regulators relied on market discipline to constrain the banks and other operators.6 These departures from the accepted strategy led inexorably to disaster. Federal Reserve and Bank of England. The Bank for International Settlements (BIS) stressed the dangers of mounting debt. was best divorced from politics. for fear of being penalised in the markets. Governments delegated responsibility for the financial system to independent central banks or regulatory bodies. Instead the influence of the banks and other commercial operators prevailed. Suddenly inter-bank lending dried up. while the United States and China declined to take part.

finance ministries were less visible. Yet if finance ministries had acted sooner. French President Nicolas Sarkozy called the first Eurozone summit and invited British Prime Minister Gordon Brown to explain how he had rescued vulnerable British banks by massive capital injections. Prompted by Brown and Sarkozy. though active behind the scenes. The United States likewise decided to use $700 billion voted by Congress to replenish banks’ capital.7 Lehman Brothers. while the independence of the ECB deterred government action in Europe. The regulatory agencies gave support. A similar pattern prevailed internationally. The US Treasury promoted market-based solutions. San Diego] at 17:59 07 January 2017 reached no decisions and the Hokkaido G8 summit of June 2008 barely noticed the problem. These heroic measures brought the financial system back from the brink and the panic started to recede. It proved so effective that the G20 summit rapidly became an established institution. President George Bush called the first G20 meeting at summit level in Washington on 15 November 2008. Banks clearly faced problems of solvency. There were parallel collapses all over Europe. but these were not always effective. The imminence of the presidential election discouraged American initiative. The Financial Stability Forum. Challenge and response 25 Stearns in the United States. Fannie Mae and Freddie Mac. followed by the rest of the EU. It was by far the worst crisis since the Great Depression of the 1930s. guaranteed depositors and acted to neutralize the toxic assets clog- ging up banks’ balance sheets. The early summits endorsed massive . however. found a new lease of life. nationalised major banks. but remained in the shadow of the central banks (Bayne 2008. rather than liquidity shortages that could be met by central banks.8 This format enabled the major emerging powers. In con- trast. to be involved in decision-making on equal terms. Davies and Green 2010). These disasters provoked government intervention without parallel outside wartime. Central banks cut interest rates almost to zero and adopted untried measures to get the banks lending again. Eurozone countries adopted similar plans. especially in Britain. A deep worldwide recession was provoked by the collapse of the banking system. The return of government and the revival of summitry Eventually the superhuman efforts of the central banks were overwhelmed by the calamities that struck in September 2008. which were largely untouched by the finan- cial crisis. as panic spread on both sides of the Atlantic. led by central banks. By April 2008. the worst consequences might have been avoided. Merrill Lynch and the American International Group (AIG) all faced insolvency and had to be rescued. Governments poured money into financial institutions. proved beyond saving and its bankruptcy brought the world financial system to the edge of disas- ter. rather than buying up toxic assets as originally intended. it had prepared detailed plans to tighten regulation. Yet the finance ministries assembled at IMF meetings Downloaded by [University of California. meeting twice dur- ing 2009 and 2010 and annually thereafter. The crisis stimulated heads of government to intervene personally. In the United States.

Governments no longer used international disciplines to encourage internal reform. Non-state actors were severely disciplined in finance. They gave instructions on reforming financial regulation to the Basel Committee on Bank- ing Supervision and the re-named Financial Stability Board. Bilateral and regional instruments therefore proliferated. It embarked on an ambitious project. These early G20 summits thus responded successfully to the severe economic and financial pressures. usually acting on a national basis rather than through institutions. The other elements in the strategy persisted. The G20 sum- mit emerged and the Basel institutions for financial regulation became effective instruments. In the past. Sustainable and Balanced Growth. under the oversight of the G20 summit. They greatly increased the resources available to the IMF and agreed on reforms to its decision-making structure. backed by the IMF. increasing the mem- bership of both to match the G20. This aimed to coordinate macroeco- nomic policy and correct the payments imbalances that lay at the root of the crisis. After the crisis: Primacy to domestic policy Thanks to the emergency measures. But China remained non-transparent. San Diego] at 17:59 07 January 2017 as the premier forum for our economic cooperation’. Heads of government intervened more often than before. the environment and development. which was over-represented. even as its impact on the world economy expanded. but remained influential elsewhere. called the Framework for Strong. This did not happen after the financial crisis. trade. Financial regulation The Basel Committee on Banking Supervision (BCBS) and Financial Stabil- ity Board (FSB). where they had caused the trouble. But thereafter growth remained hesitant and did not regain its earlier dynamism. This section illustrates these trends in financial regulation. often formed of one or two domi- nant players with attendant satellites. This approach made multilateral consensus very difficult. In economic diplomacy the balance of the strategy shifted. thus eclipsing the G8 process. The Euro- pean Union. These would give more powers to emerging countries at the expense of Europe. macroeconomics. Instead they decided on domestic measures first and then sought international links to rein- force them. as after the end of the Cold War. The Pittsburgh summit of September 2009 ‘designated the G20 Downloaded by [University of California. great upheavals often led to new institution-building. due to the advance of electronic commu- nications. the world economy recovered in 2010. Transparency grew in most countries. with some changes. chose ex-prime ministers as the Presidents of the European Council and Commission. Otherwise using international institutions lost ground as an element of the strategy and the primacy of domestic policy largely took its place. Ministers remained heavily involved. successfully reformed . 26 Nicholas Bayne fiscal stimulus to check the recession and revive the world economy. for example.

The reform of its governance agreed by the G20 summit strengthened the position of emerging states like China. so that a new financial instrument. but hesitated over coordinating their actions. After five years. In the Eurozone several weaker economies – Greece. It now had much greater resources. They wrestled with the prob- lem of institutions hitherto deemed ‘too big to fail’. They produced com- prehensive standards for banks and other financial operators. They ruled that ‘systemically important financial institutions’ must hold more capital and ensure they could be wound up at no cost to governments Downloaded by [University of California. easing only in 2015 thanks to lower oil prices (Saccomanni 2016). had to be created from scratch. An exact repeat of the last crisis seemed unlikely. the United States and China – challenged the IMF’s authority. It also . Heavy fines were imposed on delinquents. San Diego] at 17:59 07 January 2017 (Green 2016). the European Stability Mechanism (ESM). leverage. to prevent a recurrence of the crisis. which left the system vulnerable. which were ready to give the Fund a key role in the Framework for Growth (Pickford 2015). The G20 members agreed to exchange information on economic policy. Many governments turned abruptly to correcting swollen budget deficits. Many had fraudulently manipulated interest rates and foreign exchange markets or breached rules on money-laundering and tax evasion. Macroeconomics: The IMF and the G20 The IMF came out of the crisis in a stronger position. The rules set by the Basle institutions had no binding force and needed national implementation. Recession persisted in the Eurozone longer than elsewhere. Challenge and response 27 financial regulation. The United States introduced a complex regime under the 2010 Dodd-Frank Act. Worldwide fiscal stimulus had countered the problems caused by excessive pri- vate debt. The banks protested against the burden of regulation. This would extend substantial loans provided the bor- rowers adopted a programme of strict corrective measures. especially by the US authorities. but also on liquidity. The IMF initially put up one-third of the rescue loans and joined the Commis- sion and ECB in the ‘troika’ overseeing compliance with the conditions. but were weakened as earlier scandals came to light. The pro- cess created severe tension between debtors and creditors in the Eurozone. The United Kingdom brought all financial regulation under the Bank of England. But high levels of debt persisted. not only on capital adequacy (called Basel III). pay and bonuses and cross-border operations. but at the cost of increasing public debt. Meanwhile the actions of key players – the Eurozone. the results from this process were disappointing (Bayoumi and others 2016: 1–16 and Chapter 15 below). The rules of the Eurozone had not foreseen this. so that governments had to rescue them. The Eurozone created a new ‘banking union’ and all countries with active financial sectors took comparable action. totalling $240 billion by mid- 2015. treatment of deriva- tives. Ireland and Portugal – had to call on their stronger partners for help in meeting their debts.

Capital began to flow out of them in 2015 with the prospect of higher US interest rates. such as the Asian International Infrastructure Bank (AIIB). at odds with Obama. But Congress. IMF loans to Greece reached 35 times its quota. for- eign currency reserves fell and a stock exchange bubble burst in 2015. 28 Nicholas Bayne revealed that European banks were vulnerable. The United States restored steady growth to its economy and the Fed started to raise interest rates. but without success. and trade volumes declined. Portugal and Ireland eventually returned to solvency. Brazil and Russia went into recession and growth dropped back in emerging countries generally. with further ripples in 2016. as noted by the IMF (Donnan and others 2016). they only took effect late in 2015. but the IMF had growing doubts about the austerity policies prescribed by Eurozone creditors. declined to ratify the reforms of IMF governance. This displeased non-European members and the Fund became reluctant to extend further finance to Greece. After the crisis trade and GDP both grew at about the same rate (Donnan 2016). These trends in China had worldwide consequences. China promoted new financial institutions that could compete with the IMF and World Bank. falling below 7 per cent after 2014. San Diego] at 17:59 07 January 2017 the euro and break the integrity of the Eurozone (Bayne 2012 and Chapter 4). which needed three rescue programmes over six years. President Xi Jinping and Prime Min- ister Li Keqiang. In addition to slower growth in China. The G20 summit was running out of steam and its objective of steady growth was receding unless China could restore its momentum (see Chapter 13). though agreed in 2010. International trade Before the financial crisis. undertook to give market forces a ‘decisive role’ in redirecting the economy from investment to consumption. China had been growing at about 10 per cent a year and in 2015. Its fiscal stimulus introduced to counter the recession boosted the level of credit in the economy to dangerous levels. This not only weakened the IMF but alienated emerging powers like China that benefitted from the reform. with India the only exception. the Eurozone. but its value fell against the dollar. while the UK would suffer from leaving the EU. Growth slackened. in power since 2012. Capital flight increased. Since 2000. China successfully got the IMF recognize the renminbi as a reserve currency. international trade had regularly grown up to twice as fast as world GDP. Its huge appetite for raw materials slackened and com- modity producers saw their exports fall away. the United States was the only G7 state with a stable economy. the liberalizing effect of the measures agreed in the Uruguay Round were now exhausted and more was . despite efforts to prop up the market (Economist 2016a). over which it had little influence. Yet the transi- tion was hazardous. so that the ESM had to save banks in Spain and Cyprus. Japan and Canada were still precarious. Otherwise it could leave Downloaded by [University of California. it overtook the United States to become the largest economy on purchasing power parity terms. The United States tried to dissuade other G7 countries from joining this bank. by far the largest multiple on record. Meanwhile.

European farmers resisted moves on agricul- ture. He annexed Crimea and stirred up armed rebellion in provinces of Ukraine along the Russian border. plus Australia. Russia entered a deep recession. China and the EU all active (see Chapter 14). Its most ambitious initiative was the TTIP with the United States. The EU’s efforts to extend trade liberalization eastwards became the catalyst for political upheaval in Ukraine. as India was a newcomer to the group. The WTO also updated its earlier IT agreement.’ but it proved harder than expected. The G7 countries reacted by suspending Russia from the G8 sum- mit and imposing economic sanctions. Roberto Azevêdo. The United States pursued both a Trans-Pacific Partnership (TPP) with eleven other Pacific Rim economies. such as investment. The new head of the WTO. Downloaded by [University of California. while NGOs opposed ‘investor-state’ dispute settlement and were fearful that TTIP would undermine regulatory standards in the EU. hav- ing secured ‘trade promotion authority’ from Congress. The United States. China promoted the Comprehensive Regional Economic Partnership. including Canada. Japan. The EU. who fled to Moscow early in 2014. India. successfully concluded the TPP early in 2016. but now resisted it as distracting from the TPP. New Zealand and South Korea (see Chapter 11). The United States had also favoured this back in 2006. Although the United States denied it. linking it with the 10 countries of the Association of South-East Asian Nations (ASEAN). Challenge and response 29 needed. South Korea. to include China. Japan and Russia declined to offer greenhouse gas reductions in the . Pro-European riots in Kiev drove out the corrupt President Yanukovych.9 Negotiations moved slowly. including Japan and Canada. President Vladimir Putin chose to see this as a threat to Russia itself. focused on specific topics of benefit to developing countries. China also revived the idea of converting APEC into a Free Trade Area of the Asia-Pacific (FTAAP). at Nairobi there was some further progress in agriculture (see Chapter 9). The aim of both negotiations was to set rules for areas not fully covered by the WTO. launched in 2013. having integrated the East European countries. and a Transatlantic Trade and Investment Partnership (TTIP) with the EU. San Diego] at 17:59 07 January 2017 Bilateral and regional agreements therefore got greater attention. without wider linkages (VanGrasstek 2013: 549–567). gave priority to exter- nal trade agreements with major economies. rather than reviving the DDA as a whole. with the United States. the TPP was widely seen as motivated by its rivalry with China for influence in the region. The environment The failure at Copenhagen was a severe setback to climate change diplomacy. Canada. prolonged by the collapse of oil prices. European business was disappointed by US reluctance to negotiate on financial services. The Americans wanted to conclude this ‘on one tank of gas. India and Japan. South Korea and others. which per- sisted into 2016. But progress at the multilateral level seemed possible only in small packets. At the 2013 Ministerial at Bali he successfully brokered an agreement on trade facili- tation.

Economic diplomacy in the energy field was also hampered by the absence of worldwide institutions (Downie 2015). both hitherto resistant to commitments. New technology called ‘frack- ing’ enabled the release of oil and gas trapped in shale deposits. The Paris Agreement undertook to keep the temperature rise to well below 2°C. changes in the market for oil and gas (a major source of CO2 emissions) were complicating climate diplomacy. The International Energy Agency (IEA) forecast that prices would level off. agreed on a joint approach in 2014. to enter into force by 2020. It accumulated a compre- hensive set of national climate action plans. the 2015 Paris Conference of UNFCCC parties was concluded successfully (see Chapter 16). Since this fall favoured import- ing countries. . these national commitments were intended to ensure the rise in global temperature did not exceed 2°C by 2100. before rising back above $40 again. momentum built up again. Gradually.5°C. After these long preparations. The United States and China. But in the short-term. it should have stimulated economic growth. Such low prices would make it harder to per- suade countries to cut back on greenhouse gas emissions. and if possible 1. though these. according to common reporting procedures.7°C. a Downloaded by [University of California. caused oil prices to fall sharply in 2014 from over $110 per barrel to under $60. Taken together. this was offset by the trouble caused for producing countries that relied on oil revenues. to reduce greenhouse gas emissions. The 2011 Durban Conference of the Parties to the UNFCCC agreed on a programme to negotiate a comprehensive agreement by 2015. But this strategy initially had an adverse effect. would at best keep the rise to about 2. overtaking Saudi Arabia and Russia. though over-supply would persist (Raval and others 2016). however. taken together. Saudi Arabia was convinced the new suppliers in the United States could not survive such low prices and persuaded Organisation of Petroleum Exporting Countries (OPEC) to keep output at existing levels so as to drive them out of business. the setbacks to major energy companies and a worldwide reluctance to spend and invest. This would be based on advance commitments. San Diego] at 17:59 07 January 2017 Green Climate Fund was set up in 2010 (at the Cancun conference of parties) to channel some of the funds promised by rich countries to help poorer ones respond to climate change (see Chapter 5). while the G7 Elmau summit of 2015 pledged emission reductions of 40–70 per cent by 2050. US wells kept produc- ing and in early 2016 the oil price briefly dropped below $30. This made great strides in the United States. This process should ensure regular scrutiny of whether commitments are being met (Economist 2015). Meanwhile. as recommended by the IPCC (2015). together with lower demand in China. In addition. 30 Nicholas Bayne new cycle of the Kyoto Protocol when the old one expired. as demanded by low-lying states. which in 2013 became the world’s largest producer of oil and gas taken together. Yet the UNFCCC was pushing economic diplomacy to its limits. This increase in supply. It included a mechanism that requires a review of commitments every five years. even with stocks at record levels. so that the success of the Paris Conference was still to be tested. country by country.

to make the revival self-sustaining. Conclusions This chapter has examined how economic diplomacy responded to the new chal- lenges from 1990 onwards. Tension between economics and politics The initiatives made possible by the end of the Cold War seemed successful at first in reconciling this tension. These conclusions assess how far the new economic diplomacy reconciled the fundamental tensions: between economics and politics. which drove average growth forecasts below 3 per cent for 2015 and 2016. thanks to improved economic and political governance. Democracy was incomplete where long-serving presidents clung to office. More was required. Over this period average economic growth in Africa had held steady at 5 per cent. but national healthcare systems still lacked resources. The major mul- tilateral economic institutions became truly universal. while extreme Islamic movements were spreading terrorism. As the demands on governments increased. which were now exceeded by flows of private direct investment. it was possible to assess the impact of NEPAD and the G8 Africa Action Plan. and government and other forces. They were diversify- Downloaded by [University of California. Progress had been made against infectious diseases. the advance of globalization and the financial crisis. to compensate for lower revenues from oil and commodities. The decision to launch a Continental Free Trade Area (CFTA) grouping 26 African countries was a move in this direction (Economist 2016b and Chapter 12). Many African states still fell short of the Millennium Development Goals in 2015. finance and the environment. however. stimulated by the end of the Cold War. including Ebola in 2014–2015. Rich states made commitments to prevent the poorest countries being marginalized. They were also doing more to mobilize domestic sources of finance. most of the credit must go to the Africans themselves. increased aid and strong demand for primary commodities. They had to continue striving towards the Sustainable Development Goals that replaced them. This mutated further after the financial crisis. The aim was to have all countries participate in the world system at a level that matched their economic strength. Challenge and response 31 Development Ten years after the Gleneagles summit. but their relative power shrank. They relied less on aid transfers. with multilateral institutions losing ground to regional groupings or national action. interna- tional and domestic pressures. . San Diego] at 17:59 07 January 2017 ing their economies. while new regimes were introduced in trade. While the G8 had helped to stimulate this renaissance. African countries had survived the financial crisis better than most. Regional integration needed to convert a system dictated by the EU into one where Africans themselves had ownership. they adjusted the strategy used in their domes- tic decision-making and international negotiation.

Tension between domestic and external pressures Although globalization brought international factors deeper into domestic decision- making. led to a lasting improvement in economic growth in the continent. having followed more prudent policies. China. The G20 summit gave them equal responsibility in managing the international system. as was Japan. The WTO set international rules for a number of domestic policies. San Diego] at 17:59 07 January 2017 of reach. survived the financial crisis in better shape than the industrial economies. They ignored developing countries’ dissatisfaction with the WTO. the policy adopted towards Russia was incom- plete and eventually unravelled. The engage- ment of the G8 summit with the Africans. The Africans maintained ownership of the initiative. China. India and South Africa were inadequate. The gestures made to emerging powers like Brazil. while the WTO was neglected. 32 Nicholas Bayne Yet the industrial countries still sought to dominate the system. Russia’s admission to the G8 summit did not deter Putin from later annexing Crimea. the United States. The emerging countries. however. The political confrontation this created. They wel- comed measures taken at the early summits that confirmed their new political status and in return endorsed actions to restore the world economy. The United States frustrated the reforms to enhance their status in the IMF. They would have the power to revive the summit’s role in reconciling economics and politics. though the worst polluter. The G7 hoped the emerging powers would preserve the international system that had facilitated their rapid advance. There were some successes elsewhere in reconciling this tension. provoking China to promote parallel financial institutions. shortly followed by Brazil and India. The EU was distracted by its internal problems. The G20 summit lost its early momentum after 2010. . so that tension persisted between economics and politics. The WTO adopted a negotiating agenda to help developing countries. this tension too was well managed initially. would hold the G20 chair in 2016. Politics and economics seemed in balance again. in defiance of international law. together with the growing rivalry between the United States and China. who had set themselves higher standards of governance. made economic cooperation more difficult (Economist 2016). However. they backed an ill-judged IMF response to Asian states in financial difficulty. The United States and China also pursued conflicting policies in regional trade. but agreement remained out Downloaded by [University of California. such as subsidies and intellectual property. Earlier the EU offered mem- bership to the East European and Baltic States escaping from communism after the end of the Cold War. but held back from international commitments as long as the United States did so. Yet perversely G7 actions tended to alien- ate them. This stimulated political and economic reforms that led to their full integration. so that it produced a result comparable to the Marshall Plan after World War II. frustrated environmental agreement. China and other emerging powers became essential contributors to a climate change regime.

it was also the key to the revival of Africa. so that disaster followed (IMF/IEO 2011). But problems soon appeared. San Diego] at 17:59 07 January 2017 Developing countries that hoped the international system would change in their favour became disillusioned. regional and bilateral trade agreements took priority. Japan and China. the Eurozone. But its pro- gramme to coordinate macroeconomic policies did not acquire traction. In climate change. in a process described as ‘intensive transgovernmentalism’ (Wallace and Reh 2015). where power moved away from the European Commis- sion to national leaders. The response to the financial collapse checked the crisis but did not durably alter this picture. as being easier to explain to domestic lobbies. Comprehensive preferential trade and investment agreements assumed centre stage and were pursued by all countries led by the United States. Challenge and response 33 Some countries used external pressure to drive internal reforms. The G7 summits and the OECD integrated environmental factors into domestic policy-making. The new standards for financial regulation set by the Basel-based institutions were fully applied domestically. Progress was most likely where national policies were developed first and were then linked to an international framework (Vines 2016). China exploited its entry to the WTO in this way. multilateral negotiations on both trade and environment issues ran into serious obstacles and disagreements. sometimes on overlapping tracks. This proved the best method to revive international cooperation on climate change. China. It was proving much harder to reconcile this tension. too entrenched national positions often hindered consensus. with WTO negotiations moving slowly at best. domestic resistance grew. the IMF did not chal- lenge the loose regulatory approach favoured by the United States and the UK. In trade. while the UK voted to quit the EU altogether. the EU. developing countries turned against them too. Downloaded by [University of California. The G20 summit also agreed emergency action to check the recession. developed and developing countries accused each other of not putting enough on the table. . The IMF gained standing at first but then lost ground again. as they avoided sensitive domestic issues (Bayne 2005: 224–228). Japan and elsewhere was set on domestic criteria and was largely impervious to external pressure. Yet this was arguably a necessary condition for the conclusion of the DDA. As industrial countries came to resist international rules. such as China and India. When the EU and the United States found their policies had to change. The challenge of differentiating between the major emerging countries. Domestic frustrations led to bitter clashes between creditor and debtor countries in the Eurozone. no one wanted another such crisis. and smaller or less developed economies proved too much for negotiators. In finance. In consequence. This was most acute in the Eurozone. to help states implement international agreements on climate change or biodiversity. Most industrial countries believed the new inter- national rules would simply confirm practices in force at home. In trade. especially Germany. At a regional level in Europe. Policy in the United States. The G8 summits did little to help. both the United States and China refused commitments to reduce green- house gases that might limit economic growth.

there was wider use of rules requir- ing transparency as the means of preventing tax avoidance and abuse of foreign investments. They obliged banks to accept external discipline on a wide range of func- tions and thus established a new balance between government and private business in the financial sector. though later it ran into deadlock. The worst damage was done by the private banks and financial institutions that abused governments’ preference for market-based regimes and weakened the regulatory process. the non-state actors advanced economic diplomacy positively. The prospects for this will be examined in the final chapter. Gilpin (2001) and Woods (2001). wrongly attacked institutions like the WTO and the G8 summit for being creatures of international capitalism. the new strategy in economic diplomacy had produced some good results at first. as well as protest movements provoked by the financial crisis. Academic experts. Some progress was made in reconciling economics and politics. San Diego] at 17:59 07 January 2017 In many cases. Downloaded by [University of California. A range of NGOs. This led to obstructive and often violent demonstrations at interna- tional meetings. For later assessments. This analysis draws on early studies by Cable (1999) and Held and others (1999). to produce once more the good results achieved after the Cold War ended. so as to tap their resources and disarm potential opposition. The response to the financial crisis and economic recession reshaped the strategy and changed the balance between different elements. A well-organized group of NGOs kept up the pressure to relieve the debts of low-income countries. 34 Nicholas Bayne Tension between government and other forces Through most of the post-Cold War period this tension was reconciled in a way that increased the influence of non-state actors in economic diplomacy. Many governments adopted the strategy of co-opting business. however. In particular. but advanced elsewhere. with labour unions. But where it had been ignored. The immediate response of governments to the financial crisis was to reassert their power as the price of saving banks and other institutions from collapse. eventually achieving 100 per cent relief. relations between state and non-state actors were more constructive. But elsewhere non-state actors played a less helpful role. Governments relied heavily on academic advice in climate change and on charities in responding to epidemics. In summary. most obstacles to agreement came from governments. Notes 1 The literature on globalization is very extensive. Non-state actors were cut down to size in finance. Elsewhere. see Bhagwati (2004). NGOs and others into their domestic decision-making. . but new threats were visible. disaster had followed. natural disasters and refugee crises. they could both help and hinder. In general. as in finance. It is supplemented by Hirst and Thompson (1999). The same happened in international negotiation. economic diplo- macy needed to be invigorated. Wolf (2004) and Stiglitz (2006). business firms and NGOs all contributed to the debate on climate change. Reconciling domestic and external pressures had certainly grown harder.

2012. D. South Africa. (eds. International Journal of Diplomacy and Economy. Cable. who would provide the right advice too late to be of any use. In Defense of Globalization. Princeton: Princeton University Press. J. Washington. Government and Opposition. 4 It was said that a country in trouble had a choice: it could go to the Fund. 1 (1). 2008. Japan. San Diego] at 17:59 07 January 2017 5 The G20 members are United States. Australia. 2008. Saudi Arabia. DFID 2000. The Financial Crisis: Who Is to Blame? Cambridge: Polity Press. Davies. N. 2016. Thailand and Vietnam. Downloaded by [University of California. 2005. Cambodia. N. Indonesia. Laos. After Seattle: Free Trade and the WTO. T. both US government sponsored enterprises.bis. Mexico. Banking on the Future: The Fall and Rise of Central Banking. 62 (1). 1–14. See Hajnal (2014). Bayne. 1–16. Blustein. New York: Public Affairs. Reshaping the World Trading System: A History of the Uruguay Round. The Economic Diplomacy of Sovereign Debt Crises: Latin America and the Eurozone Compared. or to the Bank. Singapore. DC: Brookings. N. Geneva: World Trade Organization. South Korea. 6 The BIS Annual Reports for the 2000s are all available on www.). 2004. H. Bhagwati. Global Financial Regulation: The Essential Guide. London: Stationery Office. 77 (1). Pickford. China. Why Did Seattle Fail? Globalisation and the Politics of Trade. 2001. United Kingdom. 187–201. References Bayne. and Subacchi. D. India. Columbia Journal of International Affairs. V. Oxford: Oxford University Press. 4–18. Bayne. Eliminating World Poverty: Making Globalisation Work for the Poor. Myanmar. this volume. The American heads of the World Bank were not ex-ministers. Davies. 8 G7 finance ministers had agreed a plan of action on 10 October. London: Royal Institute of International Affairs. Indonesia. 2010. Globalisation and Global Governance. 2001. 2nd edition. Turkey and the EU. 7 Fannie Mae and Freddy Mac are the acronyms of the Federal National Mortgage Associa- tion and the Federal Home Loan Mortgage Corporation. Russia. . The Chastening: Inside the Crisis That Rocked the Global Financial System and Humbled the IMF. like Paul Wolfowitz and Robert Zoellick. P. Canada (the G7). Brazil. Bayne. Philip- pines. Aldershot: Ashgate. 2000. 2010. J. France. P. S. International Affairs. N. 9 The ASEAN members are Brunei. N. White Paper Presented to Parliament by the Secretary of State for International Development. IMF and OECD. Challenge and response 35 2 This clearly applied to the WTO. H. 2011. The Diplomacy of the Financial Crisis in Context. Staying Together: The G8 Summit Confronts the 21st Century. Malaysia. Managing Complexity: Economic Policy Cooperation after the Crisis. but had often held senior political appointments. Bayoumi. The Hague Journal of Diplomacy. plus Argentina. Davies. J. 1999. and Green.. Bhagwati. Financial Diplomacy and the Credit Crunch: The Rise of Central Banks. Bayne. Cambridge: Polity Press. 131–151. Germany. 35 (2). and Green. See Chapter 11. who would promptly provide the wrong advice. 15–30. 3 APEC members include not only mainland China but also Hong Kong and Taiwan (Chi- nese Taipei). but it needed wider back- ing at a higher level. Croome. Italy. 6 (1–2). H.

Pickford. in The G20 and the Future of International Economic Governance. 2nd edition. in The G20 and the Future of International Economic Governance. pp. David. R. C.. NSW: NewSouth Publishing. Economist 2016b. The Financial Crisis and the Role of Federal 2016. Washington. Green. 2016. The Post-Cold War Trading System: Who’s on First? Chicago: University of Chicago Press. The International Financial Architecture: What’s New? What’s Missing? Washington. 36 Nicholas Bayne Donnan. 49–68. The G20: Evolution. S. 77 (2). M. IMF 1997. Available at: http:// imf-ieo. Ostry. Foreign Affairs. European and Asian Approaches to Preferential Trade Agreements. International Affairs. Traders in a Brave New World. 21–23 and 76. Eichengreen. 2009. Preeg. Energy Governance: Can the G20 Drive Reform?. 3 March. M. Economist 2016a. May 1997. 9 March. 94–95.pdf. DC: Institute for International Economics. 2008. Trade within Africa. London: Financial Services Authority. S. Hirst. Washington. 8. The International Organisations: Can the G20 be a Catalyst for Reform?. Greenspan. J. 65. P. DC: International Monetary Fund.ipcc. 2015. Held. IPCC 2015. A. Hearing before the US House of Representatives Committee on Oversight and Government Reform. FSA Occasional Papers. Refocusing the Regulation and International Standards. 2016. 119–131. Downie. P. and Woolcock. Evans.. 89–102. Gilpin. 2001. Available at: http://www. World Economic Outlook. Hajnal. A. Interrelationships. Subac- chi. Diverging policy-making. Available at: www. Giles. The Paris agreement on climate change. B. A. Tokyo: UN University Press. Towards a New International Financial Architecture. Economics and Culture.. M. Independent Evaluation Office of the IMF. Donnan. B. Sainsbury. edited by T. Princeton: Princeton University Press. 12. Green. 27 February. edited by M. Bayoumi. Financial Times. G. 23 October. 299–326. 2015. Global Transformations: Politics. in Managing Complexity: Eco- nomic Policy Cooperation after the Crisis. 45–46. 1999. 11. 2014. Farnham: Ashgate. DC: Institute for International Economics. McGrew. pp. Cambridge: Polity Press. Kenen. Plumbers and Architects. D. S. G. K. and Wildau. A. Contesting Global Gover- nance: Multilateral Economic Institutions and Global Social Movements. 1999. S. H. Pickford and P.. edited by M. IMF Performance in the Run-Up to the Financial and Economic Crisis: IMF Surveillance in 2004–07. Heydon. Goldblatt. M. C. S. China’s economy. O’Brien. Washington. The Fifth Assessment Reports of the Intergovernmental Panel on Climate Change. D. Chicago: Chicago University Press. 16 January. Globalisation in Question. 1999. 1995. S. Trade: A structural shift? Financial Times. 19 December. Sydney. 78 (1). Feldstein. Economist 2015. Goetz. Globalisation and Its Discontents.. 1998. Cambridge: Cam- bridge University Press. 2002. pp. IMF/IEO 2011. R. Duncan and E. 20–33. IMF calls for global action to lift demand as China exports fall. NSW: NewSouth Publishing. 9 January. 2000. DC: Brookings. Cambridge: Polity Press. Callaghan and T. 1997. J. Global Political Economy: Understanding the International Economic Order. Sainsbury. San Diego] at 17:59 07 January 2017 Economist 2016. 2001. Documentation. Downloaded by [University of California. and Thompson. 2000. and Perraton. and Williams. P. Callaghan and T. . The Rise of Bilateralism: Comparing American. Scholte.

72– pp. in Managing Complexity: Economic Policy Cooperation after the Crisis. S. Stiglitz. in Managing Complexity: Economic Policy Cooperation after the Crisis. 2016. Washing- ton.oecd. Young. C. N. 17–47. S. Pollack and A. Financial Times.g20. On Concerted Unilateralism.imf. M. pp. Policy Cooperation in the Euro Area in Time of Crisis. J.worldbank. DC: Brookings. Oxford: Oxford University Press. VanGrasstek. (ed. M. New York: St Martin’s Press. The History and Future of the WTO. Pickford and P. 13 R. and Sheppard. Political Economy of Globalisation. Wolf. DC: Brookings. edited by T. Hume. D.) 2001. edited by T. F. San Diego] at 17:59 07 January 2017 Vines. Pickford and P. Why Globalisation Works. Organisation for Economic Cooperation and Development: www. World Trade Organization: www.wto. 2016. 113–138. IEA sees ‘light at end of tunnel’ for oil prices. N. D. edited by H. Challenge and response 37 Raval. Subacchi. Bayoumi. Subacchi. 2006. 2013. Wallace. C. London: Penguin/Allen Bayoumi. H. and Reh. Geneva: World Trade Organization. Inter-governmental Panel on Climate Change: www. Financial Stability Board: www. Wallace. Saccomanni. Downloaded by [University of California. G20 Research Group: www. 2016. 21. . 2004. New Haven: Yale University Press.utoronto. 2015. 7th edition. A. World Bank: www.bis. in Policy- Making in the European Union.ipcc. International Monetary Fund: www. Useful websites Bank for International Settlements: www. Making Globalization Work. An Institutional Anatomy and Five Policy Modes.

It starts with relative economic power. The structure of the chapter is as follows. broadly defined to include formal international organizations. which is closely associated with realist understandings of international relations. The chapter is intended to provide the reader with a summary of some of the relevant theoretical approaches. however. 3 FACTORS SHAPING ECONOMIC DIPLOMACY Downloaded by [University of California. International Mon- etary Fund (IMF). etc. Such a theory is challenging due to the number of variables that can shape international economic negotiations at any one time. theory can also be used to aid our understanding of events and negotiations.. as well as the less formal private or multi-stakeholder . something that results in numerous potential equilibria or outcomes especially in large multilateral negotia- tions with many participating parties. In particular. such as the World Trade Organization (WTO).1 Theory can. such as multilateral trade rounds. be used for two purposes. It draws on some aspects of mainstream international relations and International Political Economy theory. First. It then considers the role of international regimes. San Diego] at 17:59 07 January 2017 An analytical toolkit Stephen Woolcock This chapter provides a suggested analytical toolkit for the analysis of interna- tional economic negotiations based on some core International Political Economy literature. It is in this sense that it provides an analytical toolkit. interna- tional finance or climate change. It is in this applied sense that this chap- ter seeks to contribute to the field. but focuses on the applications of these theories to economic negotiations. The chapter uses a simplified illustrative case of the Doha Development Agenda (DDA) in trade to clarify how the various theoretical approaches are relevant to economic diplomacy. Whilst predictive theory in the case of complex international economic negotiations presents formidable chal- lenges that are not within the scope of this book. It does not offer a theory of economic diplomacy. some of the key factors shaping economic diplomacy are summarized along with the theoretical approaches that relate most directly to them. negotiations involve the dynamic interaction between parties with different preferences.

to which principal–agent literature makes a contribution. which are therefore endogenous factors in economic diplomacy. Decision-making is also often path dependent. But economic interests do not operate in a vacuum. which are illustrated with reference to a simplified treatment of trade negotiations in the DDA.. There is a close interrelationship with markets. such as the Trans-Pacific Partnership (TPP) or the Transatlantic Trade and Investment Partnership (TTIP). negotiators have resorted to preferential agreements. The illustrative case of the DDA shows this clearly in the sense that when efforts to achieve aims are frustrated at the multilateral level. The third is more a tool for helping to understand the dynamics in any given negotiation. service sectors or civil society non-governmental organizations (NGOs). This is the use of negotiation analysis that breaks the process of negotiation into phases from framing through to implementation in order to help bring out that the rela- tive influence of factors can vary from phase to phase. through rationalist-based regime theory and open market economics (Keohane.2 Finally. San Diego] at 17:59 07 January 2017 decision-making and negotiation. Factors shaping economic diplomacy 39 regimes. developments in markets have to be factored into any discussion of Downloaded by [University of California. The first relates to the need to see any given negotiation in its historical context. IPE literature has been extended to include also the role of ideas. In other words. Here the related theories of international cooperation are relevant. a few further ways of viewing economic diplomacy are suggested. The chapter therefore discusses the domestic institutional framework within which preferences are formed. who decides on the balance between what are often competing interests must also be included in any analysis. 2009). Much of economic diplomacy is an iterative process with negotiations stretching over decades sometimes. The use of the illustrative case of the DDA in this chapter does not mean that the tools and analytical approaches discussed are not equally relevant for the . The chapter then turns to interests. The chapter therefore also discusses how constructivist approaches can help to augment our understanding of economic diplomacy. Having introduced these core factors. This list of major factors broadly follows the evolution of theoretical thinking in the field of International Political Economy. These are the rationalist and the two-level approaches. While interests may play an important role in shaping the preferences of parties to any negotiation. The second is to consider how any negotiation relates to others taking place in other fora or on other levels. such as those representing specific industries. 1993). Of partic- ular importance are the relationships between the negotiators and those bodies or institutions that have veto rights or the power to ratify or reject what is negotiated. meaning that policy-makers and negotiators often use precedent to guide them. such as hegemonic stabil- ity theory. as the more power-based and interest-based approaches could not fully explain policy-making and international cooperation (Goldstein et al. where rationalist theories based on utility maximization are of central importance. the chapter then provides a more detailed discussion of two of the main analytical tools and illustrates how these can be applied to economic diplomacy. from realist-based systemic theories.

the environment or investment. And in terms of stakeholder input. Realist approaches would therefore expect parties to sign up to an agreement only if they stand to gain more or when the benefits are at least balanced. in other words the distribution of benefits. A large economy will have more leverage in terms of its financial resources. For example. Agreements that favour the other party or parties relatively more would be rejected (Grieco. will also give the negotiators of that country more leverage than a small polluter. the balance of economic or market power in finance may be said Downloaded by [University of California. Economic wealth and growth are seen as preconditions for political and military power and military and political power as potential leverage in economic negotiations. there are clear differences between the WTO and the IMF in terms of representation and decision-making. and thus the more information negotiators from such countries will have. rather than absolute gains when all parties gain but not necessarily in equal measures. The impact of an economy on the environment. 40 Stephen Woolcock analysis of negotiations in other policy areas. Realist theories of international relations are based on the premise that relative power shapes international relations between sovereign states. For example. for example. It is not difficult to find examples of how relative gains are a factor in international negotiations. realist think- ing can be seen as shaping the policy debate over economic relations with China. There is an abiding difficulty measuring relative power. The larger and more developed the economy the more administra- tive capacity there will be to negotiate and the better the input from stakeholders. It should just be borne in mind how- ever. such as car- bon emissions. . In this context. mercantilist thinking sees the attainment of political/military and economic power and wealth to be closely linked (Heckscher. The size of its market and thus the attractiveness of ‘offers’ of access to such a market gives it more market power. San Diego] at 17:59 07 January 2017 to still favour the ‘transatlantic economy’ whereas in trade it has shifted towards Asia. environment and increasingly trade are characterized by greater civil soci- ety action as compared. realism is based on the assumption that negotiators are concerned about relative gains. The intention is that the approach suggested in this chapter should provide the analytical basis for considering the chapters in the volume that discuss specific cases or policy areas in greater detail. our main concern here is how realist thinking might shape the economic negotiations. such as finance. In terms of institutions. 1994). Whilst it is important to be aware of the potential for political/military power to shape economic negotiations. In terms of political economy. 1990). The main variables Relative economic power The ability to shape agendas and influence the outcome of negotiations will clearly depend on the size of the countries or economies engaged in the process. to finance. that generalizations cannot be made on the basis of the study of one policy area as the relative balance of factors will differ from policy area to policy area.

In the more specific case of our DDA illustration reciprocity plays a central role. This approach needs to be differentiated from a liberal one. In addition to the relative gains. assumption realist theories tend to assume states are unitary actors. the emerging markets are relatively less open than the OECD economies. States. we can see that the negotiations were shaped by a relative shift in favour of the emerging powers and China in particular. as opposed to the absolute gains that are likely to result from trade liberalization. often turn on how broad or narrow the definition of reciprocity is. the norm and aim is global reciprocity – in other words a ‘broad balance of benefits’ across multilateral negotiations. With larger and less open econo- mies. and is indeed a norm in the trade regime as a whole. Reciprocity is concerned with relative gains. which would favour absolute gains regardless of the relative balance of benefits. Applying the variable of relative economic power to the DDA. with a narrow definition of reciprocity being more concerned about relative gains. In a global economy it is also no longer viable to view the international economy as a collection of distinct national economies. and especially China. one of the core liberal principles of international trade. This is a rather more constraining assumption given the nature of the international economy. the emerging markets have gained significantly in relative market power. Global production or global supply chains are now a major factor and shape the preferences of companies and governments alongside the national factor endowments or concerns about the competitiveness of national industries or sup- pliers (Organisation for Economic Cooperation and Development [OECD]. Furthermore. which implies balance of gains and thus a concern with rela- tive gains. Unilateral measures such as unilateral trade liberalization would be a case in which relative gains play no explicit role. there is also repeated reference to the need for ‘a level playing field’. branches of govern- ment or regulators that shape policy. there has been a shift in market power towards the emerging markets. 2012). implies that all countries benefit from free trade regardless of how competitive they are or what and how much they export. In the rhetoric of trade Downloaded by [University of California. In the last decade or so. 2013). In practice trade negotiations. there are different ministries. In other words. and economic diplomacy decisions in general. these economies had sufficient negotiating leverage to shape the outcomes of reciprocity-based negotia- tions. and within each state. The globalization of investment and production has eroded the national character of markets. Applying relative economic power one might argue that by offering access to large developed markets. are clearly not the only actors. but regardless of the relative distribution of gains. Comparative advantage. Up to the DDA the international trade agenda could be said to have been influenced by the United States and then by a coalition of OECD members led by the United States or by the United States and European Union (EU) jointly (Woolcock. In the GATT/WTO. that is governments. Factors shaping economic diplomacy 41 which some will see as benefitting disproportionately from international trade and that this will mean an augmentation of Chinese power. San Diego] at 17:59 07 January 2017 or other economic diplomacy. a liberal view would favour trade liberalization with China provided all parties benefit. .

norms and decision-making procedures (Krasner. in the field of trade is eco-labelling. as well as informal decision-making in a smaller group of key WTO members. There is also a lit- erature on global economic institutions. These continue to shape multilateral trade negotiations today. These play an increasingly impor- tant role in economic diplomacy. International regimes The IPE literature views international regimes as intervening variables (between states). The United States had a major role in shaping the rules and norms of the GATT. In comparison global environment policy like trade. it can be argued that in the area of finance the ‘transatlantic economy’ still prevails with the dollar as the key currency and financial market regula- tion still broadly in the hands of the OECD governments. 1983). regime theory was developed to help explain how coop- eration continued. which discusses formal institutions. The . such as through the establishment of the principles of most-favoured-nation (MFN) status and national treatment and reciprocity. 2012). which argued that international cooperation and policy outcomes were shaped by the hegemon. San Diego] at 17:59 07 January 2017 policy areas. To show the difference between Downloaded by [University of California. in the case of the Bretton Woods system the United States. When cooperation continued despite the relative decline of US economic power. The importance of regimes can clearly be shown in the case of trade and the DDA. One example. requires the active participation of the emerging markets.3 Realist theories are therefore relevant because relative market power and rela- tive gains matter to some if not all negotiators. for example. and how decisions are reached formally and informally as well as which countries have effective veto power. for example because of their impact on carbon emissions. 2004). such as those in private or multi-stakeholder regimes. which provides an alternative to mandatory regulations in the field of environmental standards for goods (Hemmati. at which the EU and United States sought to determine what had since the launch of the DDA in 2001 been an ambiguous agenda (Narlikar.4 The concept of regimes also includes less formal forms of cooperation. Regimes facilitate cooperation by reducing transaction costs and thus enabling iterative negotiations in which further agreement can build on past cooperation. as they help regulate markets when the state is not able or willing to do so alone. 42 Stephen Woolcock This relative shift has been seen as an important factor in the outcome of the 2003 WTO Ministerial meeting in Cancun. But this was blocked by a coalition of emerging and developing countries (the G20 trade). The classic definition of a regime includes formal and informal rules. the pro- gressive extension of trade liberalization based on the GATT. The theory of regimes chronologically follows the more structural approach of hegemonic stability theory. Such regimes include and draw on the knowl- edge of – and information from – the private business sector and civil society NGOs. such as the WTO and IMF. The outcome of the DDA is also shaped by the decision-making procedures in the WTO based on one member one vote.

There can be little doubt that the competing interests of industrial or service companies or sectors. Lake and Mastandano. 1988). But it can also include elements of political utility for governments or parties in the form of retaining or gaining power thanks to support from key con- stituencies that benefit or do not suffer from the outcome of a negotiation (Odell. shape preferences and decision-making in economic diplomacy. Much will also depend on whether the agreement is fully imple- mented and on developments in markets. Rational analysis is therefore based on the assumption that policy-makers reach decisions on the basis of cost-benefit analysis that enable a maximization of utility. 2004). depending on the issue at hand. in other words. Therefore. political utility may dictate favouring measures that mitigate the costs for such interests that will otherwise seek to block any negotia- tion (Grossman and Helpman. This therefore means that economic diplomacy is shaped by other more subjec- tive judgments. The political economy of domestic decision-making is often such that the benefits of economic diplomacy are diffused throughout the economy but the costs concentrated. such as increased trade gains. be preceded or accompanied by ex-ante studies or feasibility studies that weigh the economic costs and benefits of various options. which opens up the possibility of ideas or socially constructed preferences shaping outcomes. on what is termed bounded rationality. The utility maximization takes the form of the maximization of economic welfare or other gains. unions and civil society NGOs. But such studies are not an exact science even with detailed economet- ric modeling. according to which all aspects of the negotiation have to be agreed before they can be concluded. a lack of full information on the impact. Interests While the more state-based approaches see states as unitary actors. San Diego] at 17:59 07 January 2017 approaches stress the importance of a range of different interests (Ikenberry. 2009). a rational approach to analysis would entail an assessment of the parties’ preferences in terms of their offensive or defensive interests favouring liberalization or protection. In the illustrative case of trade. 2000). society-based Downloaded by [University of California. The factors shaping negotiation can then be approximated by assessing the balance of interests across sectors of the . Rational analysis lends itself to the study of such interests and assumes that states or the parties in any negotiation seek a balance between the preferences of these diverse interests in order to maximize utility. has been seen as having a signifi- cant (negative) impact on the ability to conclude the DDA (Wolfe. In the illustrative case of the DDA. Rational approaches are therefore based to a greater or lesser degree. This will be discussed below under constructivist approaches to economic diplomacy. Factors shaping economic diplomacy 43 norm of the single undertaking. Many economic negotiations will indeed. the example of protection for agriculture is a classic example of this because agricultural con- stituencies tend to have a disproportionate political influence (Davis. There is not necessarily coherence between economic and political utility functions. National preferences can be understood as the aggregation of these interests. 1994).

it is important to recognize that interests may also be organized in different ways. In economic diplomacy. This is the case in most European countries and Japan for example. Finally. As noted above. 44 Stephen Woolcock economy. but in many cases. such as when the pref- erence in terms of the balance between environmental protection and economic growth takes the form of environmental regulations. To a greater or lesser extent. Civil society NGOs also vary from large organizations with significant resources to very small groups and also form coalitions when there is a common cause (see Chapter 5. In the United States pluralism. San Diego] at 17:59 07 January 2017 be expressed in domestic policies. These may be codified. A broad consensus on the balance of national preferences will clearly have an influence on the parties’ negotiating position in international negotiations and will form the starting point and possibly limit the scope of negotiation. An . Institutions will also determine how the conduct of negotiations is scrutinized. all interest groups are also active internationally. this volume). the so-called acquis communau- taire. and in federal states. Turning to the formal institutional arrangements shaping decision-making. there are generally constitutional arrangements setting out the respective roles of the executive and legislative branches of government. Institutions will determine who decides on the balance of interests and how. or the principal– agent relationship. such as those representing business as a whole that are in some cases long-established insti- tutions. and the agent is the chief negotiator or the agency for which he or she works. Institutions and domestic decision-making The definition of a party’s preferences does not take place in a vacuum. In such cases. Before considering the institutions of government. it is worth noting that preferences are likely to be anchored in domestic policy. A balance of interests between liberalization and regulation of markets will Downloaded by [University of California. In the case of the European Union where the balance is expressed in the form of EU regulations. they work through sector or professional trade associations. some sectors may have particular political salience. the principals would generally be the legislature or perhaps individuals or organizations with an effective power to veto what has been negotiated. political utility functions may be more important than economic utility maximization. or the competition of ideas and interests. There will also be umbrella organizations. is more pronounced and pri- vate sector representation is more fluid with companies forming more functional coalitions. Negotiators may also be sensitive to the interests of civil society if these are likely to influence public opinion and thus votes or the views of elected rep- resentatives. change requires agreement of a qualified majority of Member States. the areas of policy for which the federal or central government is responsible. Such codification means less flexibility in international negotiations as changing established policy is often resisted by powerful veto players. where a corporatist tradition has favoured this type of representation. such as agriculture or public services. Individual firms seek to influence economic diplomacy.

relative gains view of international economic relations. but the practice is consensus. If worldviews shape outcomes and are socially determined. A decision-maker with a mercantilist outlook will tend to err on the side of caution and make sure that his or her side or country will not make more concessions than the other party to a negotiation. If an actor has a predominantly liberal view. In the United States. he or she can be expected to behave differ- ently from someone with a more mercantilist. De facto arrangements often differ from the de jure institutional decision-making provisions. this volume). San Diego] at 17:59 07 January 2017 that ratifies. Constructivist literature on international economic relations provides the the- oretical basis for the study of ideas or beliefs. it is the US Congress that authorizes the administration to negotiate and Congress that must approve or ratify what has been agreed (Cohen and Volker. Ideational factors Given the likelihood that decisions in economic diplomacy will be taken under conditions of bounded rationality. 2012a). Factors shaping economic diplomacy 45 increasing number of policy areas touch upon state/provincial or sub-central gov- ernment policy and autonomy. and Chapter 7. a decision-maker with a liberal outlook will err in favour of liberalization in the belief that this will lead to welfare gains for all parties. the constitution determines the respective roles of Congress and the executive branch. it is the Member States in the Council that authorizes the Commission to negotiate and agrees the mandate. There is for example. exclusive European Union competence for trade and investment. Institutions also determine how closely negotiators scrutinize the agents as they negotiate. In such cases. This illustrates the importance of institutional arrangements. The worldview of those involved in economic diplomacy will influence their judgments. Unlike rationalist theories these . but will also tend to increase the number of potential veto players and thus reduce negotiating flexibility.5 In the case of the European Union. For example. there will always be an element of – and often considerable – doubt about the impact of any agreement that liberalizes trade or investment. but not for financial negotiations or international environmental negotiations (Woolcock. however. In the illustrative case of trade. Even when comprehensive cost-benefit studies are commis- sioned. then ideas-based advocacy can be important. 2000. the formal decision-making provisions stipulate a qualified majority for decisions of the Council of Member States on most trade issues. and it is the Council and European Parliament that ratify the outcome of the negotiations. the treaties establish whether there is EU or Member State competence for any given policy area. Ideas can shape outcomes in different ways. in the EU. Close scrutiny will mean that the agents are held accountable for their every move. there will be scope for ideas or beliefs to influ- ence outcomes. The nature of decision-making and who negotiates for the EU depends on the topic and whether it is EU or shared competence. it is the execu- tive branch of government that authorizes any negotiation and the legislature Downloaded by [University of California. Where there is EU competence. In all other states.

it is rare for a negotiator to simply state the interests of his or her country without supporting these by reference to broader shared aims. . Constructivist approaches allow for the consideration of normative val- ues in shaping negotiations and provide for some consideration of the beliefs and roles of individuals. there is also more chance of a coherent outcome. Consensus has a number of benefits over compro- mise. Constructivist approaches can also be applied to the process of negotiation. constructivist approaches to negotiations would seek a satisfactory consensus based on shared knowledge or understanding. there is very often hard bargaining over concessions or wording. constructivists also see a role for persuasion. In practice. In smaller settings. For example. Constructivist literature also allows for concepts such as fairness or equity to shape negotiated outcomes that rational arguing models do not (Wilkinson. negotiators have to provide an honest account of their inter- ests and views and remain open to persuasion. Most negotiations include working groups of experts to discuss the substance of the issues and scope for agreement. This is important because fairness is a factor. 46 Stephen Woolcock assume that preferences are not constant but are socially determined and can be changed. there is less scope for persua- sion and arguing. a negotiator seeking greater market access for goods or Downloaded by [University of California. especially as the people involved will then have the authority to act on any agreement reached. 2009). For example. it enables fairness to be considered so that outcomes are not simply based on relative economic power. In large multilateral settings. there is more scope for debate and persuasion. in negotiations between a major developed economy and a small developing or least developed country. In contrast to the bargaining process that underlies rationalist approaches to the process of negotiation. persuasion based on logical argument can be used to influence the preferences of one’s negotiating partner. As noted above. such as economic summits of heads of state or government. such as in the early stages or in detailed working groups. The forum is also important. An approach to negotiation based on open debate and argument over empirical evidence can expose incoherent or inconsistent behaviour. The latter may be difficult when the negotiator is constrained by domestic demands and expectations. Effective deliberative action also requires that all parties have an opportunity to speak and in practical cases will require time both to collect information and to debate the implications. Here one can expect a good deal of debate. but can make no sense in terms of economic or environmental goals. Rather than seeking a compromise based on trading concessions. persuasion may be more important. for example. bargaining based on promises or threats can result in outcomes that only make sense in terms of the need to have a balanced agreement or a bargain. the literature suggests that certain conditions need to be met (Habermas. In some phases of a negotiation. San Diego] at 17:59 07 January 2017 investment from their country will draw on liberal economic values to argue that liberalization will be of mutual interest. But in later stages of a negotiation. By building agreement on logical argument. In any negotiation. economic diplomacy will tend to include both persuasion and bar- gaining. Accordingly. In contrast. 1984). For effective deliberation and persuasion to occur.

Factors shaping economic diplomacy 47

The application to the negotiation process
This section illustrates how two of the main approaches, rationalism and the
two-level/domestic institutional approach, can be applied to negotiations. These
approaches are illustrated by means of a simplified two-issue case, namely agricul-
ture and industrial tariffs, or non-agricultural market access (NAMA) from the
DDA (see text box).6
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Agriculture: The negotiations covered the three pillars of agricultural trade
negotiations, access (tariffs and tariff rate quotas), domestic support and
export subsidies. Agricultural exporting countries, such as Brazil, favoured
liberalization of both tariff reductions and reductions of subsidies. Net
food importing developing countries and emerging markets had a more
ambiguous position on agriculture and favoured retaining scope to pro-
vide support for agriculture and in particular for poor subsistence farmers
(ICTSD, 2003). This was particularly the case for India, but China has also
been increasing the level of support for agriculture with the result that in
terms of the share of subsidies in total output value has converged with
that of the OECD countries.
The United States and the European Union wished to retain subsidies for
agriculture, but have for some years been moving away from price support
(in the case of the EU) and shifting to provide more income support. This
has made the removal of export subsidies easier and generally reduced the
levels of subsidy. A number of other OECD countries, such as Japan, Switzer-
land, Norway etc., maintain significant levels of protection for agriculture
(Tangerman, 2012).
Industrial tariffs (covered by NAMA in the DDA): With low average bound
tariffs for goods (of around 3%) the OECD economies have favoured the
reduction of goods tariffs in emerging markets, because these represent
the growth markets of the future. Bound tariffs in some emerging markets
remain high: India at around 40%, Brazil nearly 30%. Tariffs in the recent
WTO member China are lower but still important. Applied tariffs are lower,
but the countries concerned wish to retain ‘policy space’ and thus the
option of increasing tariffs. Other developing and least developed countries
also wish to retain policy space and tariff revenue and are not enthusiastic
about reductions in MFN tariffs that reduce revenue and the preference mar-
gin they have thanks to preferential agreements with many more developed

48 Stephen Woolcock

A rationalist approach to understanding negotiation processes
If one applies a rationalist approach to understand the DDA negotiations one would
start with considering the preferences. Given the structure of supply capacity, the
preferences are relatively fixed. Brazil has a clear preference in exporting agricul-
tural products and has favoured liberalization. The EU preference was shaped by a
relatively less competitive agricultural sector, especially in commodity agricultural
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products.7 The United States is also committed to the provision of support for agri-
culture. But these preferences are not fixed over a longer term. The reform of the
EU’s Common Agricultural Policy (CAP) that has shifted from price support to
income support for farmers, has meant that the EU preference for retaining export
subsidies, needed to bridge the gap between high prices due to price support in
the EU and world market prices, is less and less important. Market developments
in terms of generally higher world prices for agricultural products also reduced
the need for subsidies. As noted above, there is also a growing role for subsidies in
emerging market agricultural policies (Tangerman, 2012).
In terms of trade in goods the preferences of the parties were also fairly clear-
cut. The developed OECD economies have low tariffs but some emerging markets
relatively high bound tariffs (see text box). Given that negotiators will consider the
long-term developments, those in OECD countries envisage a time when there
would be a reversal of the preferences of the EU and United States and China and
India on agricultural subsidies. However, the progressive nature of the change
(over decades rather than years) means that the basic assumption of relatively fixed
preferences in rational approaches is still valid. Consequently, rational analysis
often provides a fair good approximation of the preferences of the parties.
Turning to the negotiation process, rationalist analysis is based on bargaining.
This can be done by issue linkage that helps to ensure a relatively balanced out-
come for all parties (Sebenius, 1983). If concessions need to be made in one area
to reach agreement, these can then be compensated by gains in others. Such bar-
gains can be best facilitated when negotiators cooperate in order to work towards
mutual gains. This has been called value-creation because the parties work to
move the outcome towards greater benefits for the parties (Odell, 2000).
Value-claiming strategies are then those that are concerned more with relative
gains or in more extreme cases when one party expects the other party to make
concessions in order to achieve agreement, but is unwilling (or unable due to
domestic constraints) to do so. In such a strategy the negotiator may desire to show
that he or she has got ‘a better deal’ than the other party, and may even reject an
outcome that benefits their country if it appears to favour the other party or par-
ties more. If one party to a negotiation adopts a value-claiming strategy, it can be
expected that others will do so. In such a case, there is less cooperation and more
likely to be a stand-off and no progress. In practice most economic diplomacy
involves a mixture of both value-claiming and value-creation, with the likelihood
of value-claiming strategies at the beginning of a negotiation and more creation
to towards the end. For chairs seeking to get negotiating parties to make progress,
the aim is then to get them to move from claiming to value-creation.

Factors shaping economic diplomacy 49

How negotiators communicate can have an important bearing on outcomes. For
value-creation, there is a need for trust between negotiators. This can only be estab-
lished if there is an honest representation of the parties’ genuine domestic constraints
and preferences. If negotiators misrepresent the nature of the preferences of their
principals or the constraints due to the position of veto players in order to paint a
bleaker picture and thus get more concessions from the other party to a negotiation,
this is unlikely to foster trust between negotiators. With adequate intelligence, a
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negotiator can discover such misrepresentation, in which case all trust would be lost.
This brings us to the question of transparency and the trade-off between transpar-
ency and flexibility. When seeking joint gains by means of a value-creating strategy,
a negotiator may need to explore options that go beyond what is acceptable by one
or more domestic veto players (i.e. interest groups). Value-creation however, implies
having the flexibility to explore outcomes that are in overall terms mutually benefi-
cial even if some interests have to be sacrificed. If the negotiator is obliged to provide
full transparency of every move, the interests threatened will lobby hard to limit flex-
ibility and thus the scope to explore value-creation. With flexibility the negotiator
must judge what overall outcome will maximize utility, both economic and political,
and be confident that this will ultimately find acceptance in the domestic debate.
Figure 3.1 provides a simplified illustration of how a rationalist analysis would
model the DDA negotiations between Brazil and the EU. In this model, Brazil


Pareto Frontier possibility curve


2 4

0 liberalization
EU resistance point

FIGURE 3.1 A simple bargaining model

50 Stephen Woolcock

favours agricultural liberalization (vertical plane) and the EU lower bound tariffs
for goods (the horizontal plane). The figure shows the resistance points, or ‘red
lines’, below which the outcome would be unacceptable for the EU or Brazil. If
both parties pursue value-creating strategies, it is possible to move towards the
Pareto frontier. This would mean absolute gains for both parties, but the distribu-
tion of the gains can vary. At point 5, Brazil gets relatively more in terms of agri-
cultural liberalization than the EU gets in terms of reductions in Brazil’s bound
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tariffs on goods. At point 4, the EU gains more. Points 3 and 4 represent pareto
outcomes. But the place on this frontier can vary according to the bargaining
process. In this two-issue, two-country model, the bargaining process would take
the form of modifications within the issues concerned. In the case of the DDA,
this could take the form of Brazil accepting sector agreements that reduce tariffs
in particular goods sectors of interest to the EU, or increased tariff rate quotas for
some sensitive (for the EU) Brazilian agricultural exports. In the case of the DDA,
there were of course more issues and more parties to the negotiation, but the prin-
ciple is the same, just much more complex.
Negotiations are affected by what alternatives the parties have, or the best alter-
native to a negotiated agreement or BATNA. If a party has a good alternative to
the current negotiation, this will mean they set a higher resistance point, because
they can perhaps get much of what they seek in the other negotiation. In the case
of the DDA, the parties have had the alternative of negotiating preferential trade
agreements in which they can get some, but not all, of the liberalization they seek.
After the failure of the negotiations on the DDA in 2008 and again in 2011, there
were indeed signs of more activity in the negotiation of comprehensive preferen-
tial trade agreements. After 2011, even the major WTO members were ready to
engage in such negotiations with each other, something that had until that point
been taboo.8 In the case described the BATNA for Brazil is lower than that for the
EU, because agricultural subsidies are not addressed in preferential agreements.9
In reality, it has proven less than ideal for the EU in terms of trade with Brazil,
because Brazil as part of Mercosur has been slow to agree to reactivate negotiations
with the EU on a preferential agreement.
In any bargaining process, timing and momentum will be a factor. Early con-
cessions may simply be ‘pocketed’ by the other party without any reciprocal con-
cession. So there is a tendency to hold back on concessions. But if this is left too
late, it can undermine the prospects for agreement, because last-minute conces-
sions will be difficult to evaluate in terms of economic (and political) costs and
benefits. One or other of the negotiators may then be risk averse and opt to reject
the bargain rather than risk finding that it is not a ‘good’ agreement or will not
be accepted by their principal(s). This was arguably what happened at the Cancun
WTO ministerial meeting in 2003, when concessions on the agenda were made
by the EU fairly late in the day (Kerremans, 2004).
Rationalist analysis therefore provides a good first approximation of the prefer-
ences of the parties. These may not be immutable but stable enough to shape nego-
tiations over a period of years or decades. The simplified model here would of course

Factors shaping economic diplomacy 51

need to be augmented to include other issues and other parties, so that in reality the
task of assessing the impact of different variables becomes much more complex. In
the case of the DDA, this was especially true in the early stages of the negotiation
when many more issues were on the agenda. But as the negotiations progressed the
central points of conflict became clearer, and included the balance between con-
cessions on agriculture and NAMA. Indeed, it can be argued that the negotiators
sought to simplify the process so as to be able to more easily assess the impact. In the
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case of the DDA, by 2008, the main focus of the negotiations was indeed a question
of the balance between agriculture and NAMA, with services and other issues rather
having fallen by the wayside. As the record of the negotiations in 2008 shows, issue
linkage occurred with the stress placed on a special safeguards clause for agriculture.
This had an impact on the eventual failure to reach agreement in Geneva in 2008.
Such addition of issues is well captured in a rationalist analysis (Wolfe, 2009).

A two-level approach
A negotiator or agent must still get approval for the final agreement from the
domestic principals. To understand economic diplomacy, it is therefore neces-
sary to include in our analysis the interaction between the international and the
domestic levels. All international negotiation or policy-making is clearly shaped
by domestic factors and by decisions in institutions. The two-level approach to
negotiations (Putnam, 1988) seeks to capture the dynamic between the domestic
and the international levels. In this model, the negotiator sits not at one, but two
negotiating tables, the domestic and the international.10
The dynamic between the two levels can work both ways. On the one hand
a negotiator can use constraints at the domestic level, a narrow win-set or low-
resistance point/red line, to strengthen his or her position internationally. But it is
also possible to use the international level to bring about changes at the domestic
level. For example, if a government wishes to bring about domestic reform, but
is blocked by opposition, it may use the international level to leverage domes-
tic change. This was the original insight of the Putnam model. In the case of a
trade negotiation, this can be done by adding issues to a negotiation that have the
potential to favour important domestic interest groups. These groups can then be
expected to support the conclusion of negotiations and thus neutralize opposition
by defensive interests. In a similar fashion, a government seeking domestic reform
can use the need to strengthen international coordination as a means of bringing it
about. China’s WTO membership is, for example, widely seen as partly motivated
by a desire to speed up domestic reform, and it has been argued that one of the
main benefits of the WTO is to provide the framework for domestic reform of
trade policies. This interaction between the international and domestic can also be
observed in EU agricultural policy. In the GATT Uruguay Round negotiations,
reform of the CAP was necessitated in order to get agreement with the EU’s part-
ners. In subsequent years, EU trade negotiators supported further reform to have
more flexibility in the DDA.

52 Stephen Woolcock

The two-level model envisages domestic interests and institutions determining
the size of the ‘win-set’ of each negotiating party. Win-sets are seen as the range
of acceptable outcomes for any party. Wide win-sets will clearly mean greater
scope that they will overlap with those of the other party or parties and so enable
an agreement to be reached. If one party has a narrower win-set than the other,
due to the nature of veto players or perhaps constraints due to legislation, then this
party will tend to have a stronger negotiating position at the international level
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(Level I). If a negotiator wishes to facilitate agreement, he or she will then have to
negotiate a wider win-set at the domestic (Level II) table.
In the illustrative case of the DDA, the two-level approach can be used to
show how the EU’s win-set is determined by the balance between the liberal-
izing objectives of manufacturing in the NAMA negotiations and the defensive
agricultural interests. It can also be used to show how the EU position is shaped
by the ‘domestic’ institutional arrangements. The European Commission is the
chief negotiator accountable and reporting to the Council and then the European
Parliament. In agricultural trade issues, it is the Commissioner responsible for
agriculture who negotiates for the EU alongside the (generally more liberal or less
constrained) Commissioner for trade. Decisions on the EU preference and how to
respond to developments during negotiations, as well as the decision to accept the
final agreement are taken in the Council or its working groups by consensus, even
if the formal treaty provisions stipulate a qualified majority. See Chapter 10 below
for detail on EU decision-making.
In Brazil the executive arguably has somewhat more flexibility (see Chapter 9
below). The Congress must ultimately agree to the outcome of negotiations, but
there is not the same degree of scrutiny as in the EU, where Member State govern-
ments wish to ensure that their own preferences are not adversely affected in any
effort by the Commission as agent to negotiate an outcome. The Member States
representatives therefore monitor the Commission on a real time basis.
The two-level approach provides a very useful general model for assessing the
relative importance of factors shaping outcomes in any case of economic diplo-
macy. One of the benefits is therefore that it incorporates rational and institu-
tional elements in that the win-sets are determined by interests and as well as who
decides on policy or ratification, in other words the institutional factors. The two-
level approach can also incorporate elements of constructivist analysis in the sense
that the actors or negotiators can seek to shape the views of both the principals in
the country with which they are negotiating or their own principals. So it does
not assume that preferences are immutable. But the Putnam model was developed
with economic summits in mind (see Chapter 13, this volume). Negotiations in
summits are arguably more fluid than in many other areas of economic diplomacy,
because the agendas may range across a wide number of topics depending on the
preference of the head of state or government hosting the summit. In many other
negotiations, there are existing regimes that limit the scope and shape the nature
of possible outcomes. In trade negotiations for example, there are the norms and
rules of the WTO or existing commitments.

Factors shaping economic diplomacy 53

The rationalist and domestic/two-level approaches, augmented by constructivist
methods, therefore offer useful tools in analysing economic diplomacy. But there
are some other approaches that help place negotiations in a broader context or help
identify key phases. These are historical and multi-level or multi-forum perspectives
and negotiation analysis that breaks each negotiation down into a number of phases
and thus helps clarify how the relative importance of factors varies over time.
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Historical analysis
Much economic diplomacy is an iterative process extending over a number of
years if not decades. It is therefore necessary to see negotiations in their histori-
cal context. Negotiators sometimes adopt longer-term strategies. If for example,
it is not possible to achieve the negotiating aims they seek in the short-term they
will try to ensure that the topic is at least established on the agenda. There may
be agreements to consider an issue in the future, or difficult questions may be put
off for a future date. This may be associated with efforts to enhance transparency
in the form of information on the national policies of key countries. Such infor-
mation can then provide the basis for concrete negotiations. Agricultural trade
policy illustrates this clearly. For many years, efforts to negotiate agricultural trade
liberalization failed. In the early 1980, those favouring liberalization managed to
get agriculture onto the GATT agenda and at the same time promoted work on
transparency in the OECD. The OECD work, which can be seen as an integral
part of the wider effort to address agricultural trade protection, produced detailed
data on the level of agricultural subsidies for the first time and thus facilitated the
substantive negotiations in the Uruguay Round of the GATT. At the end of that
round, a date was then set (2000) for further negotiations on agriculture, and this
was one of the reasons why the DDA was launched.
Economic negotiations are also shaped by path dependency, in other words the
results of earlier negotiations. Negotiators therefore seldom work from a blank sheet
and often pick up from where they left off the last time. This reduces transaction
costs in the sense that it may only be necessary to adjust the previous preference rather
than start again with a broad consultation process within and with stakeholders out-
side government (see Chapter 4, this volume). Trade agreements again provide some
good illustrations of this. The negotiating position in preferential trade agreements
are very similar, and it is not uncommon for the agreements to include exactly the
same wording. This is also true for bilateral investment treaties (see Chapter 17, this
volume). When assessing a country’s preferences in a PTA negotiation, therefore a
first good approximate is to look at previously negotiated agreements.

Multi-level or multi-forum negotiations
A theoretical starting point for this discussion of multi-level economic diplomacy
is the concept of the BATNA introduced above. If a negotiator is not successful
on one level, she or he will try another provided the BATNA is low, meaning that

54 Stephen Woolcock

there are alternatives. In the illustrative case of multilateral trade there are alterna-
tives: at the bilateral level, where it is easier to calculate the costs and benefits of
any given outcome; at the regional level countries can negotiate with contiguous
countries with which they have probably relatively high levels of economic inter-
dependence; and at the plurilateral level with like-minded countries regardless of
where they are located (Crump, 2009). Chapter 17 provides a detailed illustration
of multi-level economic diplomacy in the case of investment. But it is equally pos-
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sible to illustrate this with the case of the DDA. It may be argued that the DDA
has run into difficulties in part because key participants, such as for example, the
United States, had an alternative to the WTO (a BATNA in the WTO) in the
form of the negotiation of comprehensive preferential agreements.11 As the DDA
faltered in the mid-2000s, there was a general drift towards negotiating prefer-
ential trade agreement (PTAs). When in 2013 there was a broad recognition that
the agenda of the DDA was not achievable, PTAs became the dominant pattern of
trade negotiations. In addition to bilateral PTAs, there were also plurilateral ini-
tiatives, such as the Trade in Services Agreement (TiSA) and the extension of the
Information Technology Agreement (ITA) between like-minded countries, not
to mention the Trans-Pacific Partnership (TPP) and the Transatlantic Trade and
Investment Partnership (TTIP).

Negotiation analysis
Rather than setting negotiations in a broader context, this approach breaks the
whole cycle of negotiation down into a number of phases in order to more eas-
ily identify what shapes each (Devereau, Lawrence and Watkins, 2006; Sebenius,
1992). These phases include the following:

• Framing: this can be seen as defining the main objective of the negotiation or
the problem that needs to be solved. In the DDA, this would be whether it
was really about development or whether it was a more conventional recipro-
cal multilateral trade negotiation. Part of the difficulty in the DDA is that this
question was not clarified at the start.
• Agenda setting: this clearly determines the scope of the negotiation. Agenda
setting is a vital part of any negotiation and will determine whether there is
scope for a balanced agreement. It will involve the addition and subtraction of
issues until the parties believe that there is a prospect for their preferences being
satisfied in a balanced agreement.
• Technical fact-finding: is the stage in which officials will exchange initial ideas
about the shape of a potential agreement. It provides an opportunity for offi-
cials to gather knowledge and information on the substance of the negotiations.
• The negotiations proper: these will perhaps start with an attempt to reach a broad
political agreement including on how more or less balanced concessions can
be achieved. This would normally be conducted by the chief negotiators with
ministerial level negotiations closing out the final deal.

Factors shaping economic diplomacy 55

• Textual negotiations; in economic diplomacy, the devil is often in the detail,
which must be set down in a text. The final text will also determine how
binding the agreement will be. An agreement based on best endeavours word-
ing is less binding than one that includes wording such as the parties ‘shall’ or
‘will’ do or not do something.
• Ratification: this phase can take some considerable time and involves acceptance
of what has been negotiated by the principals and or legislative bodies.
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• Implementation and enforcement: ultimately any agreement must of course be
implemented. This is likely to involve the legislature as legislative acts may be
required to implement the agreement. Given the nature of economic diplo-
macy today a range of regulatory bodies, ministries and agencies are also likely
to be involved in implementing any agreement and the legal system and courts
may be involved.

These are not discrete phases, but each runs into the next. For example, the agenda
or scope of a negotiation is often modified as the parties seek to add or subtract
topics. Inevitably this complicates the negotiation so there is a case for agreeing on
an agenda and sticking to it. But in the case of the DDA and many other economic
negotiations, this has not been the case. The initial agenda from Doha in 2001 was
intentionally ambiguous in order that agreement could be reached to start negotia-
tions, and the first two and half years of the DDA were spent trying to agree on
something more concrete. The wording of an agreement determines the ability
to implement it and thus how difficult it will be to negotiate. Vague best endeav-
ours measures are seldom enforceable so easier to agree to. Finally, the ratification
phase cannot be separated from the negotiations, because negotiators will always
be aware of the need to get what they are negotiating ratified.
Identifying the various phases of a negotiation can help clarify analysis. Vari-
ables will play a more important role in some phases than others. For example,
ideational or constructivist analysis may be more relevant in the framing stage.
Agenda setting often entails issue linkage, and therefore a rationalist approach
may have more explanatory value. In the technical fact-finding stage, negotia-
tions probably offer the best opportunity for persuasion because there is often the
time to do so and views are still being formulated. So constructivist approaches
to analysing the negotiation process are likely to be helpful in this phase. In the
negotiation stage itself, there usually is a combination of bargaining and persua-
sion, whereas when it comes to ratification, it will be institutional approaches that
will tend to be relatively more effective in explaining outcomes.

This chapter has identified some of the relevant theoretical literature for analysis
of economic diplomacy. As such, it provides a toolkit for the reader who wishes
to use the suggested approaches to analyse specific cases of economic diplomacy. It
does not favour any particular approach, but has picked out rational analysis and the

56 Stephen Woolcock

two-level approach as possibly the most useful, even if these need to be augmented
by other theories and perspectives and in particular constructivist approaches. The
chapter has illustrated how these approaches can be applied by drawing on the
case of the Doha Development Agenda negotiations of the WTO and in particular
the agriculture and NAMA issues. It must be stressed that this is only for illustra-
tive purposes. A full analysis would require much more detailed treatment of the
substance, which is beyond the scope and aims of the chapter. Other chapters of the
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book provide further insights into how the theories can be applied, both in general
terms and in the various institutional settings of the United States, China, the EU,
smaller developed and developing economies. Chapters 14 and 17 also illustrate
economic diplomacy at various levels and how these levels interact.

1 It has been suggested that a mid-range theory of economic diplomacy might be devel-
oped based on the analysis of a series of case studies that can be used to test whether gen-
eralizable hypotheses apply in a given set of circumstances (Landau, 2000; Odell, 2000).
2 For a general reading on the Doha Development Agenda, see Jones (2010).
3 Similar attempts to block the launch of the Uruguay Round negotiations of the GATT in
1986 by a group of developing countries led by India and Brazil failed, arguably because
they lacked market power.
4 The literature on global economic institutions is relevant here. See for example for general
readings Kahler (1995), Martin and Simmonds (1998) and for the more recent debates on
reform Lesage et al. (2013) on the IMF and Melendez-Ortiz (2012) on the WTO.
5 The only other possible exception where the legislature has power to authorize is
6 Readers wishing to get to grips with the complexities of the Doha Development Agenda
negotiations can start with the following contributions on different phases of the nego-
tiation: Bayne (2000) on the Seattle negotiations in 1999; Baldwin (2006), Kerremans
(2004), Narlikar (2004), Evenett 2007 and Narlikar and Wilkinson (2004) on the Can-
cun WTO; Ahnlid (2012), Ismail (2008), Odell (2009) and Wolfe (2008, 2009) on the
near-miss negotiations in 2008.
7 In higher value-added agricultural products, the EU has more of a comparative advan-
tage, hence the EU preference for strengthening international rules on Geographic
Indications, which are seen as helpful in promoting the production and exportation of
specialist food and agricultural products.
8 It was taboo because of a belief that PTAs between the major economies would under-
mine multilateralism. This suggests that beliefs, of the benefit of multilateralism over
preferential agreements, shaped policy. See the discussion of ideas and beliefs above.
9 For clarification on this point, if the EU were to reduce domestic subsidies as part of
a PTA with one party, all other agricultural exporters would benefit without having
offered any reciprocal concessions to the EU. So in terms of a reciprocal bargain, this
would not make much sense.
10 There is little doubt that negotiators in economic diplomacy spend as much if not more
time negotiating with domestic interests on what the national position should be and
how to respond to developments in negotiations than they spend at the table in interna-
tional negotiations.
11 From the approval of Trade Promotion Authority for the Bush Administration in 2001,
the US began to actively pursue a policy of ‘competitive liberalization’, which meant
negotiating in whichever forum or whatever level offered the best prospects (Evenett and
Meier, 2008).

Factors shaping economic diplomacy 57

Ahnlid, A. 2012. Improving the Effectiveness of Multilateral Trade Negotiations: A Prac-
tioner’s Perspective on the 2008 WTO Ministerial Meeting. International Negotiation,
17, (1), 65–89.
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Remedies. World Economy, 29, (6), 677–696.
Bayne, N. 2000. Why Did Seattle Fail? Globalization and the Politics of Trade. Government
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Cohen, S. and Volker, P. 2000. The Making of US International Economic Policy: Principles,
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Crump, L. 2009. Linkage Theory and the Global-Multilevel System: Multi, Regional and Bilateral
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Davis, C. L. 2004. International Institutions and Issue Linkage: Building Support for Agri-
cultural Trade Liberalization. American Political Science Review, 98, (1), 153–169.
Devereau, C., Lawrence, R. Z. and Watkins, M. D. 2006. Case Studies in US Trade Negotia-
tions: Making the Rules. Washington, DC: Peterson Institute of International Economics.
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Goldstein, J. et al. 1993. Ideas and Foreign Policy: Beliefs, Institutions and Political Change.
Ithaca, NY: Cornell University Press.
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84, (4), 833–850.
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ton, DC: The Brookings Institution Press.
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58 Stephen Woolcock

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Nicholas Bayne

This chapter examines the practice of economic diplomacy, concentrating on
what is done by national governments. While it chiefly explains domestic decision-
making, it also looks at how this interacts with international negotiation. The
chapter identifies the main public sector participants: permanent officials or
bureaucrats; ministers and heads of government; autonomous regulators; and
members of legislatures. It also notes key private sector players, like business firms
and civil society non-governmental organizations (NGOs), though these will get
fuller treatment in Chapters 5 and 6. The chapter develops a narrative of the stan-
dard sequence of domestic decision-making in government, showing how this
dovetails with the international process. It indicates in places how national varia-
tions affect the process, though this too will be covered in later Chapters 7–12.
The chapter will be illustrated by case studies, starting with the Canadian fish-
eries crisis of 1995. Later studies look at financial services in the World Trade
Organization (WTO); debt relief for poor countries; and macroeconomic ten-
sions in the Eurozone. In telling these stories I shall draw on my own profes-
sional experience and my later observation of economic diplomacy, more than the
researches of others. In conclusion, I shall suggest how far the three main theoreti-
cal approaches – constructivism, rationalism and the two-level game metaphor –
help to explain how the process works.

The Canadian fisheries crisis
The Grand Banks off Newfoundland in the North Atlantic were famous for cen-
turies for their inexhaustible stocks of cod and other fish, which attracted fishing
fleets from far and wide. But in the late 20th century the stocks became seriously
over-fished. The UN Treaty on the Law of the Sea enabled states to declare the sea
up to 200 nautical miles off their coasts to be an Exclusive Economic Zone (EEZ).

The Canadians proposed an increase in fish quotas in return for tight discipline on the fishermen. Abruptly. could see how this would damage Can- ada’s wider interests. saw a chance to impose stricter discipline. Terms were agreed and referred back to capitals. fisheries were under European Union competence. They proposed negotiations to the European Commission. Tobin instructed the Canadian coastguard to arrest a Spanish trawler. The Spanish Navy sent a warship to protect its trawlers. I had good contacts with Chrétien’s diplomatic adviser and advised him to try again for a negotiated solution. They also agreed minimum mesh sizes for nets. However. 60 Nicholas Bayne Canada used this to ban foreign trawlers from the Grand Banks. in international waters and tow it into a port in Newfoundland. A differ- ent approach was needed to avert conflict. Here too Spanish fishermen persis- tently broke the rules. so that the European Commis- sion represented the EU in NAFO and agreed to the rules all member states had to observe. led by Jean Chrétien. to protect immature fish. as by then the agreement would be tied up. He told his wife: ‘I’m starting a war with Spain tomorrow morning’ (Chrétien 2007). I urged him to get the arrest put off by a day. However. especially Downloaded by [University of California. but to no effect. Finally. which gave Tobin evidence that Spanish fishermen were cheating. with Brian Tobin as Fisheries Minister. but they still condemned Canadian piracy and portrayed the whole EU as backing Spain. or face the consequences. Naturally. the Estai. But the Estai’s net was found to have much too small a mesh. including Chrétien’s diplomatic adviser. Canada demanded that European trawlers stop fishing just outside its EEZ. Other fishing nations.1 The UK had everything to lose from a breakdown in Canada’s relations with Europe. Spain and the whole EU denounced Canada for piracy on the high seas. whatever the Commission might have agreed. San Diego] at 17:59 07 January 2017 turbot. causing great hardship to the fishermen of Atlantic Canada. Canada became convinced that Spanish trawlers were not keeping the rules. through the North-West Atlantic Fisheries Organisation (NAFO). the Canadian Navy likewise moved in. the European Union (EU) refused. But pub- licly supporting Canada against Spain would not solve the problem. to be endorsed over the next 24 hours. They were determined to bring discipline to the Grand Banks. Canada suspended all fishing in its EEZ for cod and two other species. Fortunately. Yet not all Europeans were happy either. Then Chrétien’s adviser called me with fatal news: another trawler would be arrested next morning. For a full year. yet the stocks did not recover. Canada tried to restrain fishing in these areas too. Ireland and the UK. three areas of the Grand Banks were in international waters. so that the Spanish were isolated. This gained support in Brussels. Its members undertook to suspend fish- ing for the three target species and set quotas for other commercial fish. I was then the British Government’s representative in Canada. The largest European fleet visiting the Grand Banks came from Spain. a new Canadian government took office. So from 1992. The EU had its own regime for conserving fish stocks in European waters. outside the EEZ. The Department of Foreign Affairs and Trade (DFAIT). Chrétien was . In 1993. Prime Minister Chrétien agreed that Tobin could arrest a second trawler. Tobin negotiated in NAFO with the Commission to get the rules observed. like France. not everyone in Canada favoured war with Spain. which went on fishing.

all European governments. They defend the interests of both the government at large and their parent ministry. • Autonomous regulators. • Members of legislatures. In the EU. setting aside all wider issues. As the day passed. The relative importance of different players has changed over time. Canada and Spain never went to war (Bartleman 2005). starting with the three tensions. A peaceful outcome required shifts within the decision-making process in Canada and the EU. for formal decision by ministers. Once the EU resumed negotiations with Canada. He revealed to me that another arrest was planned. Spain was obliged to accept the majority view. including heads of government. Both governments gave in to pressure from private lobbies. Western countries had maintained political unity against the Soviet threat. Government officials Officials are the professionals of economic diplomacy. accepted the agreement. The players in economic diplomacy The core of this chapter will analyse domestic decision-making in terms of a sequence of actions. or bureaucrats in American usage. thanks to the adoption of the new strategy explained in Chapter 2. I explained the prospects in Brussels. even Spain. but still form the largest single group conducting economic diplomacy in international contexts. the fishing communities in Newfoundland and Galicia. Economic diplomacy in practice 61 persuaded to do this. • Ministers. that is politicians. civil society NGOs and other private sector actors. but then reacted against the predatory behaviour of Spanish fishermen. Even this would not have been enough without the trust established between Chrétien’s adviser and myself. They recommend govern- ment policy. it is necessary to introduce the principal players. but that restraint no longer applied. they may dis- agree with colleagues from other departments and feel more affinity with their . • Commercial firms. This episode illustrates many aspects of economic diplomacy to be explored in this chapter. These break down into five groups: • Government officials. Ministers and non- state actors have generally become more influential. conflict seemed inevitable. In Canada. To make sense of this sequence. Both Canada and Spain gave absolute priority to domestic interests over their international Downloaded by [University of California. With the three tensions unreconciled. so that he knew a brief delay would enable good sense to prevail. other member states at first condemned Canada’s piracy. so that economic disputes were never pressed to the limit. Officials have lost ground in comparison. in time for me to argue against it. In the process. During the Cold War. Between us we ensured a peaceful outcome and avoided conflict. San Diego] at 17:59 07 January 2017 obligations. the DFAIT won back enough initiative from the Fisheries Ministry to work for a negotiated settlement. This gave each of us a vital window on the decision-making of the other.

This stage of a negotiation is often the most sensitive and attracts most attention from the media. as they know that open breaches are harder to resolve. Ministers will aim to look good: they will not want to appear as the only obstacle to an agreement that is widely welcomed. Yet sending governments face a dilemma. But when they have decided to introduce economic reforms for their own reasons. so that an alert economic diplomat can exploit interdepartmental tensions to produce a change of position. They like to work in the open and attract favourable publicity. trade ministries. The international negotiating table may not be the best place to detect these divisions. They come to understand and trust each other. Downloaded by [University of California. They will prefer agree- ment to discord. 62 Nicholas Bayne counterparts from the same ministry in other countries. Ministers and heads of government Ministers have greater authority than officials. These contacts often reveal how differences can be bridged. especially when the reforms are painful. but are sensitive to media criticism. which meant they would happily tell me things that the foreign ministry wanted to conceal. the better their understand- ing and range of contacts. as a British economic diplomat in Paris back in the 1970s. After officials have taken things as far as they can. The longer economic diplomats stay in post. Heads of government have even more authority through their wider responsibil- ity. private firms and advo- cacy groups. So governments maintain resident missions in their main economic partners. Ministers and heads of government are jealous of their authority. to get closer to the domestic process they seek to exploit. some countries are more disciplined than others. National positions in economic diplomacy are usually a compromise between the views of interested ministries. For example. more influenced by the country where they are than by the government that sent them. But they risk ‘going native’. and where disputes occur. my closest contacts were with finance ministry officials. Alert ministers can exploit this in persuading their foreign counterparts to sign up. It is even better if . They favour clear decisions and do not fear controversy if this could advance their interests. another method is to exploit bureaucratic divisions. They will not want to be adopting policies as a result of outside pressure. that looks weak and attracts criticism. Many officials engaged in economic diplomacy spend long hours in international negotiations and get to know their foreign counterparts very well. thanks to their popular mandate. which makes them open to persuasion. Economic diplomats in embassies thus mainly deal not with foreign minis- tries. Ministers differ from officials in being competitive rather than conciliatory. San Diego] at 17:59 07 January 2017 If persuasion does not suffice. they will seek to settle them privately. but with treasuries and central banks. ministers come in to resolve the outstanding points and give their authority to the result. it can be useful for them to show how similar policies are being introduced by others. They were then engaged in a power struggle with the foreign ministry. In practice. that is.2 Ministers and heads of government usually intervene at the final stage of inter- national negotiations.

In parliamentary systems. American negotiators regularly give ‘Congress would not accept it’ as the reason for rejecting a proposal. with clear limits. Autonomous regulators The players examined so far are involved in all kinds of diplomacy. One common way of winning over a legislature is by side payments. that is by parallel measures that compensate for the disadvantages that are thought to flow from the agreement. Food safety agencies. like Britain and Canada. are especially influential in economic diplomacy. gives more indepen- dent powers to Congress. with direct impact on international negotiations. The US constitution. The prospects for business firms . so that they can take effect. While other state and non-state actors are often susceptible to inter- national influences. These tactics exploit international factors to advance domestic decisions. These features can make regulators very powerful players in their own field. The second is their narrow focus. Satisfying reluctant legislatures can be one of the hardest problems in economic diplomacy. They usually have a precise range of responsibility and are disinclined to take account of wider issues outside this range. which are predominantly domestic. for example. however. congressmen and other legislators have to ratify formal commitments made in economic diplomacy. San Diego] at 17:59 07 January 2017 They are seldom at the international negotiating table. Central banks and financial regulators lead in monetary and banking issues (Davies and Green 2008). But it is not easy to have such side payments up one’s sleeve. The first is their independence. But they are often reluctant to cooper- ate with other actors. feature in trade negotiations. ministers on legislatures and legislators on the electorate. They focus on the concerns of their electors. legislatures generally are not. are deliberately made independent so that they can resist political pressures to relax unpopular measures. autonomous regulators. Downloaded by [University of California. other countries will hold back in multilateral trade negotiations unless the US Congress has bound itself not to amend the results. Members of legislatures Members of parliament. and are suspicious of com- plex open-ended arrangements. senators. Regulators have two salient features. They prefer simple deals. Economic diplomacy in practice 63 they can show that their policy changes will stimulate helpful actions by others. for example. legislators usually endorse whatever ministers decide. but their concurrence is essential. The next group. but they are as important as the state actors. Officials depend on ministers. but central banks. it is hard to correct them. Private sector players Private business groups and civil society NGOs are not usually at the negotiating table. except for other regulators. For example. Once they are launched in the wrong direction.

This sequential treatment is deliberately simplified. which can go around the same course several times. 7 Ratification of Agreement (legislatures). 64 Nicholas Bayne are directly affected by the measures adopted. the lead usually goes to the home department responsible for the policy . The sequence may well have to be repeated. in whole or part. Despite these points in common. 4 Political Authority (ministers). in obstructive or violent demonstrations. however. at least in developed coun- tries. Taking the Lead The first stage in the domestic sequence is to identify the lead department for the subject in question. Business groups prefer to exert pressure behind the scenes and Downloaded by [University of California. often start with public campaigns to win popular support and therefore actively stimulate publicity. Civil society NGOs can be passionately committed to their causes and adopt all conceivable means to advance them. by contrast. They can mobilize substantial resources. whose minister will answer in the legislature and whose bud- get will bear any costs. with the main actors identified in brackets: 1 Taking the Lead (officials and ministers). 3 Internal Coordination (officials and regulators). Both groups do their utmost to get governments to support their objectives. 1. 2 External Consultation (officials and private sector players). not in succession. while financial market reactions can determine if they will work or not. San Diego] at 17:59 07 January 2017 do not seek publicity. It is an iterative and cyclical activity. Civil society NGOs. as decision-making proceeds. Some will go to the limits of the law. But most use a strategy that combines public pressure with persuasion behind the scenes. Economic diplomacy is rarely a linear process. either because of new domestic devel- opments or because of its interaction with international negotiations. In economic diplomacy. business and civil society usually follow dif- ferent strategies. 6 International Negotiation (officials and ministers). Some of the stages may happen simultaneously. In political diplomacy the lead department is almost always the foreign ministry. The standard domestic sequence This part of the chapter examines the process of decision-making by governments in economic diplomacy. They can often obtain access at the highest political level. for example to pay for research that supports their case. 5 Democratic Legitimization (legislatures). This is the department whose members will conduct interna- tional negotiations. or even beyond it. They often form transnational coalitions. more easily than national governments can. It analyses this process as a sequence of seven stages.

In many countries. There is no single formula for allocating the lead in international trade negotia- tions. whose office is an agency of the White House. Downloaded by [University of California. But the main-line departments can be demoralised because their skills and expertise are wasted. Farmers want . becomes the subject of international concern. Sometimes a department will try to take the lead from the traditional holder of a subject. and internal coordination. Wal- lace and others 2015). This principle is not greatly affected by the growth in the subject-matter of economic diplomacy produced by globalization. yet this rarely succeeds without political backing from the head of government. and the EU Trade Commissioner. through nationwide industry confederations. while the presidential staffs become overloaded. integrate responsibility for foreign affairs and international trade in a single department. External consultation Once chosen. Both processes interact on one another. in turn. like Japan. the lead department launches two parallel processes: external con- sultation. External consultation has become much more influential since the adoption of the new strategy for economic diplomacy. with actors outside government. This can often improve the speed of decision-making and over- come bureaucratic blockages. the environment ministry and so on. Small firms may have different interests from large firms. while others. to get the views of those whose livelihood is directly affected and to test how their policy ideas would be regarded by the markets. as with the sanctions imposed on Russia after its annexation of Ukraine. G7 and G20 summits are prepared by small teams led by a ‘sherpa’. This is because it channels the intelligence and advice provided by diplomatic missions that are often vital to international agreements. like Brazil. it goes to the department responsible for industry or economics. the foreign ministry remains a key player even if it is not in the lead. there will normally be a home department already available to take the lead. is usually well-organized to put across its views. which are on the borderline between external and domestic policy. The United States and European Union each entrust trade negotiations to a separate body: the US Trade Representative (USTR). In other areas. backed by Directorate General Trade (DG Trade) of the Commission (Destler 2005. Economic diplomacy in practice 65 area: the finance ministry. who can invoke the authority of the head of government to make things happen. The growing role of summitry in economic diplomacy has meant that heads of government may take the lead themselves in specific subjects and entrust respon- sibility to their own staffs. The pressure from business may be in conflicting direc- tions. with other government departments and agencies. Business. When a domestic policy subject. like employment or education. But some. Canada and Australia. give the lead to the foreign ministry. Departments habitually consult business interests. sectoral associations or individual firms (see Chapter 6). 2. San Diego] at 17:59 07 January 2017 The foreign ministry gets the lead in economic diplomacy when it is being used for political purposes.

But the division responsible for the textile industry may want to keep the barriers up. They may be vocal and committed. an academic at the University of Michigan. San Diego] at 17:59 07 January 2017 ing. the ideas behind the conversion of the General Agreement on Tariffs and Trade (GATT) into the WTO came from Professor John Jackson. the division responsible for trade negotiations in the WTO may be keen to see trade barriers come down. in the lead. Where foreign affairs and interna- tional trade are handled by the same department. while they are often opposed to business interests as well. Internal coordination The purpose of internal coordination is to get a view agreed across the whole of government. NGOs can be powerful and articulate advocates: the environment lobby has captured govern- ment policy in several countries and even moved into politics as ‘green parties’. In many areas. the depart- ment responsible for environment policy. Academic experts can be very influential.3 All these actors – business. that is. Civil 20 (for NGOs) and Think 20 (for academics). The G20 summit is now ringed by a B20 (for business). In econom- ics ministries. environment and consumer interests (see Chapter 5). but the food-processing industry wants input prices kept low. though their impact is declin- Downloaded by [University of California. But even in a more precise field. Departments consult expert opinion. This particularly applies to agri- cultural lobbies worldwide and to the financial services sector in many countries during the run-up to the recent crisis. would consult ministries . But NGOs usually become active because they are not content with the line being taken by government. For example. like the Inter-governmental Panel on Climate Change. at official level. Government therefore has to be cautious in engaging them. A complex negotiation. 66 Nicholas Bayne high prices for their produce. but only represent a minority view in the country at large. greater influence is exercised by advocacy groups and charities. which mobilizes the best scientific advice. These include labour unions. so that there is tension between international and domestic pressures. Departments increasingly consult a wide range of non-profit bodies. industry and services. the ministry must reconcile its political and economic objectives. NGOs and experts – will not just put their views to governments in the domestic decision-making process. The lead ministry next seeks to convince the other departments concerned to adopt its view. there are established channels for this. so that departments cannot carry all the necessary expertise in-house. especially in development. like a multilateral trade round cov- ering agriculture. Issues in economic diplomacy are often complex and technical. so that they become dependent. for example. Some business sectors have been notoriously successful in ‘capturing’ departments. civil society NGOs. including academics and think-tanks devoted to policy issues. as in Brazil. can involve almost every government department. such as climate change. but seek to influence international negotiations directly. among others (Hajnal 2014). The first step in this process is for the lead depart- ment to decide its own strategy and resolve any internal differences. 3.

No department will obtain all its objectives. This especially affects the European Union. these will be resolved at meetings of officials. NGOs. so that all parts of government say the same thing. The energy industries. since greater transparency is another favoured strategy in the new economic diplomacy. Sometimes the responsible bod- ies are at sub-national level in federal systems. public bodies outside central government have become an essential part of the coordination process. Most other governments have com- parable bodies. it may become very hard to adjust it during negotiation. This is another tricky decision for gov- ernment. Each would have their departmental concerns: the economics ministry with the opportunities and costs for business. In a straightforward case. Their federal structure and use of political appointments to senior official posts makes them prone to ‘turf battles’ of this kind. academics and others. finance. San Diego] at 17:59 07 January 2017 In many subjects. and the foreign ministry with wider foreign policy implications. others will seek to profit from their disunity. development and foreign affairs. and they have now become lead authorities in financial regulation. Once agreement is reached. the support of the media will be very important later . As part of the coordination process. called and chaired either by the lead department or by a neutral body. Any interdepartmental agreement on the negotiating position will typically be a compromise.4 Yet strict discipline also has its downside. the Cabinet Office often serves as neutral chair and secretariat in economic diplomacy. but each will have to adapt or abandon some. This gives strength to a negotiating position and contributes greatly to effective economic diplomacy. the finance ministry with value for money. This puts countries like Germany and the United States at a disadvantage. as well as in finance. that often the European decision-making process will have exhausted any flexibility the EU negotiator might hope to have (EU economic diplomacy is explained further in Chapter 10). health and environmental safety. Each ministry would have their own contacts with outside forces – business. the lead department invites the others to agree a com- mon position by correspondence. Autonomous regulators are key play- ers in food. The increasing role of these independent agencies can sometimes complicate decision-making from their reluctance to consider factors outside their own narrowly defined remit. Where countries cannot achieve interdepartmental discipline. On the one hand. the lead department will seek to agree a line on how to involve the media. Central banks have always been involved in international monetary matters. If agreement has been reached only with difficulty on a position which all can defend. departments should give up those ambitions which are not covered by the agreed position. In the United Kingdom. Where views conflict. the development ministry with the impact on poor countries. Economic diplomacy in practice 67 of economics. Finding a common position among the Commission Directorates General and 28 member states is so laborious. Thus state insurance regulators in the United States and food safety authorities in the German Läender get involved in economic diplomacy. for exam- ple. would be closer to the economics ministry than to the environment ministry. Downloaded by [University of California.

In par- ticular. This chapter has so far ana- lysed ongoing economic diplomacy. officials submit their work to ministers for endorse- ment. a decision by ministers or the head of govern- ment settles the matter. 5. which gives its .5 The second activity for ministers involves settling disputes. in the United Kingdom. But ministers may decide to launch new policies and intervene themselves much earlier in the sequence. when so much information is available on the internet. there is a system of Cabinet Office ministerial committees. As a minimum requirement. Their time is precious. Where disagreement persists even after ministerial discussion. This involves a report to the elected legislature. Ministers will have different criteria for judgment from their officials and will be more responsive to parliamentary and popular pres- sures. The traditional practice was to brief trusted contacts unattributably: they would get the information and could publish it. But in democracies a further process is required. to resolve matters and act as arbiter. Democratic legitimization In non-democratic governments. it may be harder to change it later in the course of negotiation. and departments will try their utmost to settle matters without involving them. permanent officials have largely driven the process. to give it political authority. not waiting to be invoked as arbiter. to get popular backing for any international agreement reached. However. however. The third activity consists of ministerial initiative. where ministerial authority is sought only after the treatment of an existing issue by officials. So it is worth preparing the media in advance. This can be broken down into three distinct activities. then heads of government gets involved. If officials have agreed a position. but should not attribute it to the government or present it as a fixed position. while keeping some negotiating flexibility. then usually simple ministerial endorsement can be obtained by the lead minister writing to his colleagues or reporting in Cabinet. heads of government can use their authority to drive forward issues. The next stage raises the process to the political level and involves ministers. and the leaking of classified documents is Downloaded by [University of California. Most governments have machinery for this purpose. San Diego] at 17:59 07 January 2017 so prevalent. to give legitimacy to the government’s agreed position and to satisfy its accountability to its electorate. Officials may be unable to agree. The greater involvement of ministers is another aspect of the favoured strategy in the new economic diplomacy. or ministers may not agree with their officials’ advice. 4. But if the government’s position becomes pub- licly known at this early stage. In that case ministers themselves have to meet. 68 Nicholas Bayne on. it becomes ever harder for governments to satisfy the media. for example. Political decision In the account given so far.

For example. rural constituencies often carry greater weight in electoral arithme- tic than their populations would justify. The government announces its position formally and takes responsibility for it. environmental NGOs and labour unions have also gained ground. But electoral politics depends on history and convention. Japan. Thus non-state actors. Economic diplomacy in practice 69 endorsement of the government’s decision. Under President Obama. the international negotiator . at the domestic level there will be constant iteration of the earlier stages. often daily. will try to influence gov- ernment decisions through parliament and the media too. multinational firms have extensive opportunities to feed in their views and see them reflected in policy. Another method is to give greater political weight to the bureaucracy. rather than logic. as already noted. the elected bodies could be involved much earlier. As negotiations proceed. Agreement in agricultural negotiations is always difficult. rather than by permanent bureaucrats. notably in the United States. While this is the heart of the interna- tional process. which must Downloaded by [University of California. If the domestic decision-making process is complex. the government relies on the support of the ruling party or parties. there is not the clear distinction between ministers and officials as is found elsewhere. like business and NGOs. especially in the United States. In countries with par- liamentary systems this usually comes late in the sequence of economic diplomacy. the senior levels in each department are filled by political appointees chosen for their links with the administration in power. Democratic legitimization brings in the players in economic diplomacy that are most focused on domestic politics. The United States Congress has very wide powers in economic diplomacy. To win the authorizing vote in the legislature. and even involvement of the legislature. The administration has to work hard to mobilize international arguments to offset the domestic pressures at work. The proceedings in the legislature will usually be accompanied by formal statements and briefing material intended to be used by media. This tends to make relations between departments competitive. India and many other countries determined to resist any international mea- sures that would damage their farmers. One method is to intensify external consultations. renewal of political authority at key stages. This has made the United States. In the United States. 6. But elsewhere. The reactions of parliament and the media will have a stronger impact on ministers than on offi- cials. there will be frequent internal coordination. As a result. In addition to the ministers of cabinet rank. France. regular external consultation. so that interdepartmental discipline is weak and the White House often has to intervene to resolve ‘turf battles’. San Diego] at 17:59 07 January 2017 be convinced that the decision will have a positive impact on their electoral posi- tion. International negotiation The government is now ready to negotiate. often by a vote. in addition to direct contacts with officials. even when all the economic arguments justify it (see Chapter 9).

Negotiations for a financial services agreement. Even with these precau- tions. or vice versa. ratification completes the domestic sequence. wanted an agreement for its own sake. Sometimes these may be formal precautions. partly because of differences between the European and American governments. had been suspended for lack of progress. San Diego] at 17:59 07 January 2017 repeating all the earlier stages. But the GATS only provided a framework. The lead department negotiator reports to the other departments concerned and seeks their concurrence. The lead minister briefs other Cabinet colleagues. 70 Nicholas Bayne will have very little ‘agent slack’. to re-confirm the earlier political authority. covering banking. Skilful international negotiators will adjust their tactics in anticipation of any problems with ratification and even seek to turn them to their advantage (Putnam 1988). which needed to be filled with commitments taken by WTO members in specific services sectors. for the first time. It laid down. in different combinations. 7. This involves formally Downloaded by [University of California. multilateral rules for trade in services and techniques for removing barriers. The government launches a media campaign to ensure the agreement wins public acceptance. insurance and related activities. The agreement is reported to parliament and often legislation will be introduced so that the govern- ment can meet the commitments it has taken. that is capacity to take action without explicit authority from back home. all negotiators are taking a gamble when they return to seek ratification for what they have agreed. These involve all the key players. The EU. Ratification of agreement When the negotiation has run its course and international agreement has been reached. A key sector was financial ser- vices. CASE STUDY I: FINANCIAL SERVICES IN THE WTO The next section of this chapter consists of three case studies in finance and debt. The General Agreement on Trade in Services (GATS) took effect in 1995 as part of the WTO. since there was no international regime in this area. The . The first case study brings out the influence of the private business sector. however. however. which means that Congress can either endorse or reject an agree- ment. Governments will therefore take precautions in advance to avoid this danger. including the United Kingdom. They illustrate the domestic decision-making process and show how it can be exploited to promote international agreement. as when the US administration seeks advance authority for trade negotiations. No government wants to find that the agreement it has struck internation- ally comes apart at this ratification stage. but cannot amend its provisions.

it was British Invisibles (BI). rather than actively making them better. Domestic lobbying . Our private sector groups had hoped that India would end its domestic monopoly in insurance. In the United Kingdom.7 This was presented to the US and EU delegations in Geneva and became the basis for their agreed negotiating strategy. Having squared our own governments. American and European firms and trade associations pooled their knowledge and drafted a ‘Common List of Barriers to Financial Services Trade’ in 21 target countries. We knew that our tar- get countries were debating internally how to mobilize foreign investment to transform their economies and benefit from globalization. and I became the chair of their Liberalisation of Trade in Services Committee (LOTIS) after I left the Foreign Service. We decided to produce a list of obstacles to banking and insur- ance business that we wanted to see removed.6 My British committee and other European bodies struck an alliance with the Americans. We lob- bied their delegations in Geneva and sent missions to capitals. on the basis that we all supported an agreement provided it really improved market access. LOTIS and the other private sec- tor groups shifted our attention to selected developing countries. the key group was the Coalition of Service Industries (CSI). The WTO negotiations failed to make progress on this. This result could never have been concluded without the private sector’s involvement behind the scenes (Dobson and Jac- quet 1998). San Diego] at 17:59 07 January 2017 groups representing the private business sector. However. in that all our tar- get countries made commitments. We used the international negotiations to influence these debates. because many of these regimes had been liberalized during five years of negotiations. Involving the private sector The American and European governments relied heavily on advice from Downloaded by [University of California. Admittedly. But Western insur- ance firms convinced the powerful Confederation of Indian Industry (CII) that their member firms needed the advanced services that foreign insur- ers could provide but Indian companies could not. to explain the advantages of open markets in financial services. Yet even this was worth having. In the United States. India and China This case study also reveals the contrasting economic diplomacy of India and China. Economic diplomacy in practice 71 United States would accept an agreement only if it gave access to new mar- kets in developing countries. which then excluded all foreign firms. It met the objectives of my LOTIS members. many developing countries hesitated to commit themselves. The WTO financial services agreement was successfully concluded in December 1997. most undertook not to make their existing regimes worse.

San Diego] at 17:59 07 January 2017 achieved in 2001. But relief on debts owed to institutions like the International Monetary Fund (IMF) and World Bank only became available in 1996 under the Heavily Indebted Poor Countries (HIPC) programme (Bayne 2005: 26–31). This proportion went up to half at London (1991) and two-thirds at Naples (1994). This campaign targeted the summits as likely to be recep- tive to their approaches. which agreed relief on one-third of poor countries’ debts to governments. because finance ministers and their officials were instinctively disposed to insist that debts be repaid in full. legislatures and heads of government. These mainly took place between finance ministers and their officials under the auspices of the IMF and World Bank. Canada and the United Kingdom first raised the subject at the 1988 Toronto summit. faith groups and other NGOs. New moves began to appear in 2015. . through China’s partici- pation in the WTO Information Technology Agreement and the negotiation of bilateral investment treaties with the United States and EU (Mitchell 2015). as discussed at the G7 and G8 summits. During its first decade in the WTO China was digesting the measures taken to secure entry. It is more likely to pursue economic reforms for purely domestic reasons. as the United States and Italy were won over. where American and European firms again gave joint advice to their governments and the European Commission. CASE STUDY II: DEBT RELIEF FOR LOW-INCOME COUNTRIES The second case study focuses on debt relief for poor countries. It singles out three episodes that bring out the role of NGOs. finally Downloaded by [University of California. where heads of government were more open to moral and humanitarian arguments. there were periodic negotiations on relieving the debts owed by poor countries to governments and international institutions. after it had resisted international pressure. 72 Nicholas Bayne from the CII caused the Indian government to relax the insurance monop- oly. In contrast to India. though often finds it difficult to overcome entrenched local interests China was then negotiating the terms of its WTO membership. Premier Zhu Rongji was using the international negotia- tions to drive extensive domestic reforms in the Chinese economy. France. But these negotiations often broke down. The issue would therefore come up to summit level. Resistance to external pressure has been a feature of India’s international trade policy (Efstatho- poulos 2015). grouped as the Jubilee 2000 campaign (Dent and Peters 1999). the Chinese government welcomed external pressure. though some G7 members were more receptive than others. Over nearly two decades. Debt relief motivated a wide coalition of charities. These included the financial services sector.

San Diego] at 17:59 07 January 2017 though disappointed. In fact. with elections due before then. There was now complete forgive- ness of debt to governments and greater. as Germany and Japan resisted. By 2002 this fund needed another $1 billion. Congress had already voted $10 billion for a programme to help clean up nuclear and chemical weapons in Russia. . Blair was then very close to Schroeder and tipped him off about what was happening. British Prime Minister Tony Blair wanted to make the HIPC regime more generous and quicker to take effect. The strategy exceeded expectations: Schroeder was elected Federal Chancellor and declared that Germany’s approach would be much more generous. Bush wanted the rest of the G7 to put up a matching $10 billion. How could Congress be brought around? The issue came to the Kananaskis G8 summit. Yet the German finance ministry were not convinced and continued to drag their feet. Japan followed suit. the opposition leader. to avoid isolation. now targeted Germany as chair of the next summit. At the summit. because Congress would not authorize its contribution. This was the sort of cross-issue deal that can be struck at summits. The next intervention came at head of government level. who was already causing problems. so that the other G7 members announced their matching pledge. Thereafter debt relief ran smoothly and the 1999 Cologne summit greatly improved the regime for poor countries.5 billion trust fund. Postcards in German arguing for better debt relief flooded into the finance ministry and the offices of Chancellor Helmut Kohl and Gerhard Schroeder. which offered a solution. Birmingham made little progress. The 2002 summit Relief on World Bank debt was financed through a $2. relief on debt owed to the IMF and World Bank (Bayne 2005: 69–74). The Jubilee 2000 campaign had the same goal and surrounded the summit site with a large peaceful demonstration. though still partial. Oskar Lafontaine. Schroeder shifted responsibility for debt relief from the finance ministry to his own Chancellery team and took the opportunity to remove his finance minister. The NGOs’ intervention had been highly effective (Economist 1999). but were finding the Russians obstructive at domestic level. Congress then readily agreed the US contribution to the World Bank trust fund. who undertook to remove the obstacles. It gave Bush a side payment that he could use with Congress (Bayne 2005: 130–133). contributed by G7 and other countries. They were ready to do this. Downloaded by [University of California. All the G7 agreed to chip in except the US. The Jubilee campaigners. Bush spoke directly to President Vladimir Putin. Economic diplomacy in practice 73 The 1998 and 1999 summits At the first G8 summit at Birmingham in 1998.

as none wished to be identified as the obstacle to this far-reaching agreement. 74 Nicholas Bayne The 2005 summit The final stage in debt relief came at the 2005 G8 summit at Gleneagles. trade access and debt relief for Africa. but this discipline was not always respected. Each of them gave their assent. For the heads of government. A new debt package. So Blair appealed personally to Bush. was agreed in advance. CASE STUDY III: MACROECONOMIC TENSIONS IN THE EUROZONE The earlier case studies in this chapter were clear-cut and ended with a suc- cessful resolution. In the early 2000s. with complete relief on debts to institu- Downloaded by [University of California. The problems in the Eurozone were much more complex and show how economic diplomacy can go wrong (Saccomanni 2016). Monetary policy in the Eurozone was wholly collective. so that Greece could borrow almost as cheaply as Germany. as in Spain and Ireland. The agenda focused on aid policy. or imports. Some countries borrowed heavily to finance housing. Germany and Japan would not agree to an increase in total aid of $50 billion a year by 2010. which generated strong public interest. but the target for aid volume remained con- tentious as the summit met. From the outset Eurozone members were required to keep government debt to 60 per cent of gross domestic product (GDP) and annual budget deficits to 3 per cent of GDP. subject to certain common rules. the United States. even by Germany (Hodson 2015: 170–175). it was the wide publicity gener- ated by this issue that caused them to overrule the more technical reserva- tions of their officials (Bayne 2007: 263–280). At official level. but fiscal policy was conducted nationally. The summit again attracted a massive NGO campaign. It contained no provisions for rescuing countries in difficulty and the ECB was forbidden to finance Eurozone governments directly. Eurozone interest rates converged. as in Portugal . San Diego] at 17:59 07 January 2017 tions. once more chaired by Tony Blair. with the slogan ‘Make Poverty History’.8 The founding treaty intended the union to be permanent and did not envisage countries leaving it. with half going to Africa. Schro- eder and Prime Minister Junichiro Koizumi of Japan. Foundations of the Eurozone In 1999 a majority of EU member states (now 19 out of 28) launched a monetary union – the Eurozone – managed by the independent Euro- pean Central Bank (ECB) and using the euro as its common currency.

provided it adopted strict corrective policies to restore solvency. The IMF promised finance in support of the EFSF. but the Eurozone at first survived better than the United States or United Kingdom. The crisis was only checked in mid-2012 when the ECB announced that it would buy the bonds of any Eurozone state in trouble without limit. But their gamble failed. Dur- ing months of fruitless negotiation. This pledge was never tested. The Eurozone members introduced special stimulus measures to counter the recession. The other Eurozone mem- bers. Economic diplomacy in practice 75 and Greece (Coggan 2011). ECB and IMF jointly ensured that the corrective actions were carried out. thanks to prompt action by the ECB (Davies and Green 2010). so that a new European Financial Stability Facility (EFSF) was prepared at short notice. the Greek economy went backwards until the government ran out of funds. This debt formed part of the financial bubble that burst in 2008. which it could not finance unaided. San Diego] at 17:59 07 January 2017 The Greek crisis and its consequences Late in 2009 Greece announced that its budget deficit had swollen to 13 per cent of GDP. but once growth resumed. since their governments could not raise the funds. This turned the markets against any Eurozone country that looked vulnerable. Capital flowed back into the banks. but had the required effect. were reluctant to help. These measures restored calm and the temporary EFSF was converted into the permanent European Stabil- ity Mechanism (ESM). They believed that their European creditors would provide further finance without conditions in order to prevent Greece leaving the Eurozone. It was forced to introduce capital controls and accept a third rescue package with conditions as onerous as before (Hodson 2015: 175–180). Greek banks needed new capital. An initial loan to Greece was considered by the financial markets too small to avoid a default. so that the Commission. the strict fiscal ratios were restored. which were underpinned by a new ‘banking union’. But Germany insisted that private holders of govern- ment debt must share the cost of any ESM rescue. Both Ireland and Portugal soon needed rescue packages. Greece was still in trouble and a second rescue package was assembled. led by Germany. Even Greece seemed to be making progress. which required private bondholders to accept a 50 per cent write-down of their debts. Spain and Cyprus needed ESM finance to rescue their banks. provided it accepted a correc- tive programme. Downloaded by [University of California. . This would provide loans to any Eurozone state in trouble. Ireland and Portugal came out of their rescue programmes. Other coun- tries like Italy and Slovenia were also looking vulnerable. until the left-wing Syriza party came to power early in 2015 on an anti-austerity platform. with strict con- ditions attached. while pressure grew on banks elsewhere.

the Commis- sion was elbowed aside. and the integrity of the union would be compromised. the successor governments hung on till they could exit their rescue programmes. Many economists believed that. But these mea- sures. There was strong domestic resistance in more prudent countries. all of which were replaced during the cri- sis at least once. either finance ministers in the ‘Eurogroup’ . Greece would find it easier to regain growth and solvency. with little prospect of relief. collective decision-making became very difficult. Finland and Slovakia. economic diplomacy frequently proved frustrating. with the outcome still in doubt. despite some progress. But in fiscal policy. which remained a national responsibility. Downloaded by [University of California. But Greece. went through four governments. The consequences would be incalculable. • Imperviousness to external pressures. did nothing to restore growth. The Greek population was strongly in favour of euro membership. Creditor governments yielded to public opinion and sought to limit the cost of rescues by insisting on stern corrective measures. Severity of domestic pressures When the Greek crisis began. Five problems can be distinguished: • The constraints of the Eurozone. with its own currency. It was painful for electorates in vulnerable countries to endure persis- tent austerity imposed from outside. • Poor understanding between governments and banks. Eurozone electorates were suffering from reces- sion and had not expected to bail out other members. notably Germany. to spending scarce resources on those in trouble. Yet Eurozone membership was meant to be irreversible. 76 Nicholas Bayne Identifying the tensions In this case. They turned against their national governments. the same could happen to others. In Ireland and Portugal. From collective to national action With such strong domestic pressures. San Diego] at 17:59 07 January 2017 • The shift from collective to national action. Constraints of the Eurozone During the crisis it often seemed as though Greece might be forced to leave the euro. • The severity of domestic pressures. The key decisions emerged from tense exchanges between individual governments. which focused on correcting budget deficits. In monetary policy the authority of the ECB always prevailed. but also Netherlands. which suffered most hardship. without enduring such severe hardship. but this might change if economic conditions deteriorated further. If one coun- try could be obliged to leave under pressure.

But all its comments were rejected. The IMF therefore contributed only one-sixth of the funds for the second Greek rescue and held back on any pledges to the third. it resisted measures to stimulate growth or joint guarantees of Eurozone bonds. they put the ECB in charge of supervision. after overcoming German objections. at the height of the crisis. which was welcomed. But release of these funds could depend on the Eurozone adjusting its policies as recommended by the IMF board. It argued that Greek debts were now too big be repaid in full. This greatly weakened banks in the vulnerable states. . by far the largest multiple on record. Germany. which the Euro- zone was unlikely to accept (Bayne 2012. The IMF’s growing scepticism reflected the views of its non-European members. Eurozone growth remained very weak. Yet the IMF became critical of the Eurozone’s austerity strategy. In gen- eral. were the main non-state actors in this crisis. who disliked this focus on Eurozone problems. This unsettled the banks again. so that collective GDP in 2015 was Downloaded by [University of California. In due course the ECB was able to give effective sup- port. But Germany and other Eurozone governments resisted this (Spiegel and Chazan 2016). Interaction between governments and banks Commercial banks inside and outside the Eurozone. It provided Greece with drawings equiva- lent to 35 times its quota. When governments launched the new banking union. Wallace and Reh 2015). As the crisis worsened. they needed to be rescued by governments that did not have the resources to do so. led by Wolfgang Schäuble and Angela Merkel. IMF 2012). non-European banks shed their holdings of debt. as well as for Ireland and Portugal. It gave pri- ority to balanced budgets and structural reforms. so that debt relief was essential. as bad debts surfaced in Italy and elsewhere. the governments showed poor understanding of how banks would react to their decisions. the IMF had mobilized about $450 billion from both European and non-European members for use in case the Eurozone crisis endangered the wider world economy (the United States and Canada did not contribute). San Diego] at 17:59 07 January 2017 still below the level reached in 2008. as the largest holders of government bonds. Impervious to outside influences The IMF contributed one-third of the finance for the initial Greek rescue. while deposits moved from risky countries to safer parts of the Eurozone. But they insisted the regime to wind up banks in trouble would be nationally financed and must not be a burden to taxpayers. a process described as ‘intensive transgovernmentalism’ (Hodson 2015: 187–191. Economic diplomacy in practice 77 or heads of government in the European Council. In consequence. became the dominant force and its views determined Eurozone decisions. In 2012. It came out in favour of a larger ESM and jointly guaranteed Eurozone bonds.

In the Canadian case study. Officials make great use of them. though even here Germany was suspicious. The debt relief case study reveals that G7/G8 leaders engaged far more in persuasion than rationalist bargaining. In the WTO financial services negotiations. as they are seldom at the table where deals are struck. because they can develop close links and build up trust with their counterparts. They are integral to the practice of economic diplomacy. Elsewhere trust was in short supply – between Canada and Spain. are relevant to many aspects of economic diplomacy in practice. rely on persuasion to advance their objectives. as well as salient aspects of the case studies. Rationalism The key concepts in rationalism are bargaining and striking deals. the persua- sion exercised by the private sector groups likewise was essential to securing a suc- cessful conclusion. they usually resort to bargain- ing in order to construct formal agreements. constructivist persuasion is most evident during external consultation and internal coordination. Yet the interventions by Tony Blair before the Cologne and Gleneagles summits show how far personal persuasion can determine the outcome. the Eurozone crisis was marked from the out- set by low levels of trust. San Diego] at 17:59 07 January 2017 Constructivism Persuasion and mutual trust. Ministers have less time than officials to develop trust and exercise persuasion. It plays a less salient role once ministers and legislatures are involved. where compromise positions are being assembled. Only the ECB was widely trusted. but their principal aim is to agree precise rules. Downloaded by [University of California. in both domestic and international contexts. Non-state actors like business. This is because the summit process cannot go beyond voluntary understandings. but rather because the weaker members had no alternative. just as much as persuasion. They examine how constructiv- ism. the mutual trust between Chrétien’s diplomatic adviser and myself was critical to ensuring a peaceful outcome. Once officials have exacted the maximum benefit from persuasion. In the decision-making sequence. Decisions were not reached because all parties were persuaded of their merits. Heads of govern- ments do the same in domestic decision-making. so they usually intervene in economic diplomacy to strike deals or settle disputes. even though the key players were obliged to spend long hours together. rationalism and the two-level game (in that order) help to explain how the different actors operate and how the decision-making sequence works. between EU member states or within the Canadian government. as well as in summits other than . Independent regulators likewise use persuasion at first. NGOs and academics. By contrast. 78 Nicholas Bayne Conclusions These conclusions apply the three analytical approaches identified in the previous chapter to the practice of economic diplomacy. the key concepts in constructivism.

as more G7 countries accepted the principle. because they have both domestic and external responsibilities. In debt relief. and how a new deal between Canada and the EU resolved the problem. San Diego] at 17:59 07 January 2017 accepted the persuasive arguments of the private sector groups. are engaged in confirming formal agreements.9 The domestic (Level 2) positions of the parties (their ‘win-sets’ in Putnam’s terms) have to be mutually compatible for agreement to be reached internationally (Level 1). In 2002. when progress threatens to become blocked. they had to be formally confirmed at the IMF and World Bank. so as to achieve agreement. Other EU members used their Level 1 agreement with Canada as a means to dis- cipline Spain at Level 2 – a clear case of reverberation. Foreign ministry officials have special opportunities. like the European Council. which enabled them to join forces and win over their governments. While these were voluntary understandings at summit level. Reverberation also explains the different strategies used in India and China to produce changes of domestic policy. Bush used the summit decision on cleaning up nuclear weapons in Russia to persuade Con- gress to authorize funds for the World Bank. Canada’s external position changed when the conciliatory DFAIT took over the lead domestically from the combative Fisheries Ministry. Blair intervened in 1999 to get responsibility removed from the hostile German finance ministry and again in 2005 to persuade Bush. Legislators likewise. Reverberation can be attempted at any stage in the standard sequence. in both democratic legiti- misation and ratification stages. overcoming Spain’s reluctance. once the key players had Downloaded by [University of California. In the WTO official negotiators were able to strike a financial services deal acceptable to all. value-creating rare. Reverberation can apply to all the players in economic diplomacy (though rarely legislators). though they will defend their interests as persuasively as they can. Rationalism explains many aspects of the Canadian fisheries case: how initial agree- ments within NAFO failed to hold. Schroeder and Koizumi to override the advice from their own officials. The rationalist con- cept of linkage was crucial to the deal struck at the 2002 G8 summit. Non-state actors can take advantage of it when they have closer international links than their parent governments do. rational analysis can explain almost every step in the tortuous narrative. the private sector groups had close international links. In the debt relief case. The two-level game metaphor Professor Bob Putnam devised his two-level game metaphor as a tool to link domestic decision-making and international negotiation. This approach contributes most to understanding economic diplomacy when it shows how actions taken at one level can influence decisions at the other. . This is what Putnam calls ‘reverberation’. when embassies can penetrate the domestic politics of the governments where they are posted. prog- ress required successive agreements to lock in improved terms. while constructivism tells us little. In the WTO negotiations. Heads of government are likewise well-placed to use it. Value-claiming strategies were frequent. In the Eurozone crisis. In the fisheries case. Economic diplomacy in practice 79 the G7. but it is usually deployed late in negotiations.

Putnam and Rockman (1981). 3 The proposals in Professor Jackson’s paper Restructuring the GATT System (Jackson 1990) were taken over almost exactly in the design of the WTO. MA: Harvard University Press. 2 For a perceptive analysis of the difference between ministers and officials. were blocked by Germany. It is ref lected in the decline of international institutions and the growth of national actions. Germany. Lithuania. Kirton and P. 263–280. in Financing Development: The G8 and UN Contribution. Toronto: McClelland & Stewart. Geoffrey Howe. with Putnam (1988). Putnam. References Aberbach. various attempts to achieve it. There are no clear examples of successful reverberation. Czech Republic. J. B. Belgium. Greece. Slovenia and Spain. This strict sepa- ration of the domestic and international policy-making tables is a worrying Downloaded by [University of California. Sweden and the United Kingdom. Rollercoaster: My Hectic Years as Jean Chrétien’s Diplomatic Advisor. Compare Putnam and Bayne (1984: 3–5). still relevant today. including Brazil. Bureaucrats and Politicians in Western Democracies. British Foreign Secretary from 1983 to 1989. three Central Europeans (Czech Republic. from both the debtors and outside agencies like the IMF. J. which first appears in the book on the G7 summit which we wrote together.. Staying Together: The G8 Summit Confronts the 21st Century. Malta. 2007. “are like the Kremlin. D. 5 This is replicated in the European Union’s Council of Ministers. see Aberbach. Savona. South Korea and Turkey). Poland. Estonia. Nether- lands. 7 The target countries comprised three Organisation for Economic Cooperation and Devel- opment (OECD) members (Mexico. Denmark. N. Aldershot: Ashgate. are called high commissioners rather than ambassadors. Italy. 80 Nicholas Bayne The two-level game metaphor is less helpful in analysing policy adopted to meet the Eurozone crisis. The consequences of this will be reviewed in the final chapter of this book. Fratianni. they would say. with its neutral civil service. 4 By contrast. and see Chapter 13 below. pp. Croatia. San Diego] at 17:59 07 January 2017 aspect of economic diplomacy since 2011. The creditor countries gave so much weight to domestic public opinion that they were largely impervious to external pres- sures. Aldershot: Ashgate. 2005. recorded the envy of his European colleagues:‘ “Your British people”. The EU members outside were: Bulgaria. called ‘A Points’. N. Impressions of the Gleneagles Summit. the Eurozone members were: Austria. and Rockman. Hungary. Portugal. once the immediate financial cri- sis was past. Latvia. Luxembourg. They all always say the same thing”’ (Howe 1994: 447). 2005. . is regarded as very dis- ciplined in this respect. 1981. Finland. the United Kingdom. 6 British Invisibles had started as the British Invisible Exports Council and is now called The City UK. like the United Kingdom and Canada. Hungary and Poland) and 15 developing economies. edited by M. Bayne. India and Hong Kong (China). Notes 1 Diplomatic representatives exchanged between Commonwealth countries. Bartleman. Cambridge. Rumania. Bayne. J. such as launching joint Eurozone bonds. Ireland. France. 9 I observed the process by which he refined his argument. Slovakia. Cyprus. where each meeting begins with decisions taken without discussion. R. 8 By 2015. J.

Basingstoke: Palgrave Macmillan. Global Financial Regulation: The Essential Guide. pp. 20 April. R. Creditor infighting threatens Greek bailout. J. A. 2016. R. Efstathopoulos. and Jacquet. H. 9 September. Downloaded by [University of California. and Green. Jackson. 65. Pollack and A. 2008. P. edited by H. Washington. 1994. 166–195. Washington. 12/147. I. Bayoumi. 2015. in Policy-Making in the European Union. edited by H. 7th 2015. Oxford: Oxford University Press. C. pp.imf. D. R. 1988. Wallace. 2012. Officials playing BIT part behind pomp of Xi’s Washington visit. The Crisis of Poverty and Debt in the Third World. A. Debt and the New World Order. IMF 2012. 1984. Toronto: A. IMF Managing Director Christine Lagarde welcomes pledges by members to increase fund resources by over US$430 billion. London: Macmillan. Conflict of Loyalty. 7th edition. International Organization. 1990. NJ: Princeton University Press. D. S. edited by T. Chrétien. Diplomacy and Domestic Politics: The Logic of Two-Level Games. Hodson. Davies. Spiegel. Policy-Making in the European Union. 1 (1). Finan- cial Times. T. Farnham: Ashgate. Saccomanni. 7. and Green. Hanging Together: The Seven-Power Summits. 6. C. 20 March. H. San Diego] at 17:59 07 January 2017 Princeton. J. Coggan. DC: Institute for International Economics. D. P. London: Royal Institute of International Affairs. F. M. H. South Africa and the Doha Development Agenda. The G20: Evolution. A. W. 1999. 2011. 4th edition. H. Change and Continuity. and Reh. I. Paper Promises: Money. Available at http://www. 2014. Wallace. DC: Institute for International Economics. Davies. D. B. A. Hajnal. Oxford: Oxford University Press. Pickford and P. Policy-Making under Economic and Monetary Union: Crisis. Howe. Knopf. G. and Peters. (eds. 42 (4). The Economic Diplomacy of Sovereign Debt Crises: Latin America and the Euro-Zone Compared. 427–460. Press Release No. MA: Harvard University Press. 2015. D. and Young.. 113–138. Putnam. 4–18. 1998. Financial Times. J. Young. Banking on the Future: The Fall and Rise of Central Banking. A. 2005. 2007. Pollack and R. in Policy- Making in the European Union. International Journal of Diplomacy and Economy. Economist 1999. DC: Brookings. Economic diplomacy in practice 81 Bayne. Cambridge: Polity Press. Washington. and Bayne. 2016. Putnam. Subacchi. pp. and Chazan. M. Pollack. R. Young. 2015. Documentation. G. London: Allen Lane. M. N. M. 2015. Restructuring the GATT System. Aldershot: Ashgate. Cambridge. Wal- lace. Destler. P.htm. N. Dent. M. Mitchell. For debt relief much thanks. A. . American Trade Politics. Oxford: Oxford University Press. Middle Powers in World Trade Diplomacy: India. Wallace. 7 March. Policy Cooperation in the Euro Area in Time of Crisis. Interrelationships. 72–112. My Years as Prime Minister. Financial Services Liberalization in the WTO. Dobson. in Managing Complexity: Economic Policy Cooperation after the Crisis. 7th edition. 2010. An Institutional Anatomy and Five Policy Modes. P.

in the minds of policy- makers.000 in 2007. Most of those are small NGOs working at a local level. It describes what a given institution is not. we will use a fairly restricted definition: organizations that pursue some wider social aim that has political aspects. Zim- babwe and Kenya. 5 NGOs IN ECONOMIC DIPLOMACY Downloaded by [University of California. But however blurred their definition. They have become. size and influence in recent decades. although some com- mentators see CSOs as closer to grassroots organizations. India had 3. and so leads to considerable confusion over what the category includes – business associations? Churches? Trades unions? Families? The phrase ‘non-governmental organization’ has no generally agreed legal definition.000 and Egypt over 24. For the purpose of this discussion. In Ghana. They seldom impinge on the world of economic diplomacy. the term ‘non-governmental organization’ (NGO) is a bad place to start. rather than what it is.3 million NGOs in 2009. This chapter focuses on a small subset of large NGOs. part of a wider resurgent interest in ‘civil society’. but that are not overtly political organizations such as politi- cal parties. In many jurisdictions. the sector provides 40 per cent or more of all healthcare and education services delivered (Edwards 2014: 210). NGOs have clearly grown in number. these types of organization are called ‘civil society organizations’ (CSO) or referred to by other names. up from approximately 1 million 15 years earlier. called ‘the uncoerced space for citizen action that lies between state and markets’ (Lewis 2014: 17). often delivering ser- vices. . with NGOs at the more professional end of the spectrum. and concludes with a brief examination of some of the cur- rent challenges it faces. while Brazil counted 220. It discusses how Oxfam’s ‘advocacy’ has evolved over time. working on international development issues. We will use the terms interchangeably. and explores in some detail the work of Oxfam International (OI) in trying to influence public policy on climate change. San Diego] at 17:59 07 January 2017 Duncan Green and Celine Charveriat In many ways.

or providing such services themselves. NGOs in economic diplomacy 83 Even within this fairly restricted definition. Since the 1980s. Their political and organizational cultures vary enormously. established in 1992. purpose and influence. NGOs are active in the vast majority of developing countries.000 lawyers. Others. has been in helping to install elected governments in place of authoritarian regimes. from radical to reform- ist. in recent years. Oxfam has an international presence with 17 members of the Oxfam International confederation. a US government-funded founda- tion. the universe of these international non-governmental organizations (INGOs) is extraordinarily diverse in terms of structure. successive waves of civil society protest have contributed to the overthrow of military governments across Latin America. or clinics. at least as reflected in the global media. and so on) the presence of strong and cohesive non-violent civic coalitions was undoubtedly highly influential. While many other pressures contribute to political transitions (involvement of the opposition or the military. such as WaterAid. mass protests. civic resistance was a key factor driving 50 out of 67 transitions from repres- sive or dictatorial to relatively ‘free’ regimes in the 33 years up to the mid-2000s (Freedom House 2005: 6). but also increasingly involved in advocacy work. sup- porting poor people as they organize to demand their rights. pushing the authorities for grassroots improvements such as street lighting. and from diffuse movements to highly organized and centralised organiza- tions where every public pronouncement is carefully vetted for policy coherence (Oxfam errs towards the latter). it played a crucial role in triggering the protests that toppled the corrupt regime of President Eduard Shevardnadze in . Islamic Relief or CAFOD (Catholic Fund for Overseas Development) in the United Kingdom. civil society’s most prominent role. operating in more than 90 countries. along with public education programmes on everything from hand-washing to labour rights. are secular. while others. a network of some 1. blockades. As a founding member of the movement known as ‘Kamra’ (‘Enough’).1 But the bulk of NGOs are much smaller. the removal of dictators in the Philippines and Indonesia. Many have roots in particular religious faiths – such as Christian Aid. often directly providing Downloaded by [University of California. paved roads. the end of apartheid in South Africa. with a combined annual income in excess of €1 billion. and the chaotic uprisings (many of them subsequently reversed) of the Arab Spring. such as Save the Children or Oxfam. but also targets government malpractice. One example is the Georgia Young Lawyers Association (GYLA). The GYLA provides free legal advice to poor people. However. the downfall of communist and authoritarian regimes in Eastern Europe and Central Asia. schools. Some work on a range of issues. San Diego] at 17:59 07 January 2017 crucial services such as health and education. Tactics included boycotts. According to a study by the Freedom House. much NGO work is almost invisible to the wider world. National NGOs At the national level. strikes and civil disobedience. operating at a local or national level. are more focused. foreign intervention.

A report by the Carnegie Endowment found that more than 50 countries in recent years have enacted or seriously considered legislative or other restrictions on the ability of NGOs to organize and operate. Compared with the steady hum of the state’s machinery. role in more closed politi- cal systems. A study in Vietnam revealed a virtuous circle of state and NGO investment in training and education. San Diego] at 17:59 07 January 2017 of opposition to one of engagement. activists. 84 Duncan Green and Celine Charveriat 2003 by winning a court case against the government over election irregularities. assumed a life of its own by the end of the decade. In such circumstances. many NGOs find it difficult to move from a strategy Downloaded by [University of California. Women in particular became much more vocal after receiving training in agricultural methods and making more regular trips away from the village (Leisher 2003). physical . but even they experience cycles of activism and quiescence. propaganda cam- paigns against NGOs that accept foreign funding. civil society can dem- onstrate broad public support for policy changes. funded by the World Bank. if less visible. harassment. This expansion has provoked a backlash from states seeking to close down civil society’s political space. improved communications (for example. Other NGOs. thus making it easier for politi- cal leaders to innovate and resist pressure from those who would rather maintain the status quo. and often falling away after a victory – such as winning a change in the law. As a result. journalists. and harassment or expulsion of external aid groups offering civil society support (Carothers and Brechenmacher 2014). Civil society also plays an important. are much more stable. associate and assemble. or the election of a more progressive government that promptly recruits key civil society lead- ers. outlasting all but a handful of govern- ments. the Maria Elena Cuadra Women’s Movement in Nicaragua collected 50. Peaceful demonstrators. prompting the minister of labour to enforce the law and convincing factory owners to adopt a voluntary code of conduct. In the late-1990s. both villagers and local authorities gained confidence and began to exchange opinions and ideas more openly. which allowed easier contact between villages and the district authorities) and pressure from the central government for local authorities to encourage popular participation in poverty reduction efforts. notably those sponsored by religious institutions. based on evidence provided by its own 200 election monitors. human rights defenders and ordinary citizens are increasingly facing motivated prosecution. an upgraded road. Less dramatic than mass protest. At the core of many of these efforts are measures to impede or block foreign funding for civil society groups – including administrative and legal obstacles. coming into its own in moments of protest and crisis. for example. civil society activity waxes and wanes. The world is presently witnessing a cascade of laws and regulatory measures to restrict the rights of citizens to freely express their views. but equally important.000 signatures calling for better working conditions in the country’s export processing zones. According to the international civil society network Civicus: What began as a knee jerk reaction to a horrific event in 2001 (9/11).

found that their specific concerns continually evaporated from the agendas of mixed organizations. important than formal channels of engagement in these ‘closed’ political spaces. Beyond the personal benefits (and costs) of participation. One regular source of tension is over whether to pursue the tactics of ‘outsider’ confrontation. One study (Miller and Covey 1997) defined five points on that spectrum: cooperation–education–persuasion–litigation–contestation. which is often facilitated by informal. independent media. native authority elites. conferences and media coverage) play a secondary role to informal pro- cesses in eliciting change. NGOs of hitherto mar- ginalized groups have often emerged as splinters from NGOs serving the general population. as do powerful groups based on ethnicity or caste. Policy influence heavily relies on informal relationships rather than strictly formal citizen–state engagements. Conversely. or indigenous or HIV-positive people. one of the authors was more than once asked by corporate representatives to ‘do a bit more public campaigning’ so that their work would receive more backing from the boardroom. including urban youth. and alliances between dissimilar organizations are both fruitful and fraught. . cultural relativism to national sovereignty and government owner- ship of development processes as opposed to democratic ownership. and to offer social progress. San Diego] at 17:59 07 January 2017 Alliances and participation In practice. cocoa farmers. such as lobbying. if not more. When doing insider lobbying with supermarkets and garment companies on the need to respect labour rights in their supply chains. An outsider strategy based on mass mobilization often needs stark. rather than co-option. when women. NGOs are not immune from the wider inequalities in society. civil society is a complex political and social ecosystem. political leadership. The proffered justifications range from counter-terrorism to national security. and limit the insid- ers’ access to decision-makers. a strong civil society obliges political parties to compete for the public’s support. (Civicus 2010) Downloaded by [University of California. or less visible ‘insider’ engage- ment. NGOs in economic diplomacy 85 abuse and threats to their lives for challenging well-entrenched power struc- tures. an insider strategy muddies the waters with compromises. In Ghana. under- mining mobilization and raising fears of betrayal and co-option. backdoor pro- cesses of negotiation and mediation between coalition leaders and key players (Tadros 2011). Yet a combina- tion of insider and outsider strategies can sometimes be highly effective. with turf fights and frequent accusations of co-option or of larger NGOs ‘speaking on behalf of’ (and claiming funds for) groups they do not represent. Men often dom- inate. and a strong network of civil society organizations have helped build up a politics of interest groups. but these can alienate officials and political leaders. unchanging mes- sages. for example mass street protests. A study of women’s rights coalitions in Egypt and Jordan concluded that engaging in informal ‘backstage’ politics is equally. The ‘formal’ faces of advocacy (such as through petitions.

an NGO founded by activists from different social movements working on equal rights for Mizrahi Jews. In recent years. 86 Duncan Green and Celine Charveriat professional and business elites and unionized workers. clientelist political networks. parlia- mentary lobbying. ethnic. and advocacy to influence the way that budgets are allocated. Such ‘budget monitoring’ work involves pains- taking analysis of both what is promised and what is delivered. Some donor governments deliberately use funding to defuse radical social movements that threaten vested . an international NGO watchdog. while sustained campaigns have sought to improve the respect of transnational corporations for labour rights and reduce the damage they cause to local communities and environments. middle-class-led and modern. Landmark initiatives. San Diego] at 17:59 07 January 2017 Even the cleanest and most transparent electoral systems can be undermined by undemocratic institutions – corporate lobbyists. such as credit associations. access to information. North–South alliances of NGOs have successfully pushed issues to the top of the political agenda at meetings of the G8 summit.) In recent years. Social Watch monitors progress on governments’ international commitments on poverty eradication and equality. The rapid spread of cheap communications technology has enabled NGOs to ‘go global’. Western governments and private philan- thropists have poured money into NGOs. in the north. Via Campesina links together peasant and landless movements around the world while Social Watch. even though these often have deeper roots among much larger numbers of people. like Oxfam. uses a combination of analysis.2 Downloaded by [University of California. Being ignored by funders may be no bad thing. links national citizens’ groups from 50 countries. business associations or local development NGOs. Civil society scrutiny and activism can act as a counterweight. especially in the poorest communities. Not all such networks have their origins. and levels of social organization may help other countries to follow suit. civil society organizations have tried to ensure that government spending tackles inequality and poverty. especially the kinds of organizations they recognize: urban. Civil society can play a crucial role in ‘keeping the demos in democracy’. the Adva Centre. The ruling party retained power in 2012. women and Arab citizens. the World Bank and the WTO. The shift to a more stable state was demonstrated when the incumbent party lost the 2000 and 2008 presi- dential elections and orderly transitions ensued. The great attention attracted by NGOs is viewed by some with concern. such as the International Criminal Court and International Arms Trade Treaty. popular education and media campaigns. were spearheaded by joint efforts of concerned citizens and NGOs. law societies. They have sometimes given succour to NGOs that are little more than vehicles for relatively educated people to access funds when other jobs are scarce. In Israel. they have ignored kin. but elections were keenly contested. In the process. women’s groups. Steady improvements in literacy. and the like. religious or age-based groups. Based in Uruguay. (The websites of these and other organizations mentioned are listed at the end of this chapter. as a ‘reification’ that downplays the historically much more significant contribution of trade unions and political parties.

Good projects were being swept away by larger political and economic tides. whether at the level of nation states or other actors such as private companies and international institutions. aid or cli- mate change. and in develop- ing countries on support for small farmers or the terms of bilateral and regional trade agreements. while ‘lob- bying’ is going directly to policy-makers to get them to do something regarding a particular issue. to change their policies and practices. in rich countries on issues such as the negative developmental impact of the EU’s Common Agricultural Policy or US cotton subsidies. Oxfam’s UK affiliate. and away from more confrontational areas of advocacy and campaigns. San Diego] at 17:59 07 January 2017 and ultimately destroying that most important of purposes of civil society. and often by public and political pressure. in Amartya Sen’s classic definition of development. They need to be convinced by credible arguments. conflict. According to two authorities on the subject: Donor civil society strengthening programmes. run the risk of inhibiting Downloaded by [University of California. In the case of Oxfam GB. According to one internal OI document: Lasting change requires decision-makers convinced of the need for change. The focus of such international advocacy was primarily. But in recent decades. Change also . attitudes or behaviours. evidence of impact in people’s lives. we will use ‘advocacy’ as an umbrella term for both campaigning and lobbying. tech- nical solutions. the growing impact of climate change. The aim of such advocacy is both ambitious and complex. Other donors undermine the potential of NGOs by making them admin- istrators. economic policy: globally on issues such as debt relief. and long-term development work aimed at enhancing. NGOs in economic diplomacy 87 interests. such as the structural adjustment programmes of the 1980s and 1990s. though not exclusively. Advocacy is the process of influ- encing decision-makers. premature trade liberalization and. namely the freedom to imagine that the world could be different. ‘the real freedoms that people enjoy’ (Sen 1999: 3). this is evenly split between humanitarian relief work in response to food crises. with their blueprints. Oxfam and other international NGOs have devoted an increasing amount of resources to ‘advocacy’. and indicators of achievement. more recently. (Howell and Pearce 2001: 237) International NGOs and advocacy The bread and butter of international NGOs like Oxfam remains what is called ‘programming’. weather events or earthquakes. For the sake of simplicity. rather than irritants – funding often pushes NGOs towards the ‘service delivery’ end of the activity spectrum. ‘Campaigning’ usually refers to mobilizing the public or influencing their attitudes and behaviours on certain issues. The motive for this evolution was NGOs’ frustrations at building islands of suc- cess in a sea of failure.

without explicitly attempting to influence pub- Downloaded by [University of California. The Oxfam document goes on to describe a ‘global campaigning force’ based on variable combinations of seven elements: Research: Good quality research as a basis for our policy and campaigns. and a vocal civil society. on the need to demonstrate wide public support. supporters and activists: Building a global constituency of the campaigns that agrees with and supports the changes in policy. according to the organi- zation’s internal guidelines. This is carried out in three main phases. Oxfam has concluded that major paradigmatic changes. Media coverage : Targeted media/social media work to deliver strong campaign messages in priority media markets. San Diego] at 17:59 07 January 2017 lic attitudes and beliefs. 88 Duncan Green and Celine Charveriat requires an infrastructure that sustains change. Global lobbying: Access to and influence over decision-makers in key capitals and multilateral organizations. a regional agreement. policies. a national law. supported by celebrities and popular media. company practices or all of the . debt. Campaigners. need a broader and deeper shift in thinking. the appropriate political and legal framework. And lasting change requires sufficiently broad and intense public support. Alliances: Contributing to and being part of the global movement for social justice to have more impact. markets. Popular communications: Reaching not only the convinced. practices. relationships need to change)? Is it an interna- tional. but the general public through closer and more passionate communications. such as the transition to low-carbon economies. aid etc. Designing an advocacy strategy The starting point in building a campaign is what is known within Oxfam as ‘power analysis’. represents an evolution from a previous more elite-based advocacy model targeting specific pol- icy changes on trade. based on power analysis designed to produce change. both inside government and without. which we quote at some length: First Phase: Defining Objectives Define the policy change objective clearly: How does it relate to poverty reduction? What would it change in poor people’s lives? What needs to change to achieve this policy change objective (what laws. practice and ideas that we push for.3 That last sentence. Presence : Campaigning and advocacy activities in key countries and regions. This point relates to OI’s broader plan for confederation growth and for strengthening the global movement for social justice. beyond the more technical discussion between lobbyists and policy ‘wonks’. good quality policy decisions.

debate or forum for discussion directly or indirectly related with the policy change objective? What is the time frame? Is there a change in government which might lead to a new direction? Are there any champions of reform in a position to act as catalyst or to break ranks with other stakeholders (e. minister. investment power. prac- tices and structures that need to change? At what level are decisions made (mayor. is there one that paralyses progress on all the rest? Or one that could act as a catalyst for change? What are the obstacles to change? Intellectual: a) Is this defying conventional wisdom? Is there a body of lit- erature and academics going against the recommended policy change objective? Are there valid and recognized counterarguments available Downloaded by [University of California. advisor in capital/cabinet. more progressive pharmaceutical companies)? Second Phase: Defining Targets: Who Has the Power to Make Change Happen? Who are the decision-makers and institutions that define the rules. embassy. executive branch of regional government. NGOs in economic diplomacy 89 above? If there are several elements to change. major event. are we talking about something that might or might not happen in the future)? Political: Are there clear losers from a potential achievement of the policy change objective and are these losers organized? Do they have political clout and for what reason (financial power. development agency. power to propose a reform. power to accept/oppose. power to influence tone and direction of the debate)? Among these individuals. San Diego] at 17:59 07 January 2017 or not? b) Is the change going against values and beliefs of a signifi- cant segment of the population and/or the elite in power? c) Is there a degree of uncertainty about the problem (for instance. source of employment)? Who would gain from the reform? Are they potential allies that could counteract the power of the losers? What is the source of their political clout? What level of reward can we guarantee if politicians make the right choices? Financial: What is the cost/benefit analysis of the policy change objec- tive? Is there a cost linked with inaction ? Practical: Is the reform feasible/implementable and under what condi- tions? Are those conditions achievable? Who would have to act to make it happen? How long does it take to put the reform in place? Are there political opportunities for change specifically related to the objective? Are there any imperatives for reform (for instance an inter- national agreement lapsing. which individuals have a decisive influence (i.e. or budgetary restrictions)? Is there any current reform process.g. president)? Who is consulted in the decision-making process? Who has formal and informal power on a reform process? Among all of the targets. voting power. which ones are the most accessible? The most sensitive to or positive about civil society? And which ones are the most .

of course. advice of key advisers and trusted colleagues. more than the income of half the world’s population. international organizations. as predicting is an art rather than a science. one of the authors spent an afternoon at an internal seminar of the UK Gov- ernment’s Foreign and Commonwealth Office climate change team. 90 Duncan Green and Celine Charveriat negative (‘lost causes’)? Which are the ‘shifters’ – the undecided or per- suadable? Who influences the people in this key group. positive/ negative publicity. public pressure from mass demonstrations or social media. was the finding that the world’s 85 richest individuals have accumulated the same wealth as the poorest half of humanity – some 3. lobbying. who are often the principle target for our campaign? Third Phase: Defining Tools to Influence Your Targets Which are the tools that are best adapted to a specific target? What encourages/ threatens a target to take action – possible candidates include compelling Downloaded by [University of California.5 That finding . It had hired ex-Greenpeace activists to train its staff in advocacy techniques. becoming a ubiquitous meme demonstrating the EU’s double standards on development. establish- ing a straightforward narrative and illustrating it with the kinds of ‘killer facts’ that stick in the mind and that civil servants need to include in decision-makers’ speeches. private or public criticism by foreign governments. When does NGO advocacy succeed? The answer is. Strong narratives and research At their best. journalists. consumer pressure?4 A fourth phase is often overlooked: ensuring that all the above is captured and complemented with a baseline and clear success indicators along the way.g. business associations. San Diego] at 17:59 07 January 2017 research. trade unions). High- lighting key assumptions within this power analysis is also important. and produce a strategy based very much along the above lines. powerfully amplified this time by social media. a number of contributory factors can often be identified. farmers. politicians. In the run-up to the Copenhagen climate summit of 2009. renowned academics. This allows for the power analysis to be updated and refined along the way. parliamentarians. CEOs.5 billion souls. But when it does. advocacy planning may not always be so rigorous. In practice. reli- gious leaders. pressure from politically influen- tial organizations (e. that usually it doesn’t. A more recent example. but these approaches are spreading. One of the author’s most memorable experiences in this regard was coming up with a simple calculation that each European cow receives sup- port amounting to some $2 a day from the Common Agricultural Policy. NGOs talk the language of politicians – telling stories. The ‘cow fact’ promptly went ‘viral’.

they drink from the nearby riverbed. if not their top priority’. received wisdoms and vested interest rather than by a dispassionate review of the evidence. institutional inertia. Bitter experience. Health professionals: ’65 per cent of infant deaths from diarrhoeal diseases. Wangai’s family have no latrine and use the riverbed in the early morning before it is light. however. Follow-up reports for the Davos meetings in 2015 and 2016 had similar impacts. where gov- ernment technocrats and political leaders are more insulated from the political pres- Downloaded by [University of California. Decisions are made all too often on the basis of power.6 The messenger is often as important as the message. African activists speaking about the challenges of development carry far more weight with most people than . General public: ‘Clean water saves lives: Each village should have at least one borehole and adequate latrines. in developing countries could be prevented by providing safe water and sanitation. Environmental improvements like sanitation have bigger impacts and lower costs than curative medicines’. Wangai has two brothers and one sister: he had another two sisters but both died of dysentery before they were four years old. However. San Diego] at 17:59 07 January 2017 sures and horse trading that characterize democracies. provided it is not seen as system-threatening. It is the authors’ discomforting and perhaps counter-intuitive experience that. His mother walks five kilometres each morning to the nearest clean water point to collect drink- ing water for the family. That’s also where the cattle and goats drink. NGOs in economic diplomacy 91 dominated the 2014 Davos meeting of the World Economic Forum (WEF) and helped push extreme inequality onto the political agenda in a number of fora. Russia and Vietnam. good research can sometimes be more persuasive in closed political systems like China. Talk to your local councillor today to find out how you can help to bring life-saving facilities to your own village and see your children flourish’. when Wangai and his friends are thirsty. Broadcast media and the press: ‘Wangai is six years old. Language and message need to be tailored to the audience Here is how WaterAid adapts its argument in favour of investment in water and sanitation for different Tanzanian advocacy targets: Finance ministers: ‘A small investment in clean drinking water and low-cost sanitation facilities will yield a large return in relation to child and adult health and survival’. He wishes there were similar facilities in his village’. He has seen that his cousin’s family do not fall ill and his aunt has lost no babies because of sickness. suggests that the importance of research to advocacy is often exaggerated. Wangai has visited his cousin who lives in the nearby town. Parliamentarians: ‘When asked poor people put access to water as one of their top three priorities. like cholera. where there is a good water supply and each house has a latrine.

natural disasters or conflicts. This. however long their publications list. rather than a nerdy researcher or zealous campaigner. This approach has given rise to a proliferation of ‘multi-stakeholder initiatives’ such as the Ethical Trading Initiative (on supermarket and garment supply chains). sympathetic state bodies or faith-based orga- nizations. while opponents of the tax. or with middle-class philanthropists. San Diego] at 17:59 07 January 2017 Alliances of ‘unusual suspects’ Advocacy is rarely conducted by a single organization – there is safety (and power) in numbers and strength in unity. Nobel laureate econo- mist James Tobin first suggested introducing a small tax on all financial transac- tions between different currencies (Tobin 1978). One of the skills of a good advocate is knowing how to construct effective alliances – and to differentiate between soul-sapping talking shops and powerful engines of change. for example. A coalition of trade unions. church groups and NGOs cleverly rebranded the Tobin Tax as the ‘Robin Hood Tax’ and launched public campaigns across Europe featuring a series of hilarious videos by top filmmakers and actors. In 1972. drastically changing the ‘Overton window’ of what was considered ‘sen- sible’ or ‘realistic’ in economic policy. A well-prepared advocacy campaign can spot and respond to such moments. 92 Duncan Green and Celine Charveriat European or North American academics. crises. finance ministers were desperate for new sources of revenue for their cash-strapped governments. sometimes ally effectively. changes in leadership. Windows of opportunity Change often emerges around ‘critical junctures’ – windows of opportunity pro- vided by failures. or the Extractive Industries Transparency Initiative (on oil and gas revenues). the . Crushed by debt repayments. but more interesting things often happen when ‘unusual suspects’ and ‘awkward allies’ join forces: civil society organizations with private sector companies. Government ministers listen to other government ministers. Downloaded by [University of California. Similar organizations. At such times decision-makers and the public may become painfully aware of the inadequacies of the status quo and cast around for new ideas. such as peas- ant producers or women’s savings groups. The idea got nowhere. the World Bank. One recent example concerns the Tobin Tax. had suddenly become political pariahs. By 2011. The shock had transformed the landscape of power and politics. captains of industry are likely to listen to (and believe) something from a fellow master of the universe or a leader of their church. such as banks and currency traders. but continued bubbling on the margins of political debate for over three decades. It took the global financial crisis of 2008 and some inspired advocacy to bring the Tobin Tax in from the cold. or their supervisor from university days. would curb short-term speculation and raise a lot of money for good causes. he argued. with striking results. such as develop- ment assistance.

but are not being implemented. Some voices within the organization felt it was in danger of climbing aboard a northern bandwagon and abandoning poverty and development. the UN climate change negotiations. Back in 2006. Getting down among the weeds of existing legislation and policy can be unattractive to campaigners seeking more fundamental ‘trans- formative’ change. Oxfam decided to focus its international campaigning on climate partly because of the opportunity provided by the UNFCCC process. But principally Oxfam was alarmed at the prospect of climate change negotiations failing altogether or being conducted from an exclusively environmental point of view. almost all media attention on climate change was focused on emaciated polar bears and blanched coral reefs. This covers the period up to and including the 15th Conference of the Parties (COP 15) to the United Nations Frame- work Convention on Climate Change (UNFCCC) held at Copenhagen in 2009 (called the Copenhagen summit). NGOs in economic diplomacy 93 European Commission had proposed a Europe-wide tax on financial transactions. poverty and development was both a radical departure for Oxfam. San Diego] at 17:59 07 January 2017 Because getting new laws onto the statute books is so difficult. rather than the planet’s poorest and most vulnerable people. But done right. and something of a comfort zone. It has been updated to include initial reflections on the work up to COP 21 (the Paris summit) of December 2015. many campaigns zero in on enforcement of laws and policies that already exist. Though whittled down to eleven countries. who are the first and worst affected. it can set the stage for larger changes. Influencing these had become Oxfam’s stock-in-trade through its work on the WTO and G8 processes. The follow- ing section is based on the Evaluation of Oxfam GB’s Climate Change Campaign by Cugelman and Otero (2010). on environmental issues. it was scheduled to come into force in 2016 and represents a historic breakthrough as the first truly international tax. Decision-makers have a harder time publicly opposing things they have themselves approved. pro- vided a series of global summits. and it can be highly technical. . certainly in its advocacy. Radical departure because the organization had hitherto done little work. The decision to campaign on the links between climate change.7 Implementation gaps Downloaded by [University of California. Comfort zone because the primary target. CASE STUDY: OXFAM INTERNATIONAL’S CLIMATE CHANGE CAMPAIGN The evolution and challenges of international NGO advocacy are well illus- trated by Oxfam’s 2006–2016 campaigning on climate change.

Development programmes were doing far more on building resilience and disaster risk-reduction. This highlights an acute and newer tension for Oxfam working on global issues like climate: the publics in its affiliate countries are yet to be convinced by the environmental narrative of a ‘new prosperity’ through a transition to a low-carbon economy. Oxfam’s focus on adaptation was far from uncontroversial at that time. It therefore focused its contribu- tion to the broad civil society campaigning on highlighting the human Downloaded by [University of California. floods. particularly from sub-Saharan Africa with PACJA (Pan-Africa Campaign for Climate Justice). who got the message across by donning suffocating polar bear costumes and brandishing ‘Save the Humans too!’ placards. by mitigating the growth of CO2 emissions. An appeal to ‘think of the poorest in the world’ was unlikely to change that on its own. and from Bangladesh with the Campaign for Sustainable Rural Livelihoods (both supported by Oxfam and others) helped shift the debate among the civil society group- ings around the UNFCCC. with mass mobilization at the heart of the campaign. Oxfam’s own humanitarian and development programmes were grappling with the impacts of climate change. the need to stop climate change at source. It also wanted these messages to strengthen the demands for urgent action to reduce emissions in the rich economies. • Binding: Legally binding deal to ensure enforcement. 94 Duncan Green and Celine Charveriat At this time. finance adaptation for developing countries. • Ambitious: Keep global warming well below 2 per cent. in the face of increasing shocks in poor communities. Its humanitarian pro- gramme was dealing with many more medium scale weather emergen- cies (storms. droughts). Its discussions with progressive governments in developed countries had seen them plead for more public campaigning to create the political space for them to move into. they represent a power- ful source of inertia. help poor peo- ple adapt to unavoidable impacts. Oxfam’s decision to run a public-facing campaign on climate change exemplified the increased focus on public ‘attitudes and beliefs’ discussed earlier. This ‘people first’ approach was epitomised by long suffering campaigners at the Bali Conference of the Parties (COP 13) in 2007. In that sense. and at worst a sell-out of. defending the status quo of high emissions. The strengthening of development voices. San Diego] at 17:59 07 January 2017 impact of climate change and the need for adaptation plans and finance. Oxfam’s basic campaign ‘ask’ in the run-up to the Copenhagen summit was for a fair.8 They saw any talk of adaptation as at best a distraction from. . ‘Adaptation’ was a dirty word amongst a number of northern civil society organizations dedicated to ‘mitigation’. ambitious and binding (‘FAB’) deal: • Fair : Cut emissions by responsibility and capability.

As it turned out.10 That approach was consolidated at Cancun (COP 16) in 2010 as a key principle of the negotiations. What did all this activity achieve? Clearly. this volume). This type of impact was more notice- able than efforts to change the policies of large emitters . Levi Strauss and others before and during the summit. in helping southern governments and civil society. Oxfam staff’s own expertise earned them places on six official delegations – a valuable source of both intelli- gence and influence. The most significant contribution was. It gave technical support to over-stretched and under-resourced delegations from least developed countries. Copenhagen appears more like a painful but necessary step in acknowledging two crucial realities in 21st international economic diplomacy.000 signatures handed to UNFCCC chiefs.000 people. the US Congress is often reluctant to ratify binding international environmental agreements. Where common ground could be found. perhaps. The demand was taken up by the Bangladeshi government. NGOs in economic diplomacy 95 but nevertheless. Swiss Re. One of the keys to successful advocacy is also building alliance across dif- ferent sectors. Oxfam built joint activities and positions with Coca Cola. Oxfam felt that its public constituency could add a further strong voice to the movement for decisive governmental action. Downloaded by [University of California. Uni- lever. and with what had happened in the Doha Round of trade negotiations. which was marginalized by the United States and emerging powers in the last hours of the talks. This public mobiliza- tion provided the political leverage for more insider-style advocacy work. which is credited with drafting the wording subsequently appearing in the Copenha- gen Accord. First. the Bangladeshi Cam- paign for Sustainable Rural Livelihoods organized a meeting in July 2009 of civil society from the most vulnerable countries. in line with the tectonic shift happening in terms of economic power. Asia and Latin America to bring development and adaptation to the fore.000 events in 140 countries. not a breakthrough – the Copenhagen summit was interpreted as a major setback for the UN process and particular humiliation for the EU. and petitions with 10. This included a global ‘Day of Action’ with 4. Nike.000. Yet the disappointment at the time among our staff present in Copen- hagen obscured a number of campaign achievements at a less momentous level. irrespective of their content. the climate movement delivered major mobilization.9 Second. these coalitions of odd bedfellows can be more effective than alliances of like-minded NGOs. a march in Copenhagen during the summit of 100. The communiqué from the meeting demanded that climate finance be focused on the poorest coun- tries. With the benefit of hindsight after the 2015 Paris summit. It embold- ened civil society organizations across Africa. As noted earlier. emerging countries will flex their diplomatic muscles to become real deal-makers in all international economic fora (Woll 2008: 244–255 and Chapter 9. For instance. San Diego] at 17:59 07 January 2017 with an Oxfam International team at the summit that held meetings with some thirty government delegations.

Soberingly however. It was turned into $100bn by the Clinton administration and has become the accepted figure for the deal. since the peak in December 2009. a Pan-Africa Climate Hearing was held in Johannesburg. alongside community leaders from Uganda and Bangladesh. British Prime Minister Gordon Brown stated in June 2009 that he expected €100 billion per year by 2020. which was subsequently adopted by Europe. which was then reported back to all organizations involved in local grassroots climate hearings around the world. Just before Copenhagen. After the figure became public. Oxfam had worked closely with numer- ous allies throughout 2008 and 2009 to deliver ‘climate hearings’ in over 30 countries.11 If you wait until all the detailed research is in. San Diego] at 17:59 07 January 2017 have passed. a coalition of NGOs. moving them from the idea that the inexplicable shift in weather patterns was ‘God’s punishment for our communities’ sins’ to a sense that climate change was soluble and an issue of justice. including Oxfam. as the economic crisis. Many participants found this personally empowering. Oxfam’s public opinion polling showed that significantly larger numbers of people associ- ated the words ‘climate change’ with its current and growing impact on poor people and countries than was the case two years before Copen- hagen.6 million people participating. 96 Duncan Green and Celine Charveriat The campaign helped put climate finance on the EU and UN agenda. followed by a global hearing in Copenhagen with Archbishop Desmond Tutu. . In terms of attitudes and beliefs. They provided a wealth of human stories and experience of human impact and human agency in adapting to changes already underway. while agendas are still malleable. This would serve as an essential confidence-building strategy with develop- ing countries in the run-up to Copenhagen. the campaign’s main impact was increasing public awareness of the need for urgent action. and be heard through national and international media who attended. the moment for influencing may well Downloaded by [University of California. This calculation made by Oxfam’s Kate Raworth in 2007 showed the importance both of ‘killer facts’ and of shap- ing debates by entering early on. The most successful single piece of advocacy was probably a single number – a ‘back of an envelope’ estimate that at least $50bn a year would be needed globally to finance adaptation. but also other environmental issues were perceived as more pressing and directly threatening in public opinion polls.12 In climate vulnerable countries. these hearings became national events where people from poor and vulnerable communities could express their experience and aspirations around cli- mate change. the pub- lic understanding and desire for urgent action fell back in northern and emerging countries. The impact of the hearings thus outlasted the Copenhagen summit itself. pressed European governments to produce its own ‘big number’ for climate finance for poor countries’ mitigation and adaptation needs. Often welcomed by their governments. with 1. and Mary Robin- son.

especially supporting progressive companies to advocate stronger action from the private sector to the UNFCCC negotiating parties. • Closing the implementation gap on the $100bn climate finance package. north and south. • Reshaping its alliance strategy. plus a five-year push at national level for donor countries to make climate finance pledges and for recipient countries to use climate finance to support adaptation for the poor. got a powerful human image on climate onto TV news. so as to make issues of climate change more tangible to the public and to counterbalance an exclusive focus by many governments and NGOs on the energy sector. San Diego] at 17:59 07 January 2017 (COP 14) and Copenhagen. NGOs in economic diplomacy 97 The campaign evaluation produced a number of other findings: • Oxfam’s grounding (real or perceived) as an organization working in communities in developing countries was key to its credibility. both relating to reducing greenhouse gas emissions and helping farmers adapt to climate change. BTB influences large food and beverage companies by using publicly available information to calculate and publish league tables of their performance on issues including climate. finding finance to support new initiatives. and social movements. Oxfam’s climate change campaign adapted its theory of change and gave priority to these issues: • Refocusing on the nexus between climate change and food. with a long and hard battle for the creation of the Green Climate Fund as well as the use of innovative finance mechanisms. . such as the creation of melting ice sculptures in Poznan Downloaded by [University of California. trade unions. by promoting a new joint agenda between environmental and development NGOs. • Supporting ‘drivers’ as allies was more productive than opposing ‘blockers’. and embolden- ing their own communications to customers. • The work with private sector actors had a significant impact. • Focusing on influencing the private sector. and front pages. faith-based organiza- tions. brokering deals. as a key player in reshaping the world economy through its own practices but also as an influencer of gov- ernment with the launch of the Behind the Brands (BTB) campaign in 2013. building alliances and coali- tions. From Copenhagen to Paris Following Copenhagen. its key role was as a ‘convenor’. • Some stunts. • Otherwise. • Oxfam’s media skills continue to make a significant contribution to get- ting the message of urgency and human justice across to publics and decision-makers.

according to sustainability officers of major companies polled by Globescan in 2015. the OECD estimated before COP21 that $61. over $10 billion had been pledged to the Green Climate Fund. a vital step in addressing the historic under-resourcing of adaptation. and only a fraction of them were earmarked for adaptation or for sup- porting the world’s poorest countries and communities. Climate finance took centre stage in Paris. with $100bn as a floor. There was growing awareness of the links between climate change and food security. Five years after the Copenhagen debacle. San Diego] at 17:59 07 January 2017 community was still largely oblivious to the challenges of a ‘maladapted’ world. not only an environmental challenge. The terms of the debate on climate change have been transformed. But the international Downloaded by [University of California. their mobilization still represented a major win in a context of economic crisis and major threats to devel- opment assistance. it was made the theme of the 2014 Human Development Report (UNDP 2014). Kellogg committed to reduce its carbon footprint by 65 per cent across its own operations and reduce the emissions generated by its supply chain by 50 per cent by 2050. Out of the $100bn promised in Copenhagen. The first projects financed by the Fund were largely oriented towards sup- porting vulnerable communities in the Maldives ($23. 98 Duncan Green and Celine Charveriat • Testing new tactics. pledging to reduce its green- house gas emissions by 28 per cent and to work with its suppliers to find ways for . after World-Wide Fund for Nature (WWF) and Greenpeace. Critically. subject to more rigorous evaluation. It is the first multilateral climate fund to have a full gender policy and strategy. Oxfam view was more cautious. .8 billion had been already pledged by donors in 2014. The conclusion of the Paris Agreements led many NGOs to declare a historic victory. closer to ‘outsider’ NGOs and civil disobedience than Oxfam’s usual preference for insider advocacy. The world had woken up and had come together to start facing the mitigation challenge. Climate change was now clearly identified as a human development problem. the Green Climate Fund board has agreed to strive for a 50–50 balance in resources allocated to adaptation and mitigation.13 Close to 10 years of campaigning had turned Oxfam into the third most influ- ential NGO on climate change.6 million) and in Bangla- desh ($40 million).15 As of November 2015. the answer is a provisional yes. The $100bn goal for climate finance was extended in the new Paris Agreement through to 2025. while signifi- cantly increasing adaptation finance from current levels’. the Paris summit appeared like a resound- ing success. among others. following President François Hol- lande’s decision to make this a litmus test of France’s presidency. .14 While these funds were not all grants. as demonstrated by the fifth assessment of the Intergov- ernmental Panel on Climate Change (IPCC 2015) and the global risks report of the World Economic Forum (WEF 2016). But did this increased influence translate into concrete change? In our view. after which a new goal will be set for post-2025 finance mobilization. General Mills also set its climate goal. As a result of public pressure from the Behind the Brands campaign. The agreement also ‘strongly urges developed countries to scale up their level of financial support .

Such tensions were epitomised by the 2005 ‘Make Poverty History’ campaign. even though the anti-poverty coalitions it had worked with in many developing countries saw their jobs as very far from over. and lest this chapter descend into an unseemly orgy of the latter. NGOs often exhibit a disorienting combination of self-doubt and self- congratulation. combining shifting com- binations of national. They move rapidly from one event or policy target to another. The shift to a more variable geometry of campaigning. The Global Campaigning Force document cited above usefully summarizes the recent evolution of Oxfam’s campaign model: If the first phase of OI campaigning was elite advocacy and media on mul- tilateral issues. at both multilateral and national levels. the Climate Vulnerable Forum (CVF). In contrast. challenges and the future Internally.3 million signatures ahead of Paris and a leader of the women farmers delivered them to President Hollande during the summit. which declared victory and closed down after some significant achievements on aid and debt relief at the Gleneagles summit in 2005. clearly demonstrates this evolution. and the recognition that national decisions continue to dominate many development issues (the importance of global processes has sometimes been exaggerated in the past). The formation of a new bloc. The campaign’s petition gathered 1. national campaigns often move to a slower rhythm. under the leadership of finance ministers from 43 developing countries. spending years painstakingly building alliances between dissimilar groups.16 The growing awareness of the impacts of climate change Downloaded by [University of California. there are a number of doubts and ‘challenges’ (as problems are now known) about the evolution of INGO advocacy work. . regional and global advocacy. should ensure that the voices of those countries most in need for finance will be heard more strongly in the years to come. NGOs in economic diplomacy 99 them reduce their carbon footprints. and influ- enced by tactics informed by views coming from different parts of the OI system. powered by a coalition of African NGOs supported by Oxfam. San Diego] at 17:59 07 January 2017 and the need for action has grown within civil society and citizens of the south. is a proper response both to the increasingly multipolar distribution of power. the third might be described as expansion into more diverse approaches that understood change to be led in both north and south. But it also creates some real tensions: global campaigns need a single message. Covering emissions from both direct opera- tions and supply chains. and preferably a single ‘villain’ as target. and the second was an expansion into popular campaigning/ communications and alliance-building.17 Problems. The success of the Women Food Climate campaign. these were ground-breaking commitments not only in the food industry but across the private sector. an initiative by and for women farmers across Africa.

100 Duncan Green and Celine Charveriat Most effective NGO campaigning either involves asking for more money (aid. but fundraising is challenging in the new affiliates. migration or the path of low-carbon transitions. San Diego] at 17:59 07 January 2017 ferences persist on the kind of ecological. political and ideological differences surface over what kind of world the NGO seeks. while solutions and villains are highly contested. climate finance). than to call out other governments on their appalling record on poverty reduction or climate adaptation. a more honest approach may be to concentrate on highlighting and building consensus around the problem.g. Brazil and South Africa. There are also concerns about staff security and Oxfam’s license to operate. where huge dif- Downloaded by [University of California. Until that happens. emergency response and advocacy. With CSO space shrinking in many places in the world. with new affiliates being established in India. it follows a basic campaign recipe of clearly defined ‘problem. economic and political models required to avoid catastrophe. when its country programmes rely on government acceptance. Positive. Oxfam has undergone ‘Bricification’. premature trade liberalization via the WTO). In recent years. in order to be . Often. solution and villain’. aid. In areas such as shifts in norms on every- thing from violence against women to the rights of disabled people. villain’ formulation may suit the needs of media and campaigns. efforts to build a truly equitable new Oxfam are likely to be hampered by economic imbalances between affiliates. Beyond national affiliates. or is focused on ‘stopping bad stuff happening’ (e. tension occurs over naming and shaming states that are failing their poor people or corpora- tions that have appalling practices. but NGOs are often confronted with situations where only the problem is really clear. debt relief. This poses extremely challenging ethical questions: should Oxfam (and other INGOs) be ready to leave and close their programmes. and the need to focus on building an economically viable business model to underpin future influencing work. debt. trade. though that makes the campaigns and press teams’ jobs a good deal harder. More broadly. the ‘problem. Nowhere is this starker than on climate change. and may vary according to time and place. Middle classes in emerging countries are a completely different target and initial investments to cut through in a new market are substantial and take years to bear fruit. which in some cases deliver life-saving services. speaking truth to power is becoming increasingly risky. rather than to pre- tend to have all the answers. The difficult tectonic shifts within global geopolitics are being reflected within INGOs. INGOs like Oxfam are often more willing to criticize rich-country governments for their failings on climate. Oxfam’s public criticism would have no impact and could be counter- productive by occupying the space of national allies and partners. This should lead to a less northern mind-set. propositional campaigning is much harder – alliances easily fragment over what level of reform is sufficient. solution. in those countries where Oxfam runs its combined programmes of long-term development. This is partly because of issues of constituency and legitimacy: in many con- texts.

divorced from real world distribution of power. including Oxfam. But for many larger organizations. Oxfam has come to realize that power analysis must not only embrace the government and private sector actors. or Gulf countries that fund land grabs in Africa? Downloaded by [University of California. A further consequence of multipolarity is that NGO tactics that have evolved to influence largely open. agility is now facilitated greatly by digital communications tech- nologies. over the political. NGOs in economic diplomacy 101 able to speak truth to power? Or should INGOs stay at any cost because their most fundamental mission is to deliver such services when other duty bearers are failing. San Diego] at 17:59 07 January 2017 NGO campaigns continue to privilege the economic and the technocratic. these are much more on citizens’ . public opinion (or anticipated public opinion through extensive media coverage). Of course. the more Byzantine the processes for adapting and changing those plans. How to influence Chinese policy in Africa. large NGOs inhabit a ‘planners’ world’ of five-year strategic plans and continuous and predictable change. the public. including the public messages and big asks. and decision-making pro- cesses. One of the authors has written a book on ‘How Change Happens’ to address some of these issues (Green 2016). Linked to this focus on the economic and the technocratic is a weak under- standing of processes of change. Pushed partly by the world of fundraising and programming. but also civil society organizations and. Insufficient attention is given to power analysis. Viral campaigning and communications offer massive potential for citizens’ empower- ment and participation. and how it fits into the wider cognitive frames by which we all make sense of the world. importantly. showed in moving fast to link the global financial crisis with the need to promote a transition to a low-carbon economy. whether legal. Almost all the major changes Oxfam seeks will mean confronting vested interests. such as events. a vital element of its campaigning toolkit. There were a small number of fleet- of-foot organizations that were capable of making this rapid shift. The larger the NGO. financial and physical. as well as the more subtle reputational risk of losing the ear of decision-makers. shocks. it took too long to turn the super-tanker around. This can lead to a degree of inertia that makes it hard to react to opportunities for inf luence. As a global campaigning organization. but compared to the past. especially those in countries where space for civil society is limited. Only then can campaigners be confident in designing their overall strategy. But to be effective in motivating publics and strengthening their resolve to get change. Therefore. These offer both opportunities and challenges to large INGOs. There are institutional reasons for this – an overtly political stance carries high risks for many NGOs. with many campaigns instead exhibiting what one of the authors caricatures as ‘if I ruled the world’ advo- cacy. accountable governments may be of little value when targeting more closed systems. the so-called Green New Deal. changes of government etc. A good example of this was the lack of agil- ity many organizations. advocacy organizations have to have a better understanding of the public’s current thinking and assumptions on the issue. though perhaps healthy in the long term.oxfam. Copen- hagen Accord. 8 In the lexicon of climate change negotiations.htm. Available at: www. p.oxfam. Notes 1 See Oxfam International Annual Report 2013–14. that is surely inevitable anyway. 12 http://www. mimeo). fiscal austerity will restrain the expansion of INGOs. Available at: http://www. who will need to invest in both understanding them and learn- ing how to work together for common goals. See http://foreignpolicy. Power Analysis Checklist and Methodology. the disarma- ment or the environmental sphere. small island developing States and Africa’.org/ wiki/List_of_United_States_treaties. 10 ‘Funding for adaptation will be prioritized for the most vulnerable developing countries such as the least developed countries. and ‘giving’ them campaign actions to take. mitigation means action to prevent the onset of global warming. For INGOs that became dependent on the latter. the implications can be severe. 2005 (Oxfam Interna- tional. Either way. San Diego] at 17:59 07 January 2017 Finally. while adaptation refers to measures enabling countries to respond to it once it has arrived. This requires INGOs like Oxfam to reduce control of their campaign messaging and let their constituencies play with and adapt the campaign to suit themselves and their online communities. or through cuts in government funding. 261-environmental-concerns-at-record-lows-global-poll. 102 Duncan Green and Celine Charveriat terms than Oxfam’s. Adapting to Climate Change: What’s Needed in Poor Countries and Who Should Pay. 5 See.oxfam. 13 See. http://www.html. In the long 3 Oxfam International (2009). But overall. 2 The word democracy comes from the Greek ‘demos’ (people) and ‘kratos’ (power). towards ‘facilitating’ supporters to campaign in their online networks and for them to design how they want to go about it. (the latest being the US–South Korea FTA ratified in 2011).org/en/research/oxfams-initial-analysis-paris-agreement. Available on http://www. http://ec.wateraid. 9 Apart from trade the-exception-7-other-treaties-the-u-s-hasnt-ratified/ and https://en. Congress has also failed to ratify many treaties in the human rights. 7 See. oxfam. Downloaded by [University of California. NGOs and other non-government actors will continue to com- plicate and complement (though seldom compliment!) the work of diplomats and decision-makers. The Global Campaigning Force: Update Discussion Document (mimeo). either through less generous public Publications/advocacy-sourcebook. 4 Celine Charveriat (2005) en. 18 December 2009. . https://www. the US Congress has not ratified treaties in the economic sphere for close to two 6 Water Aid: The Advocacy Sourcebook. and perhaps the civil societies of the BRICs and similar will grow to take some of that space. This implies a profound shift in its campaigning approach: away from one of ‘pushing’ campaign messages out to supporters. the recessions and austerity in many of the richest countries mean that INGO income is down or flat. 11 Kate Raworth 2007.

Action and Reflection. How Change Happens. Civil Society. Strategies of the Emerging Countries in the World Trade Organization. Development as Freedom. Available at: http://www. Evaluation of Oxfam GB’s Climate Change Campaign. civicus-home/1623-civil-society-the-clampdown-is-real. Tobin.civicus. and Covey. Woll. Available at: http://www. Available at: http://www. Mongolia. J. S. Lewis. Available at: T. Global Risks Report. New York: UN Development Programme. in The Emerging States: The Wellspring of a New World Order. Civicus 2010. Philip- Downloaded by [University of California. DC: Carnegie Endowment for International Peace. 1997. Grenada. Closing Space: Democracy and Human Rights Sup- port Under Tuvalu. Ethiopia. D. edited by C. 2001. Available at: http://www. Senegal. 1978. Civil Society and Development: A Critical Exploration. Boul- report-2016. Dominican Republic. Guatemala. htpap/docs/Hopkinsreport. DR Congo. http://politicsofpoverty. San Diego] at 17:59 07 January 2017 pines. Miller. Cam- bodia. Civil Society: The Clampdown is Real! Available at: http://www.dlprog. Costa Rica. Maldives. References Carothers. Saint ftp/download/Public%20Folder/1%20Research%20Papers/Working%20Politically %20Behind%20Red%20Lines. Madagascar. CO: Lynne Rienner. Honduras. and Brechenmacher. Ghana. Washington. Bangladesh. A Case Study of Donor Impact on Political Change at the Grassroots in Vu Quang District. 2008. How Freedom Is Won: From Civic Resistance to Durable Democracy. er-climate-change-campaign-010310-en. Oxford: Oxford University Press. UNDP 2014. D. J. WEF to-100-billion-in-climate-finance/ 15 See https://unfccc. Avail- able at: http://Oxfamilibrary.exposure. Tadros. MA: Institute for Development Research (IDR). Human Development Report 2014. org/web/climate-vulnerable-forum/cvf-participating-countries/ 17 See. 2003. Niger. 2016. Management and Development. Vietnam and Yemen. Abingdon: Routledge. Nepal. Timor- Leste.21. A Proposal for International Economic Reform. Palau. 2014. Non-Governmental Organizations.pdf. Jarelot. Kiribati. Advocacy Sourcebook: Frameworks for Planning. M. Paris: Presses de Sciences Po. 153–159. A. S. South Sudan. Ha Tinh Province.thecvf. Sen. Eastern Economic Journal. H. E. and Pearce. Oxford: Oxford University Press. Freedom House 2005. Tunisia. B. NGOs in economic diplomacy 103 14 See. 3rd edition. M.openrepository. Burkina Faso. The Fifth Assessment Reports of the Intergovernmental Panel on Climate Change.pdf.mande. Haiti. . Viet Nam. 16 The CVF members are Afghanistan. V. J. Green. 2011. Rwanda. Cambridge: Polity. Malawi. IPCC 2015. Kenya.ipcc. 1999. https://oxfaminternational.weforum. Papua New Guinea. Marshall Islands.freedomhouse. Fiji. J. Working Politically Behind Red Lines: Structure and Agency in a Comparative Study of Women’s Coalitions in Egypt and Jordan. para 115. Available at: http://www. July–October. C. Leisher. Available at: www. 3rd edition. Sri Lanka. and Otero.oxfamamerica. Vanuatu. Boston. 2010. The quotation is from Decision 1/CP. Bhutan. Morocco. Howell.pdf. Edwards.

org/en/portada. World Economic Forum: www. Climate Vulnerable Forum: Behind the Brands: www. Pan African Climate Justice Alliance: 104 Duncan Green and Celine Charveriat Useful websites Adva Centre: www. Social Watch: www. Downloaded by [University of Oxfam: www. Water Aid: www. Via Campesina: www. UN Framework Convention on Climate Change: San Diego] at 17:59 07 January 2017 Intergovernmental Panel on Climate Change: Ethical Trading Initiative: www.php. Extractive Industries Transparency Initiative: www. Green Climate Fund:

as well as the principal beneficiary. in close collaboration with government entities. involving indi- vidual business enterprises. it can be seen as a vast public–private partnership. encouragement to innovation. spoke eloquently of the close nexus between . vocational training. even in economic diplomacy activities in which governments are the prime actors. across a broad front? Not all governments acknowledge and act on the premise of a two-way. remaining major players even while in other countries their counterparts have receded in importance. some even by stealth. such as free trade agreements (FTAs). negotiation at the World Trade Organization (WTO). Rana Through policy actions undertaken since 1991. the business world. the chequered manner in which such public–private partnerships are structured and deployed in different countries. working with the state in advancing the country’s interests. Should we then be surprised that all too often. whether focused on trade. tech- nology or other sectors such as tourism. and more frequently their collective groups. It has benefited from the promotional activity conducted by the government. dominated by the private sector. and scientific collaboration with overseas partners. if we look to the totality of a country’s external economic diplomacy. education for foreign students. Thus. be it in framing regulatory arrangements. such as asso- ciations and chambers. business is often the driver. has become the centrepiece of India’s Eco- nomic Reforms and its economic diplomacy. Across the world. Indira Nooyi. San Diego] at 17:59 07 January 2017 India’s economic diplomacy Kishan S. That is one of the paradoxes of economic diplomacy. State-owned enterprises of the central government also participate. 6 SERVING THE PRIVATE SECTOR Downloaded by [University of California.1 Economic diplomacy and commercial diplomacy At an annual conference of Indian ambassadors held in New Delhi in August 2010. business plays an active role in political diplomacy as well. interactive partnership as portrayed above. the CEO of Pepsico. We witness a series of public–private partnerships (PPPs). or while crafting investment protection accords or working out external aid programmes. investments.

The job of the ambassador is to have the authority and rank to be able to say this without fear of reprisal. How an ambassador positions their country during a growth phase will say a lot about their country’s prospects when there is a downturn. San Diego] at 17:59 07 January 2017 need for candid advice. it is the business enterprises of the aid-providing country that are the benefi- ciaries of such aid. policy issues are a major component of economic diplomacy. and projection of a country’s brand image are part of the same cluster. an ambassador needs to make sure that they are humble in representing their country. lines of credit and even foreign training programmes that come under the rubric of ‘technical cooperation’. She compared diplomats with ‘investor rela- tions executives’ who visit investors. and added: This translates. The early consulates established by European states in the 16th century in the Levant were run by foreign merchants. Rana diplomacy and corporate enterprises. gradually the state stepped in and took charge of these entities. that is when commercial diplomacy took shape (Berridge 2009). Commercial diplomacy has existed from the first time that state agencies took on the role of facilitators of trade exchanges performed outside the country by merchants and businessmen. Economic diplomacy is a more recent compendium of activities that grew after the end of World War II. in that the latter deals with policy issues. One can present the differ- ences on a graphic as in Figure 6. For instance. Similarly. they are treated well and accorded all the importance and rights consistent with local companies. If a country is not as hospitable to business as it might be. For sure. 106 Kishan S. She declared: ‘Commercial diplomacy entails talking to private enterprise. whether seen from the perspective of the aid-provider or the aid-recipient fall within the rubric of ‘economic’ arrangements. But ‘economic’ is a much wider term than ‘commercial’. but not commercial diplomacy. That also applies to dialogue with major multilateral economic institutions. Governments became involved with management of external economic activities and foreign ministries began to pay special attention . be it the IMF or the World Bank. It means that the process of government constantly improves with input from investors’. and it is possible to see the latter as a subset of the former. well outside of what we normally mean by commercial diplomacy. then its leaders need to know about it and be willing to do something about it. or the regional entities such as the African Development Bank (AfDB) or the Economic and Social Commission for Asia and the Pacific (ESCAP). in the world of commercial diplomacy. into the absolute Downloaded by [University of California. Promotion of tourism. and relay their concerns back to the corporate headquarters. to act as trade facilitators. Is that the same as economic diplomacy? For some. through mutual arrangement. if its corporate governance standards are not up to world standards. The ambassador should also ensure that after multinational companies invest in India. yet.1. commercial diplomacy is distinct from economic diplomacy. aid issues. listen to their issues.2 This captures well the expectation of major global enterprises vis-à-vis the diplo- matic system. We should note that Indira Nooyi spoke of commercial diplomacy.

technology ECONOMIC FDI promotion + transfer. FTAs. It also illus- trates how economic diplomacy serves the business sector (Rana and Chatterjee 2011. In India. which almost overnight quadrupled crude oil prices. it was the Plowden report of 1964 that identified export promotion as a priority activity for diplomatic missions. which examined the working of the Indian Ministry of External Affairs (MEA). my own and of other colleagues. we can divide their economic diplomacy actions into four distinct phases. while the 1969 Duncan report gave an even stronger push to economic diplomacy. As a ‘non-oil’ developing country. observation of other countries. IMF. . In the United King- dom. but MEA’s economic promotional role has remained contested by the other economic ministries. This is based on India’s experience. Rana 2015). That emerged as a concern just a few years later. S&T DIPLOMACY investment & agreements other accords Joint Commissions. and foreign service career impressions. the 1966 Pillai report. San Diego] at 17:59 07 January 2017 DIPLOMACY multilateral trade issues Aid. RTAs + networking with other trade business agreements World Bank. business councils.1 Economic diplomacy and commercial diplomacy to the economic content of relations with foreign countries. especially the Ministry of Commerce and Industry. as a response to the first ‘oil shock’ by the OPEC cartel. and that entity slowly grew into its economic diplomacy role. Country brand. MEA established an economic division at the end of the 1960s. India was forced into heroic actions to raise foreign exchange resources. Phases of economic diplomacy Looking to the experience of developing countries that have faced a steep learning curve in managing international relationships after winning inde- pendence. UNCTAD. India grasped that nettle firmly after 1973. tourism promotion EP groups FIGURE 6. etc COMMERCIAL WTO Downloaded by [University of California. gave some emphasis to trade but made no reference to promotion of foreign direct investment (FDI). India’s economic diplomacy 107 Trade promotion.

. during an early part of India’s economic salesmanship phase. The MEA acted as a facilita- tor. especially automotive manufacturers. few private Indian enterprises were active in North Africa. Pakistan. my first ambassadorship was in Algeria (1975–1979). sending out young envoys. In those early days. besides dozens of professors and engineers. and Bonn (1992–1995). public sector and private. among them Bangladesh. to help Indian com- panies. A number of other developing countries. with the difference that in addition to engineers and other professionals. with a preference for Eastern Europe and the Soviet Union. In 1975. It leveraged political connections with the Arab countries. After the 1973 oil price surge. especially the oil-rich states that were suddenly flush with money. and placement Downloaded by [University of California. remittances have con- tinued to grow. India’s growing technology expertise was unknown in Algeria. India had to find resources to cover its oil imports. Commencing in 1977. the key difference was that private Indian companies became increasingly active. the Gulf region hosts nearly 6 million Indian skilled workers. Mauritius (1989–1992). San Francisco (1986–1989). to seek out turnkey projects. Tata Exports won our first industrial contract in 1977 for the setting up of two electric sub-stations. Indian state enterprises active in exports tended to focus on the bulk markets offered by exports of basic commodities. Growing indus- trial capacity in India pushed private firms towards new export markets. jos- tling elbows with a receding number of public sector enterprises. 2015: chapter 6). it was our public sector companies that had the determination to tackle difficult new markets. the Philippines and Sri Lanka underwent a like experience. in Prague (1979–1981). 108 Kishan S. By the time I left Algiers at the end of 1979. but we took advantage of a favourable political disposition among the decision-makers and state enterprises dominating the economic landscape. Today. they are the principal contributors to the $72 billion received in 2015 as remittances. hundreds of thousands of skilled workers went out. iron ore and the like. That story was replicated in Libya and elsewhere. Algeria recruited over 800 doctors from India. to seize local opportunities and weave new economic connections. besides hundreds of thousands of Indian professionals. Despite global recession in 2008–2009 and the return of some workers. India opened embassies in all the Gulf States. San Diego] at 17:59 07 January 2017 for skilled as well as advanced technical manpower. At my subsequent overseas posts. consultancy assignments. Rana I. Indian companies had won 12 contracts (Rana 2002: chapter 3. it was only in the 1990s that they saw the value of accessing export markets. Another activity conducted largely at private initiative was the overseas deployment of Indian manpower. Nairobi (1984–1986). Giving ambassadorial rank to officials with barely 12 or 15 years of experience motivated them to prove themselves. several state enterprises followed with project and consultancy deals. but most went on individual contracts with the Algerian authorities. Economic salesmanship By good fortune. But it was early days for market leaders in India with long domestic waiting lists.

our local allies were the Indian technocrats working in the high-tech enterprises. non-official agencies stepped in to fill the vacuum. With their ground intelligence. we reached out to local industry asso- ciations and their specialized entities. with the creation in 2009 of a joint venture company. In October 1987. San Diego] at 17:59 07 January 2017 gave salience to efforts to maximize exports. India’s software exports were $100 billion. to ensure that it was not treated as a government subsidiary (see http://www. India launched economic reforms in 1991. Indian economic diplomacy agents established effective coordi- nation with non-state agents: the principal business organizations. The Indian companies pursuing the information technology market dream were private companies. it was Indian embassies that played a promotional role. he would bring . our experience with the nascent Indian software industry. and assist Indian com- panies to access technology. which many have viewed as no less than a second independence movement. In 2015. From the late 1980s onwards. ‘Invest India’. which were to become business legends a mere decade later. I hosted the first ever ‘Software India’ presentation by a cluster of just 12 companies. mostly start-ups. India’s total software exports were barely $15 million. the iconic Jack Welch. and for the most part they performed very well. freeing the economy from self-imposed shackles of statism and the ‘license raj’. These reforms Downloaded by [University of California. India had matured into the second. illustrates the role of private companies as well as the benefits of networking. CII was a pioneer in reaching out to overseas business. our target of taking this to $100 million in three years’ time seemed unattainable. and its first wins in Silicon Valley and other parts of the United States. From mid-1980 onwards. India’s economic diplomacy 109 II. almost precisely at the time when the economy opened up with the launch of Economic Reform in 1991. India had no agency with a dedicated man- date for drawing in investments. economic networking and advo- cacy phase. Economic networking and advocacy By the mid-1980s. mobilize FDI. Initially. together with economic think-tanks and non- governmental organizations (NGOs) active on international economic issues as well as the media. At the same time. like the American Electronics Association and Electrical Power Research Institute at Palo Alto and universities such as UC Berkeley.investindia. the two phases telescoped into one another.3 A fine example of their effort was their pursuit of the CEO of General Electric. notably the Confederation of Indian Industry (CII). where the government deliberately chose to take a 49 per cent minority share. Meanwhile. Their calculation was that if he could be convinced of the importance of the Indian market. Although investment conditions underwent a radical improvement. by FICCI and the Department of Industrial Policy and Promotion. on the ground. as Consul General at San This came only much Strangely. investment promotion as an official activity directed from New Delhi went into a lull. though basic salesmanship continued. and the Federation of Indian Chambers of Commerce and Industry (FICCI). besides improving the flows of inward aid and of foreign tourists.

the majority of them holding doctorate level qualifications. Next morning. When good collaboration takes place. Yet coordination among Indian official agencies active in economic affairs has remained patchy and a top-down process. This leads to actions designed to improve the country . in the United States and to a lesser extent in Canada and the United Kingdom. Immediately they began bombarding their headquarters with stories about the latent business oppor- tunities in India. and that in turn would bring an influx of major US corporates. III. Image building The new element during this third phase of economic activity is a realization of the importance of image. During this entire period. making fair headway in gaining a place at the tables where decision-making on investment policy and economic pol- icy implementation takes place. as the cherry on the cake. They persuaded a contact to keep open late his manufacturing plant at Gurgaon. For instance.000 engineers and scientists. When investments approved by New Delhi run into problems. the Indian Prime Minister has headed a ‘Trade and Economic Relations Committee’. there is at best episodic follow-up by Indian embassies. Since 2004. with nearly 3. The net result was that within eight or ten months. their company had one joint venture operational in India and two more were under discussion. 110 Kishan S. the Ministry of External Affairs strove for a central role in external economic diplomacy. they took him straight from the airport to see this plant.4 Those numbers have grown further. not on institutional arrangements. Rana GE into India. The company asked a vice-president. they drove him to Agra to see the Taj Mahal. acted as internal evangelists. need to work better with the Indian embassies that are at the cutting edge of local outreach to foreign corporations. but all coordination issues cannot be pushed up to that level. India’s strong and effective negotiation posture at the WTO is not sufficiently backed with match- ing advocacy at the key bilateral capitals. They were sent to India to service their clients who bought their instrumentation and other high-tech products and on the side look for new business. In 1996. India’s experience was that the Indian technocrats who worked in the high Downloaded by [University of California. San Diego] at 17:59 07 January 2017 technology companies. it usually hinges on individuals and their personal relationships. That has been a factor in the presence in 2010 over 63 of the US Fortune 500 companies that operate research centres in India. to judge the level of technical and orga- nizational expertise. to stop over in Delhi for 24 hours and ask them to calm down. to motivate companies to look closely at their India options. When the vice-president arrived in the evening. Nor is investment promotion sufficiently harmonized: the key agencies at home. which implement policy and run the investment approval process. In the event GE established in Bangalore one of the largest research centres in the world in the late 1990s. who was visiting Korea. two Indian-Americans from a California based company told a delightful story at a business seminar in New Delhi. providing them with information and motivating them. barely 15 km from the airport.

For and indices that publish ratings on the economic environment and ease of business. their average duration of stay and the country’s earnings per tourist. and several Indian companies provided sponsorship. some might argue that the quality of the infrastructure for foreign visitors is no less vital. FICCI is well represented in the ‘Boao Forum for Asia’ (BFA). which astutely declares: ‘Think Asia. attention is paid to the tourism sector of the economy: the number of foreign visitors. Invest Thailand’. unlike Thailand. in the mid-1990s. given its usual bureaucratic procedures. when the slogan ‘Incredible India’ was chosen after a national contest. boaoforum. 81–85). where CII has gained for itself a leading position as a prime partner. An early move for image marketing was the setting up of an India Brand Equity Fund. Frequently. a minister represented India for the first time. the private business sector has taken the lead in taking the Indian brand overseas. the Modi govern- ment of May 2014 declared a policy goal of getting a rank in the top 50 for ‘ease of doing business’. In April 2010. In Efforts to build a more attractive tourism image went into high gear after the year 2000. a China-centric business and political forum that annually brings together lead- ing business and political leaders from East and South-East Asia (see http://www. tourism industry infrastructure also underwent improvement. The annual growth rate is around 7 per cent. When the Commerce Ministry found that it was not easy for it to run the Rs. Branding effort also focuses on credit rating agencies. using the slogan ‘India Everywhere’ (Pigman 2007: 14. While this has long been on the radar of Indian economic decision-makers. It is this last figure that translates into the size of this service industry. it has achieved a modest shift from position 140 to 132 in 2015.aspx). in which the presentation of the image of the country as a destination is only one element. .8 billion. India as a tourism destination had plateaued at about 3 million visitors dur- ing much of the 1990s. Tourism marketing involves several different activi- ties. CII has also made an impact in many new.7 million foreign tourists visited India. tourism industry logistics are a part-contributor Downloaded by [University of California.ibef. San Diego] at 17:59 07 January 2017 to image. 7. together with global financial institutions such as the World Bank and IMF. as a public–private partnership (see http://www. with an average stay of foreign tour- ists over 20 days. India’s economic diplomacy 111 brand. In parallel with higher economic growth after the 1991 reforms. earnings were $19. much higher numbers can be reached. All of them.500 crore (then $55 million) fund. their countries of origin. with its ‘Made in India’ tradeshows. This has particularly been evident at the World Economic Forum (WEF) at its annual meetings at Davos. we find sub-state entities reaching out with their own province or regional level brands. the operation of the fund was handed over in 2000 to CII. This has been working well and plays a useful role in image marketing. In 2014. When the tourism industry matures. India does not have an economic or business marketing slogan. but with better facilities and marketing. provide guidelines and reports that influence corporate boards that decide on foreign investments and marketing strategies. non-traditional markets. as sub-sets of the national brand.asp). organizers of world busi- ness conclaves.

and Sri Lanka (BIMSTEC). An associated home task is to reach out to the varied partners and harmo- nize their sectorial interests with national priorities. Regulatory management and resource mobilization The final phase is regulatory management and resource mobilization. New initiatives in regional economic arrangements have come from the MEA. where the competence of each agency. In regional and bilateral FTA agreements. to develop closer trade and transport links. Brazil. because it has no subject-dictated agenda of its own. it held its first summit meeting in Brasilia in October 2006. official and private. of course. Up till then India had an ‘ideological’ bias that viewed regional and bilateral free trade agreements (FTAs) as derogating from the principle of multilateral universality of trade lib- eralization under the GATT/WTO formula. energy access agreements. Myanmar. that is. An outstanding example was India’s very first bilateral FTA. IBSA (India. and India has since signed similar bilat- eral agreements with Thailand and Singapore. India. Often. . is respected. when the three countries decided to build on their proximity on international economic issues. and South Africa) came into exis- tence in 2003. Such coordination cannot be imposed by right or dictated. The forte of the foreign ministry is its control of the totality of the external inter-state dialogue. the operation of economic diplomacy has not always been in synch with political objectives. this has been a key plank in a ‘Make in India’ policy that the Modi government has pursued since it came to office in 2014. and sometimes nota- bly absent. and the Ministry of External Affairs confined to a small role. as well as one with ASEAN as a regional grouping. The foreign ministry is the logical centre point of such efforts. it emerges when these agencies see the foreign ministry as bringing value to their direct interests. and that often the balance of advantage has favoured foreign partners. and bringing business entities. which has to be handled with finesse and sensitivity. think- Downloaded by [University of California. and China). and regional diplomacy via innovative new groupings. Part of the problem was failure to harmonize these agreements with tax regimes that favoured domestic manufacture. signed with Sri Lanka in 1999 (Rana and Chatterjee 2011: chapters 17. India has shown the complexity of economic management: with policy-making fragmented. later transformed into BRICS with the inclusion of South Africa. Rana IV. 18). under the oversight of the head of government and his staff. Criticism has emerged in India that such FTAs have not delivered the promised value.5 But the Sri Lanka FTA has been a singular economic and political success. negotia- tion of trade agreements. aiming to create a free trade area. San Diego] at 17:59 07 January 2017 tanks and NGOs into the external negotiation process. among others. without over-pitching one’s demands. safeguard- ing the interests of domestic industry and agriculture is a vital issue. BRIC (Brazil. 112 Kishan S. the inter-ministry coordination has been uneven. These tasks require domestic coalition building. Rus- sia. working jointly to establish new standards in home policy. later joined by Bhutan and Nepal. In 1997 Thailand and India set up a cross-regional network with Bangladesh.

not the public entities. mainly produced in the region around Calcutta (now Kolkata). When I was in Algeria in 1977. state and non-official. the enterprises that belong to the public sec- tor should be privileged over those from the private sector. as noted. and South Korea. Originally identified by Goldman Sachs as the future growth locomotives of the world. Neither STC nor the MEA objected to the embassy’s action (Rana 2002). China. For India. while in South-East Asia and Africa. or Iraq. These reports went to the economic ministries concerned. public or private. headquartered in Shanghai. San Diego] at 17:59 07 January 2017 the second largest contributor to the latter. Working with the private sector It has taken some time for diplomacy professionals to learn the methods of dealing with the corporate world. these countries have now come together in a caucus based on shared interests and held their first summit in late 2009. Negotiations underway in early 2016 for a ‘Regional Com- prehensive Economic Partnership’ (RCEP) encompassing the ASEAN states and six other states. Kuwait. Thus often choices had to be made. the Indian experience may have wider relevance. and to the principal enterprises . Starting in 1976. Public versus private When Indian embassies first embarked upon economic diplomacy. New Zealand. Since different countries. marshal- ling cooperation with other agencies. India has joined both the BRICS-created New Development Bank. a private Indian company was the first to identify an Algerian enterprise as the final user for jute bags. and is Downloaded by [University of California. the apex industry and export promotion bodies. and the Asia Infrastructure Investment Bank set up in Beijing as a Chinese initiative. Some months later. might regard as commercially sensitive. I urged STC not to act as a spoiler for the private Indian company. that took the lead. it seemed logi- cal that where choices were available. Some impetus comes from an urge not to be left behind. These represent important new actions in expanding funding options for much-needed infrastructure building in India and other countries. the MEA is the lead coordinator on each of these groupings. are at varied stages along this learning curve. given the conclusion of the Trans-Pacific Partnership (TPP) in 2015 (see Chapter 11. India’s economic diplomacy 113 has gained traction. Japan. But private enterprises followed with alacrity in the major countries. I took care to avoid information that any enterprise. like Saudi Arabia. My experience with reporting to both state and private enterprises was equally positive. Australia. this volume). In the oil-rich states. at each of my six overseas assignments I wrote six-monthly reports giving a brief overview of local and bilateral economic developments and the state of play on the projects or large contracts that were under action at the time. it was the private enterprises. reveal a new level of flexibility and sophistication in India’s negotiation stance. it was usually the public enterprises that took a lead with project contracts. India. when our state enterprise STC made soundings to sell the same product to this Algerian customer.

marketing India as an investment destination. Two examples illustrate this. Invariably. First. At the same time. always led by the President of CII of the time. It becomes vital for embassies and foreign ministries to profit from the networking contacts provided by such composite groups that engage in ‘Track Two’ dialogues of this . FICCI took over responsibility for run- ning bi-national business consultations. they also gave full membership to the subsidiaries of foreign enterprises. cultural. The participants established business contacts for themselves. One of my best contacts in Germany was the executive head of the Bundesverband der Deutschen Industrie (BDI). The Con- federation of Indian Industry was the first among the apex bodies to admit public enterprises as full members. I received several CEO delegations. It is increasingly the fashion for countries that seek closer mutual ties. In time. giving promi- nence to business delegations from home. the business ethos in India underwent evolution. again following CII’s lead. and by the 1990s. especially in large and var- ied societies such as the United States and Germany. but company-to-company deals were not pursued during the visits. During the 1980s. A second gain becomes evident where business leaders of pairs of countries join in ‘eminent person groups’. San Diego] at 17:59 07 January 2017 suit in the 1990s. public and private. first in San Francisco and then in Germany. Each group was carefully selected. enriched through subsequent CII visits to Germany. improves the local contacts for envoy and his team. 114 Kishan S. the Federation of Indian Chambers of Commerce and Industry (FICCI) and the Association of Indian Chambers (ASSOCHAM) followed Downloaded by [University of California. This added to their prestige and improved my insight into the assignment country. This is a huge advantage for diplomats. and other links. Rana involved. Tarun Das. CII organized ‘CEO delegations’ to the top Western markets. or other similar entities to engage in ‘strategic dialogue’. these included the heads of public sector enterprises. That wide distribution did not evoke any criticism. Wider benefits From the perspective of embassies abroad. I owed that to Tarun Das’ initial introduction. in favour of creating a more equitable balance between state and private enterprises.6 I accompanied these business groups throughout during the packed two or three day programmes. and accompanied by its dynamic Director General. usually held at ministerial level. there are two other direct benefits of working closely with businessmen from the home country. to associate their economic contacts with political. for sure. by setting up groups that bring in people from different society sectors. the recipients valued the wide local contextual information that was furnished. and hosting their meetings with local business leaders at the embassy residence. CII’s German counterpart. these business associations embarked on a proactive role as advocates of bilateral economic partnerships that went beyond narrow corporate interests. meshing these with official ‘joint com- mission’ meetings. the main focus of these delegations was on coun- try promotion. Currently FICCI runs over 80 such bilateral business forums.

in terms of actual issues raised with the mission by local interlocutors about business and other conditions in the home country. without a solid peg on which to anchor that advice. the yardstick has to be how much this connects with the direct interest of the home country or one of its constituents. such as political or cultural activities. He was then head of the Bertlesmann Foundation and a member of the India-Germany Consultative Group. What about tendering advice on what the government should do. We took this up with the state government at a high level. the very first foreign company to set up an offshore software development centre in Bangalore. and received within 48 hours a reply from the state Chief Secretary that they were fully aware of the importance of this project and this entity would be exempt from any power cut. former foreign affairs adviser to Chancellor Kohl. For example. For instance. In similar fashion. though it was contrary to usual . An example illustrates this. without sugar- coating. What about advising the country of assignment on its economic framework conditions? Again. which gave us exceptional access in the Downloaded by [University of California. India’s economic diplomacy 115 nature (Rana 2002a. When visiting India in 1993. Feedback on business issues In the quotation at the start of this essay. we persuaded him to become our honorary Consul General. When in 1994 he joined the management board of BMW and moved to Munich. Pepsico head Indira Nooyi made a key point: ambassadors have a responsibility to take up with host governments issues relating to standards of corporate governance and the business environment. in 1986 Texas Instruments. I cultivated Horst Teltschik. But a diplomat might hesitate to tender unsolic- ited advice on what should be the policy of the home government. Business contacts can be used to promote relations in other activity areas. How does that work in practice? Envoys must report back to their governments with honesty and integrity. A polite term for that in this profession is ‘localitis’. 2008). Indian missions relay back to home authorities local feedback from investment promotion conferences. Governments are wary of their own envoys that become too obviously the spokesmen for their countries of assignment. One should have no inhibi- tion in defending domestic stakeholders that face difficulty. German Chancellor Kohl brought with him a strong business delegation and asked if they could meet the Indian Prime Min- ister. San Diego] at 17:59 07 January 2017 important state of Bavaria. in terms of investment and business conditions for foreign enterprises? This too is necessary. to say nothing of specific investment or other business related complaints. and also report to home governments on global standards ‘without fear of reprisal’. contacted us in San Francisco (our consul- ate then covered Texas) about its apprehension that a power supply cut imposed by the Karnataka government would disrupt their operations. This was accepted after some to-and-fro. after I reached Bonn in 1992. The first responsibility is to present the ground situation as it exists. but gratuitous advice on what that country ought to do is a different matter. our Track Two cluster.

• Embassy or foreign ministry officials may be tempted to claim payment. Sometimes embassy members. especially when close to retirement. Just before his return visit a year later. to guide them on the straight and narrow path of rectitude. Rana Indian practice. this public criticism of his host country was badly received by the Indian media. for the introductions they provide to help home businessmen in their foreign contacts. While he was right in his diagnosis. This too should be resisted. This created a good impact when he met with German and Indian businessmen in Bonn (Rana 2015: chapter 1). In contrast. which were inhibiting FDI inflows from his country. and in practice it is the enforcement of regula- tions that sends a clear message to those that fall prey to temptation. Similar temptations may also arise for officials in foreign ministries who are involved in making arrangements for home businessmen to access overseas mar- kets. to gain post-retirement appoint- ments for themselves. The German executives had prepared well for this and offered Prime Minister P V Narasimha Rao a long catalogue of suggestions on improving investment and other business conditions in India. Potential hazards Proximity to business is not without potential hazard for embassies and for dip- lomats. in the 1990s a Japanese ambassador used a public speech to Downloaded by [University of California. At the same time. Conduct rules for officials exist in every administration. at Rao’s request. . by way of commis- sions for deals that they may help to arrange. at home or overseas. or some kind of compensation. 116 Kishan S. San Diego] at 17:59 07 January 2017 criticize India’s investment conditions. Or businessmen may offer some form of reward for such activity. be it in the United States or France. In countries where appointments to public office and to private entities resemble a revolv- ing door. can be tempted to get involved. or prescribing a ‘cooling off’ period before officials can take them up (in India this is two years). Foreign ministries do not advertise the misdemeanours of officials. Many countries guard against this by stipulating an approval process for such appointments. but let us consider some situations where things can go wrong: • In some countries local officials expect commissions or bribes to grant con- tracts or to speed up approvals. but India has a conservative view of officials taking on post-retirement appointments with enterprises that were their official contacts during their time in public service. rules and guidelines can- not cover every kind of situation. Envoys must be very vigilant that their staff keeps clear of any entanglement in such situations. Rao made sure that a detailed reply was furnished to the German memorandum. including locally engaged employees. • Officials. It exposes officials to temptation to personal profit. may be tempted to leverage their corporate contacts. or to seek other avenues personal gain. this may not be seen as a big issue. They followed this up in writ- ing.

But Indian companies have been less agile in pursuing opportunities in Asia. under the Shah. but in recent years ODI has hovered between $15 to 25 billion per year. The role played by service providers. but MEA does not have a regular mechanism for economic diplomacy-related consultation. adapted itself well to the new situation after 1991.7 Some Indian companies burnt their fingers at the time of collapse of the Soviet Union. some believe this surge will continue. Thanks to the ‘Make in India’ drive of the Modi government. in part owing to problems in other emerg- ing markets. like business consultants and lawyers. risk assessments and use of effective business consultants (Viswanathan 2013). including former ambassadors. financial year 2015–2016 may close with over $55 billion. or any other . has been expanding. India’s economic diplomacy 117 A different kind of problem is caused by over-concentration on economic diplomacy. an advisory council composed of leading overseas Indian businessmen was also established. but New Delhi. and the United States. for all its perceived proximity to Moscow. what is the future of the Indian pri- vate business as a contributor to economic diplomacy? What lessons does it offer? First. how well has the dialogue between the official agencies and busi- ness associations been institutionalized? The Indian Prime Minister traditionally has had an ‘Economic Advisory Council’. but some Indian companies still hesitate in using such advis- ers. But Prime Minister Modi has dispensed with these formal consultative bodies and prefers to call in leading businessmen on an ad hoc basis for consultation. Europe. as in the case of China. in the 2000s. like the United Kingdom. including the supply of defence equipment. where the overthrow of that regime was not foreseen. FDI flows have been rising since end 2014. and they have shown considerable man- agement expertise in such cross-cultural deals. is a classic example of such misjudgement by some Western coun- Downloaded by [University of California. but its trading partners are involved in profitable dealings. against about $35 to 40 billion of FDI. now present themselves as connectors. Yet as shown by an abortive steel project in Bolivia sponsored by an Indian private group. Second. Iran in 1979. Indians with Latin American experience. This happens when a foreign regime is under potential threat. composed of leading economists. India has not reached a level of outbound direct foreign investment (ODI) that matches its incoming FDI. San Diego] at 17:59 07 January 2017 tries. in nascent Indian forays in this region. partly as a result of growing overseas merger and acquisition activity by Indian companies. The private sector today Twenty-five years after Economic Reforms. including Japan. despite obvious indications of unrest. including sound political judgment. Indian medium-sized companies have acquired foreign companies in Africa. The Department of Commerce also holds periodic consultations with business personalities. They can become over-committed to the status quo so that they fail to see the danger. consider the ‘internationalization’ of Indian business enterprises. some Indian compa- nies are still on a learning curve in their due diligence work. at intervals of a few months. regarding trade or other business opportunities so important that one loses sight of other issues.

6 billion. a state chief minister was made the leader of an . The creation of a ‘Development Partnership Administration’ (DPA) in MEA in 2012 has given holistic coherence and impetus to India’s economic and Downloaded by [University of California. a detailed official index of the business attractiveness of Indian states was published and this is to become an annual fea- ture to spur them to improving investment conditions. Fifth. and ASSOCHAM. Third. State management. to urge states to work on improving their business attractiveness. urging a greater role for state governments. An exception is India’s state enterprises in the oil sector that are increasingly venturing overseas. but change is afoot. or intervention. CII. for the benefit of neighbours and others. but observers feel that India needs more active. India is yet to do this. While grant aid is limited. and they seldom seek help. while the lines of credit amounted to $9.000 foreign experts (not including several thousand more that came for training at armed force establishments. In late 2015. 118 Kishan S. as much for domestic as foreign investors. India lags behind China in using states as marketers for external economic diplomacy. They tend to rely principally on private business. DPA now plans to work with the Indian private sector on large aid projects. India has relied upon its embassies abroad. with official support. with 51% held by FICCI and the balance by the Department of Industrial Policy and Promotion and Indian state governments. but Indian economic diplomacy needs sustained connection with business stakeholders. Rana sustained feedback from commercial enterprises. in rela- tion to overseas investments by private enterprises is even more difficult. and 2. FICCI. given that their state-level public sector enterprises are seldom active overseas. San Diego] at 17:59 07 January 2017 technical aid to other developing countries. in 2013 over 9. and delegations of businessmen and officials sent from home. in an unprecedented move. the direct beneficiaries of eco- nomic promotion actions. consider India’s expanding FDI and ODI and its impact on economic diplomacy.300 scholarships for foreign stu- dents for degree courses) from 167 countries were received in India for professional courses. such investment has come mainly from private business. One of the national slogans advanced in 2014 by Prime Minister Modi on taking office was ‘cooperative federalism’. as part of a master plan. ‘Invest India’ was created in 2009 as a public–private partnership joint venture. As noted earlier. to beat the drum for attracting investments. extensive lines of credit have been advanced. Indian state (province) governments have received new encouragement under the Modi government to venture abroad to promote business. Ireland or Singapore will analyse home technology and industry sector needs and then reach out to foreign investors that can build needed production or R&D capacity. For instance. This has worked up to a point. Fourth. as a first contact point for potential foreign investors. For the first time. targeted marketing. In 2015. let us consider business in taking advantage of India’s expanding foreign aid activities. Unlike other countries that have strong investment promotion units. (Rana 2013). MEA does have close ties with the principal business entities. we witness professionalization of aid management. especially exports and inward FDI. The fol- lowing year that was expanded with the addition of the words ‘and competitive’.

(Rana 2009: 60) That represented the first effort in India to take a concentrated look at the practice of economic diplomacy. External actions in the educa- tion sector. K. In particular. overcoming problems. we . on a holistic basis. and that even while we study one set of activities. some political impact. But in essence these are mere names of convenience. such as political. such a partnership is a first for India. India’s economic diplomacy 119 official delegation from the central government sent to China to seek investments. we give external relationship activities discrete labels. involving a wide range of stakeholders. but cautions us that it is the totality of external activity that should be the focus of study. The dynamism of this sector is one of India’s real assets. and coastal Andhra Pradesh). it would be relevant to consider the best practices and methods worthy of emulation as practised elsewhere. plus. the appellations we use sometimes lead to distortion in understanding. and as scholars who analyse this complex process. but it was inconclusive. in terms of resolving conflicts. To put it another way. Several states have also recently estab- lished ‘sister state’ ties with foreign counterparts. is a unified. or public diplomacy. What we may see as economic activities usually have political con- nections and probably a public dimension as well. to consider improvements to what is already a fairly effective system. educational. one source told the author that the N. For any country. economic. most of this performed through working openly with foreign partners. the pursuit of its external interests. San Diego] at 17:59 07 January 2017 active abroad and seems ready to flex its entrepreneurial muscle. Singh to advise in two months on improving economic diplomacy. I had written: In mid-2003 External Affairs Minister Yashwant Sinha appointed a com- mittee headed by veteran civil servant N. cultural. Singapore has adopted Andhra Pradesh as a special partner. In 2015. In sum. This group brought in major inter- national consultants. Singh report ‘is no longer relevant’. as part of their external outreach. 25 years after the launch of Economic Reform private business is more Downloaded by [University of California. It was alleged that the Finance Ministry dis- favoured a stronger MEA role in economic diplomacy. Each set of activities blends and segues into the others. impact on publics and produce economic consequences. Concluding thoughts In an earlier book. after the bifurcation of the former Andhra Pradesh (divided into inland Telengana. for example. holis- tic activity. and consider improvements. K. to a lesser degree perhaps. or an empowered group. It would make sense now to set up a commission. Both as practitioners who implement foreign policy. This does not negate the classification we use. and taking advantage of opportunities. but with a change of government in mid-2004 that report also went into limbo. and designated a high personality to pursue new connections with it.

3 The full story of the extraordinary role played by this industry association is yet to be told. Elsewhere political inhibitions come in the way of open and institutionalized links between foreign ministries and business. calling them ‘termites’ of the global trading system. Rana. K. and Bryson. S. 2 Indira Nooyi. ‘Business and Diplomacy. is in Parris and Bryson (2010: 231–238). He has played an extraordinary role in the economic transformation and liberalization of India. Journal of Diplomacy and Foreign Relations. The World Economic Forum: A Multi-Stakeholder Approach to Global Governance. Special Report on Innovation in Emerging Markets. (eds. S. great powers and others. New York: Council of Foreign Relations. Kuala Lumpur. In his first two years in office. Rana. Rana. 2009. G. Bhagwati. Asian Diplomacy: The Foreign Ministries of China. 2008. Rana. San Diego] at 17:59 07 January 2017 diplomacy. Business Standard. see Kantha (2006). 2009. 6 Tarun Das headed CII in all its varied incarnations. plus incoming visits by foreign dig- nitaries. It is hard to fault his logic. admitting what went wrong. 97–127. K. India. Singapore and Thailand. China has 98 of these companies running research centres. 20 August. New York: Routledge. 4th edition. G. 2002. Building Relations Through Multi-Dialogue Formats: Trends in Bilat- eral Diplomacy. 5–7. Basingstoke: Palgrave Macmillan. One observer calls this ‘a crucial element in his foreign policy that centres on eco- nomic diplomacy’ (Singh 2015). Prime Minister Modi has prioritized outbound visits to neighbours. Notes 1 A top African foreign ministry official told me during a conversation in 2010 that he could not bring himself to work with his country’s business enterprises as real part- ners. A. Parting Shots. Parris. Japan. Working Together’.) 2010. 28 August 2010. Revised edition. J. Building India with Partnership: The Story of CII 1885–2005. Inside Diplomacy. Pigman. 2007. bilateral and regional. 2008. S. The Economist 2010. K. References Berridge. London: Viking (Penguin Books). and serving thereafter as its chief mentor till 2009. Rana must keep in perspective the total impact on the conduct of external relations. which runs counter to the real interests of both sides. New Delhi: Manas. Diplomacy: Theory and Practice. demitting office as its Director General in 2004. Termites in the Trading System: How Preferential Agreements Undermine Free Trade. I have ventured to call this ‘integrated diplomacy’. K. but such preferen- tial arrangements are a fact of life. address to Conference of Indian Ambassadors. 10 (1). This marks a coming to age for Indian economic Downloaded by [University of California. A. KeEP up the Good Work. 5 Professor Jagdish Bhagwati (2008) is a strong critic of FTAs. R. 120 Kishan S. S. for over 30 years. 4 See The Economist (2010). S. 7 The final dispatch from Tehran of the British Ambassador. in a widening partnership with private business entities. 2002a. New Delhi: Penguin. They focus especially on ‘frugal innovation’. 2006. Kantha. . in what has been the most intensive engagement by any Indian leader. 17 April. New York: John Hopkins University. M.

Useful websites Boao Forum for Asia: http://www. Invest India: http://www.mercopress. K. National Bureau of Asian Research. Available at: Singh. and Chatterjee. Ved 2015. India’s Aid Diplomacy. Jaipur: CUTS. Economic Diplomacy: India’s Experience. Seattle. K. Rana.investindia. (eds. K.aspx?id=515. Lessons from India Jindal’s Bolivian Investment Failure. S. .com/2013/07/20/lessons-from-india-jindal-s-bolivian- investment-failure. MercoPress.) 2013. Diplo Foundation: India’s economic diplomacy 121 Rana. India’s Economic Diplomacy. Business Standard. 2015. Diplomacy at the Cutting Edge. Rana. 12 May. R. 2013. Indian Brand Equity Fund: http://www. Viswanathan. S.diplomacy. Avail- Downloaded by [University of California. New Delhi: Manas. San Diego] at 17:59 07 January 2017 able at:

and both of these countries use trade as leverage in dealing with one another and with third countries. and has survived major shifts in Russia’s political system and its place in the world. Congress has most often done so by exercising its constitutional monopoly over trade policy. and these sanctions did not end with the Cold War. San Diego] at 17:59 07 January 2017 RELATIONS WITH RUSSIA Craig VanGrasstek The low politics of trade between Russia and the United States are subordinated to the high politics of war and peace. communist. This general pattern has remained true across three centuries. For all else on which they might disagree. but these periodic outbreaks of economic warfare may be even more significant now that it has re-entered the trading system and become a larger player in the global energy market. The episodes discussed in this chapter show a consistent pattern in the conduct of trade relations between these two countries. The political competition between these two countries in the 21st century thus affects their neighbours. 7 CONTINUITY AND CHANGE IN THE POLITICS OF US TRADE Downloaded by [University of California. and the magnitude of their economic relations in the 20th century was contained as much by Soviet autarky as it was by US sanctions. Russia has lost much of its for- mer superpower status. Both of these countries were somewhat peripheral players in the trading system during the 19th century. Russia received unconditional most favoured nation (MFN) treat- ment from the United States for just 36 years in the 20th century. Russian policy-makers in the czarist. having first lost that MFN status for reasons unrelated to communism. either threatening to act unilaterally or (more often) by linking its approval for presidential initiatives to shifts in US policy towards Russia. There is nothing new about this. the members of . What has changed are the consequences that this consistent pattern of Russian– American relations holds for the rest of the world. and post- Cold War eras would each see great continuity in the way that Washington links trade to politics. and more precisely in the readiness with which the US Congress has historically responded to political demands for sanctions that are not counterbalanced by pro-trade economic inter- ests.

San Diego] at 17:59 07 January 2017 The political and economic bases of US trade relations with Russia Before examining any individual episode. There are legal as well as cultural underpinnings to the power of the US Con- gress in the making of foreign policy. with that country rarely accounting for more than a negligible share of US exports and imports. Downloaded by [University of California.2 per cent of exports. and have usually been weaker than the political lobbies that either press for the imposition of sanctions or oppose their removal. The low level of trade between the United States and Russia can be appreciated from the data reported in Table 7. it is first important to identify two peren- nial features that shape the conduct of Russian–American trade relations. There is very little that an American president can do in the field of trade policy without the explicit approval of Congress. That skewed representation is reflected in the compromises reached by the two political branches. Just as the Cold War was marked by numerous US–Soviet military conflicts that were conducted by proxies at the periphery. Groups with a pro- trade position have been only sporadically involved in policy debates concerning Russia. Russia’s simple average share of US trade amounted to a scant 0.9 per cent of imports and 1. nothing like a permanent ‘Russia lobby’ has ever emerged in Washington to promote the continuation or re-establishment of normal economic relations between these two countries. insofar as the Commerce Clause of the Constitution specifies that this topic is a congressional prerogative. contemporary economic warfare between the United States and Russia may impose greater costs on third countries than it does on the central players themselves. Trade was even lower during the Cold . During the decades from the 1820s through the 1930s. as well as the persistent threat of a ground war in Europe. the political parties impose very little discipline on their office-holders. The legal powers of the legislative branch are especially strong in trade policy. the gatekeepers who decide whether to approve the objectives that presidents pursue and the policy instruments that they propose to use. As a consequence. and legislators have never felt obliged to show much deference towards the executive branch. One is a key political fact: the United States extends an unusually high degree of authority to its legislative branch in the making of foreign policy. The key economic fact is that trade between Russia and the United States has almost always been quite low. US trade relations with Russia 123 the military alliances that they led in the Cold War. This means that members of Congress are. especially on any matters that affect trade or the budget. The positions that lawmakers take will typically respond to the economic and political pressures that their constituents and other domestic actors bring to bear. and the world at large. The power of Congress is further reinforced by a political culture in which the separation of powers is sacrosanct. leg- islators have taken the initiative to promote their own goals and tools. at a mini- mum. in many instances. or in any area of policy that can be linked to that field. and legislators frequently use their authority over trade as a means of exacting conces- sions from presidents on other issues.1.

War decades of the 1950s through the 1980s. Trade data from 1891–1990 are from the Statistical Abstract of the United States (various issues).64 0.04 1881–1890 0.14 0.10 Note: Latest immigration data are for 2011–2013. San Diego] at 17:59 07 January 2017 1851–1860 0.6 per cent.S. and those sanctions work to suppress trade even further and prevent a reordering of US interests.22 0.73 13. Trade with Russia has grown only marginally larger than the historical norm in the quarter century since the Cold War ended. Russia and the Soviet Union) US Imports US Exports US Immigrants 1821–1830 2.07 1891–1900 1.07 1971–1980 0.62 0.16 0.03 1961–1970 0.26 1941–1950 1.11 1871–1880 0. when exports were artificially and temporarily stimulated by the Lend-Lease aid programme.2 per cent and 0.88 1.16 0.05 1841–1850 1. Trade data from 1851–1890 are from U.65 1. International Trade Commission.93 0.93 16.07 0.05 1831–1840 1.70 1901–1910 1.28 1.S.88 0.xls.43 0.S. respectively. Table 2.50 1.44 1. Here we see the mutual reinforcement of economic and political developments: the low economic profile of the relation- ship has made it easier for the United States to resort to sanctions when political disputes break out with Russia.dhs.50 1931–1940 0.04 9.03 0.52 5.03 1.17 1.37 0. The only significant departure came during World War II.96 0.76 0. and immigration from. Immigration and Customs Enforcement (Department of Homeland Security) data at http://www.S.87 1981–1990 0.98 0.09 2001–2010 0.24 0.16 1911–1920 0.06 1921–1930 0.48 0.71 4. Source: Immigration data for 1821–2000 are calculated from figures in U.73 0.23 0. Bureau of Statistics (1896a and 1896b).29 1. and for 2011–2013 for that same source at http://www.32 2011–2014 1. 124 Craig VanGrasstek TABLE 7. for 2001–2010 from U. when the Soviet Union’s average shares of US imports and exports were 0.54 0.98 0.04 2013-naturalizations.06 1951–1960 0.02 1861–1870 0.22 1. .79 1991–2000 0. Trade data for 1821–1850 are from Homans (1857).dhs.03 Downloaded by [University of California.1 US trade and immigration from Russia and the Soviet Union (1821–2014) (Shares of total US trade in goods with. Department of Justice (2001).70 0.36 0. Trade data from 1991–2014 are from the website of the U.54 2.

1 point to one important component of the political lobby that has historically favoured sanctions on Russia. as well as the subsequent generations of native-born Jews.2 per cent of the total US population) to 2.2 These immigrants. or to reject a presidential initiative. The first significant confrontation in the 19th century was sparked by the ill treatment that Russian officials extended to former emigrants who wished to visit relatives. some two-thirds of whom were Jews seeking safe harbour from persecution. US trade relations with Russia 125 The data in Table 7. make him a new grant of negotiating authority. The deals reached in Washington invariably provoked anger in Moscow. and ultimately forced the executive into making some accommodation to the legislature’s demands. and Congress responded by forcing the withdrawal of MFN treatment from Russia in 1911.1 This migration caused the estimated size of the Jewish-American population to swell from just 50. preventing its reinstatement in 1972–1974. lost no love on either the czars or (after a time) their com- munist successors. but also between the two political branches of the US government. with presidents and lawmakers negotiating the terms of the ransom. whether he asked Congress to approve a pending trade agree- ment. They all started when a political irritant cropped up in the relationship.0 million Downloaded by [University of California. Trade relations with Russia in four periods This section reviews four episodes in Russian–American trade relations that each followed a similar pattern. San Diego] at 17:59 07 January 2017 in 1910 (2. . but its place has since been taken by other opponents. In the decades preceding the Russian revolution that country’s most significant export to the United States was people rather than goods. with critics in the legislative branch contending that the executive was not being sufficiently aggres- sive in its dealings with Russia.2 per cent). The Jewish-American community eventually departed from the political lobby that favours sanctions on Russia. being either the cause of the dispute or the lever used in retalia- tion. and ensuring that it was initially extended on only a conditional basis during 1991–2012. in three of the four cases that irritant related to Russian viola- tions of human rights. Soviet restrictions on emigration were a leading source of friction in the 20th century. Concerns over those violations or (in one case) the foreign policy of the Soviet Union led to conflict not just between the two countries. having been satisfied with the pace of progress in Russia. or both. It is worth noting that migration has been central to each of the episodes dis- cussed below. This diaspora periodically asked policy-makers to link trade relations with Russia to that country’s treatment of Jews.000 in 1848 (0. Waves of immigrants then arrived from Russia. This tactic worked in each case. which has typically responded with counter-measures of its own. In each case Congress threatened to take action on its own. and in the 21st century Russia responded to US restrictions on the travel of government officials by imposing a ban on the adoption of Russian orphans by would-be American parents. The most recent cases have each hinged upon the legislature’s ability to hold the president’s trade initiatives hostage.

and produced one of the first notable episodes in that group’s political activism. American diplomats and Jew- ish leaders contended that this Russian policy amounted to discrimination against US passports and their holders. The 20th century part I: From the Bolshevik revolution to the early Cold War The early ties between the United States and the Soviet Union were entirely pri- vate and economic. Abrogation would mean inter alia denying MFN treatment to Russia. the United States and Russia ran along roughly paral- lel lines. but did not back up these démarches with any threats of retaliation. much of which was operated by Jewish-Americans (US Senate 1911: 28). In 1879. Russian authorities refused to grant visas to foreign Jews. San Diego] at 17:59 07 January 2017 Many Jews fled Russia to escape pogroms and other anti-semitic policies. The House passed several similar resolutions in later years. both the Democrats and the Republicans included planks in their party platforms that criticized the Russian policy. The executive branch of the US government made numerous representations to Russia on this issue. the House of Representatives approved its first resolution calling for renegotiation of the treaty. but the advocates emphasized that this could be done at little cost to the United States. 126 Craig VanGrasstek The 19th and early 20th centuries: Pogroms and passports During the 19th century. Downloaded by [University of California. but it would be decades before the Senate — where the urban states are under-represented — would also favour abrogation or renegotiation of the treaty. At that time US trade with Russia was dwarfed by the size of the garment industry in New York City. One specific aspect of Russian policy – the ‘passport question’ – presented an altogether different profile. and hence violated the terms of the 1832 treaty that established MFN relations. After years of frustration the advocates took their complaints to Con- gress. The United States notified Russia that it would unilaterally abrogate the treaty. provok- ing the Taft administration to act before the Senate took up the resolution. and in the 1904 and 1908 presidential elections. Political support grew after the turn of the century. It would be another 22 years before MFN relations were restored. and in that time their destinies rarely inter- sected. with Washington breaking diplomatic relations in 1917 and . but to no effect. which in those days were generally considered to be internal matters that were out- side the scope of diplomacy. each of them being focused primarily on their internal expansion and relations with immediate neighbours. Russian officials protested. They did not collide until the United States made its first foray into the promotion of human rights as an important objective of its foreign policy. The issue eventually became a cause célèbre in the American Jewish community. many of whom were naturalized American citizens hoping to visit relatives who remained in Russia.3 The leaders of this community proposed that the treaty be either renegotiated or abrogated. In 1911 the House of Representatives approved a resolution of abrogation by a vote of 301–1. with the termination taking effect in 1913.

Lawmakers retained their bargaining power with the execu- tive by requiring that presidents periodically return to Capitol Hill for renewal of their negotiating authority. allowing Truman and his predecessor to negotiate tariff- reduction agreements with foreign governments and to treat these as executive agreements (i. The World War II produced a huge upswing in US exports to the Soviet Union Downloaded by [University of California. Republicans such as Representative Carl Curtis of Nebraska could charge that ‘the State Department is using the trade agreements programme to build up the economy of Communist countries’ (US Congress 1951: 490). The Roosevelt administration adopted a policy of political and economic engagement with the Soviets. and encouraged the Soviets to participate in the negotiations that produced the General Agreement on Tariffs and Trade (GATT) as well as the (failed) Havana Charter of the International Trade Organization. Lawmakers enjoyed an important bit of leverage that forced the Truman admin- istration to reconsider its position: the president’s tariff-negotiating authority was about to expire. and declined still further in 1949 with the imposi- tion of US export controls on strategically significant goods. US trade relations with Russia 127 declining to restore them until 1933. withdraw or prevent’ the extension of concessions negotiated under the trade agreements programme ‘to imports from the Union of Soviet Social- ist Republics and to imports from any nation or area dominated or controlled by the foreign government or organization controlling the world Communist movement’. such as import restrictions or export promotion.e. and it appeared for a time that trade might flourish in the post-war period. and there is no evidence in the record to suggest that Jewish groups – now preoccupied with events in Germany – took any position on the matter. That power has most often been used to advance tra- ditional goals of trade policy. but in 1951 it was used to exert leverage on US trade relations with the Soviet Union. The State Department planned to negotiate a broader and permanent MFN treaty with Moscow. The Truman administration resisted these demands. and managed to maintain its position up until the outbreak of the Korean War in 1950. Post-war trade quickly reverted to the established historical pattern. and has always made sure to limit the shelf lives of these grants. The same thing would happen again in 1974 and 2002. If President Truman vetoed the bill he would have denied himself the . Legislators wrote a provision into the Trade Agreements Extension Act of 1951 requiring that ‘as soon as practicable’ the president ‘take such action as is necessary to suspend. San Diego] at 17:59 07 January 2017 under the Lend-Lease programme. As long as the Soviet Union and its allies con- tinued to receive MFN treatment. This executive agreement was not subject to the approval of Congress. The Congress had first made a grant of presidential negotiat- ing authority in 1934. This amounted to a delegation of some of the legislative branch’s constitutional authority to the execu- tive branch. These hopes proved to be quixotic as the one-time allies settled into their new roles as leaders of hostile blocs. they did not require congressional approval). reinstating MFN treatment through an exchange of notes in 1935. The legislature was nonetheless cautious about the extent of the power that it handed over to the president. Critics in Congress demanded even stronger measures.

and what the role of Congress should be in this process. like its 1951 predecessor. Unlike the 1935 restoration of MFN. the principal effect of which was to restrict the emigration of Jews to Israel and the United States. Apart from the rather ineffectual opposition put up by a few agricultural organizations. Senator ‘Scoop’ Jackson (Democrat of Washington) and Representative Charles Vanik (Democrat of Ohio) introduced proposals that would have denied MFN treatment to any non-market economy that impeded the free emigration of its citizens.4 Just as Republican members of Congress had prevented a Democratic presi- dent from maintaining MFN relations with the Soviet Union in the early 1950s. All of the key American players in the ensuing policy debate agreed in principle that it was legitimate to use the incentive of MFN status in order to induce changes in Soviet policy. This policy went unchallenged for 20 years. taking full advantage of the president’s interest in launching a new round of GATT negotiations. but made the MFN benefits of those agreements conditional upon the countries’ emigration policies. Washington and Moscow also negotiated an agreement that would restore MFN treatment and provide for Soviet payment of Lend-Lease debts. He signed the bill and formally withdrew MFN treatment from the Soviet Union as of 1952. this agreement could not go into effect without the approval of Congress. That might have been achieved with relative ease if the Soviets did not then revert to policies that echoed the official anti-semitism of the czarist era. . The law provided a process for the approval of trade agreements with the Soviet Union and other countries that were then denied MFN treatment. Where they differed was in the choice of objectives to be sought. They even followed the same game plan. In 1971. Democratic members of Congress adopted a position that ultimately prevented a Republican president from reopening these relations in the early 1970s. and linked their proposals to a pend- ing trade bill that would. and gave informal assurances that Soviet emigration policies would be liberalized. how the available leverage might best be employed. San Diego] at 17:59 07 January 2017 The normalization of US–Soviet trade relations was a keystone in the Nixon administration’s policy of détente. remained virtually unchanged for 40. and was not fully reversed for 60. The 20th century part II: Détente and Jackson-Vanik Downloaded by [University of California.5 Jackson and Vanik soon won bipartisan support for their proposal. 128 Craig VanGrasstek ability to conduct further tariff negotiations in the GATT. The Soviet Union eventually agreed to eliminate the exit tax. President Nixon removed wheat from the list of products that required an export license for shipment to the Soviet Union. The conclusion of the MFN agreement coincided with the Soviet Union’s imposition of an exit fee on emigrants. make a new grant of negotiat- ing authority to the president for trade agreements. three-year wheat deal. the proposed linkage faced no real resistance from organized interest groups. This concession then led Senator Jackson and the administra- tion to set the terms of the Jackson-Vanik provisions of the Trade Act of 1974. he reached a $750 million. and the next year. This Soviet policy brought American Jewish groups back into the fight.

Several busi- ness groups expressed support for Russia’s graduation or the complete repeal of the law. but MFN treatment remained con- ditional upon the freedom of emigration conditions set by the Jackson-Vanik law. and Presi- dent George H.933 persons in 1973 to 13. they opposed the repeal of Jackson-Vanik or Russia’s graduation from the law. While American Jewish groups were willing to see MFN extended conditionally in the early 1990s. Graduation would also . and the plight of the refuseniks’ became a key issue in the emerging global campaign for the respect of human rights. The newly independent Russian Federation thus gained MFN access to the US market 40 years after the Soviet Union lost this status. Congress approved the implementing legislation for this agreement in November. the successor organizations of the NCSJ and the Union of Councils for Soviet Jews both favoured graduation (US Congress 2002). the Downloaded by [University of California. Jewish emigration dropped from 34. W. No politician could propose its repeal without appearing insensitive to Soviet Jews or their American supporters. but it proved not to be sufficient. Bush signed that bill into law in December. but none of them placed a high priority on this issue. Despite the fact that the Jackson-Vanik law had failed in its intended effect. The late 20th and early 21st centuries: Accession to the WTO and normalization It took the collapse of communism for the United States to extend MFN to Rus- sia. While still expressing some reservations. The National Conference on Soviet Jewry (NCSJ) ‘emphasize[d] the need to continue the application of the Jackson-Vanik Amendment’ as ‘a means of ensuring that the past history of Rus- sian Jewry will not be its prologue’ (US Congress 1993: 11 and 14). This conflict prompted the Bush administra- tion to propose in late 2001 that Russia and six other former Soviet republics be granted unconditional MFN treatment – now called permanent normal trade relations (PNTR)6 – through graduation from Jackson-Vanik. This time Jewish organizations were receptive to the idea. US trade relations with Russia 129 The deal collapsed when the Soviet Union balked at ratifying the trade agree- ment on terms dictated by Congress. Another 20 years would pass before Russia received MFN treatment on a per- manent and unconditional basis. San Diego] at 17:59 07 January 2017 law acquired an almost iconic status in the United States. The outbreak of the war on terror pushed Washington and Moscow closer together. These pressures did not have the desired effect on Jewish emigration. at least in its early stages. but the Bush administration did not submit it to Congress until August 1991. The agreement was put into effect the next year for Russia and several other states of the former Soviet Union. as the Soviets retaliated by further tightening the restrictions. based on a decade of post-Soviet experi- ence. The Soviet Union ceased to exist before the end of that month.451 in 1975 (Zaslavsky and Brym 1983: 53). The United States and the Soviet Union had negotiated a new trade agreement in 1990. and even then this was initially done only on a conditional basis. The switch of the Jewish groups was almost certainly a necessary condition for graduation.

and the Jackson-Vanik conditions are incompatible with that requirement. a provision that allows a country to act as if another were not a member of the organization.e. This was a rare moment in which the United States was treating trade as the objective and a political issue as the instrument. Both countries intended to dis-invoke that provision after Russia was graduated from Jackson-Vanik. the Senate approved a resolution tying Russia’s graduation from the Jackson-Vanik law to the terms of its accession to the WTO. with Jewish groups now acquiescing to graduation and agricultural groups insisting upon conditions. being intended only as a transitional measure that was necessitated by the sequencing of the international negotiations and the legislative process in Washington. at least on a temporary basis. That exception might be attributed to the fact that political disputes with Russia were then relatively quiescent. It took over a decade before the United States and the rest of the WTO mem- bership concluded negotiations with Russia over the terms of its accession. including the favourable resolution of the chicken dispute. it would need to invoke the ‘non-application’ clause (i. Disputes arose in the early 1990s over US imports of Russian goods that had once been destined for the Soviet military machine. The US business community was satisfied with the package that negotiators produced in 2011. but by then much of the friendliness was gone. the farmers’ position prevailed. with both Russia and the United States invoking Article XIII with respect to one another in the final stages of Rus- sia’s accession. alu- minium. Graduation from Jackson-Vanik was a prerequisite for US recognition of Rus- sian membership in the WTO. This led to a flurry of anti-dumping cases and the negotia- tion of agreements to curtail Russian aluminium production (1994) and restrain Downloaded by [University of California. That is in fact what happened. most notably chicken. If the United States did not graduate Russia from the terms of this law prior to its accession. which made another grant of negotiating author- ity to the president. The policy debate in 2001–2002 thus represented the mirror image of 1972– 1974. and a pro-PNTR coalition soon attracted support from producers of such . That was not an unfriendly act. in its relations with Russia. 130 Craig VanGrasstek require support from economic interests. and the prospects for expanded exports seemed good – provided that the pending trade disputes could be resolved. and here too the landscape had changed during the first post-Soviet decade. San Diego] at 17:59 07 January 2017 exports of steel (1999). During debate over what became the Trade Act of 2002. including steel. Once more. Later complaints centred on Russian restrictions on imports from the United States. as indeed they did. and uranium. The main difference was that this time. Bilateral trade grew slowly but had nonetheless experienced some sharp grow- ing pains. WTO Article XIII). GATT Article I requires that members extend MFN treatment to one another on an unconditional basis. rather than the other way around. a pending trade bill offered the means for Con- gress to express its dissent from the executive’s position. Groups such as the American Farm Bureau Federation took the position that Russia’s graduation from Jackson-Vanik should be withheld until the terms of Russian accession to the World Trade Orga- nization (WTO) were settled. however.

the bill would also deny visas for their travel to the United States. they pressed for approval of a bill to graduate Russia from the Jackson-Vanik law and thus allow for dis-invocation of the non-application clause. from liberal Democrats to old cold warriors. US firms would not be granted all Downloaded by [University of California. chickens. None of the persons involved in this episode seemed to be aware of the historical irony involved in that latter point. The proponents of normalization had to contend with a new set of political opponents. From the perspective of trade law. San Diego] at 17:59 07 January 2017 of the benefits of Russia’s accession commitments. with the Senate fol- lowing with a 92–4 vote on 6 December. and thus to recognize one another’s status as WTO members. and the rule of law in Russia. This law provided for sanctions on specific persons implicated in Magnitsky’s death or certain other offenses. the economic lobby in support of normalized rela- tions was large and powerful. and so the bill passed by an unusually wide and bipartisan margin. they chose to ban the adoption of Russian orphans by US parents. not to mention software programmers and life insurance companies. The switch met the minimum needs of all interested parties in the United States. Without that step. Together with the Obama administration and the leaders of the trade committees in Congress. but that obligation did not apply to the WTO commitments it had made on services. but instead on broader concerns over human rights. and aerospace products. The critics this time focused not on anti-semitism or communism. and other non-tariff issues that were not covered by the bilateral agree- ment’s MFN clause. corruption. but the Magnitsky sanctions did not. Compared to prior episodes. Policy-makers in Russia did not celebrate the fact that their trade relations with the United States were fully normalized for the first time since 1951. In yet another irony. the key difference was that the Jackson-Vanik sanctions took a form that obli- gated the United States to invoke non-application upon Russia’s accession to the WTO. This Russian lawyer and whistleblower had suffered official persecution and died while in custody in 2009. In addition to freezing any assets that these persons held in the United States. This allowed both the United States and Russia to dis-invoke non-application. but saw this issue as an excellent opportunity to promote enactment of the Sergei Magnitsky Rule of Law Accountability Act of 2012. Months of confrontation led to a compromise that appeared to satisfy everyone except the Russians: the PNTR and Magnitsky bills would be combined into one. thus exchanging one set of sanctions for another. paper. coalesced around the case of Sergei Magnitsky. The critics were indifferent towards approval of PNTR per se. democracy. This was not a popular move . Russia was obliged by the terms of the bilateral MFN agreement to extend the tariff concessions made in its acces- sion commitments to imports from the United States. intellectual property rights. and sought a suitable means of counter-retaliation. The House of Representatives approved the bill by a lopsided and bipartisan vote of 365–43 on 16 November 2012. pharmaceuticals. They instead took great umbrage at the penalties imposed on Russian officials. US trade relations with Russia 131 diverse commodities as corn. A remarkably bipartisan group of legislators.

politics took first place in the final decades of the Romanov dynasty. The case of China offers a useful contrast with the episodes discussed above. distant or both. where it was widely seen as harmful to children. Implications for these two partners and for third parties Downloaded by [University of California. dominated the bilateral relations from the rise to the fall of the Soviet Union. . but in many other instances. and remain critical in the post-Cold War world. Many of the orphans who were denied the opportunity to emigrate to the United States suffered from maladies for which much better medical treatment was available in their prospec- tive new home country. the annual debates became something of a ritual for which the outcome was a foregone conclusion. China was already a large trading partner of the United States by the time of the Tiananmen incident in 1989. but the latter group consistently won the fight. A similar dynamic is at work in some other cases involv- ing sanctions. The matter was eventu- ally rendered moot by the vote in 2000 to graduate China from the law. These set-piece debates pitted Democrats and human rights activists against Republicans and business organizations. in which the government sent in tanks to break up pro-democracy protests. China’s MFN status during this period was subject to the same laws that applied to Russia. We may consider these in sequence. and the domestic US groups that would have suf- fered from sanctions on Sino-American trade quite effectively made their views known in Congress. That began when Congress approved an MFN agreement with China in 1980. Between those two dates lay several years in which the annual consideration of MFN renewal was among the most high-profile issues in US for- eign policy. Were US trade with China to be on the same order of magnitude as trade with Russia. In one sense these cases are part of a more universal lesson. This simple truth transcends the rise and fall of communism. 132 Craig VanGrasstek in Russia. The episodes reviewed above speak both to the domestic roots of US foreign policy and to its international consequences. especially for countries that are small. After a few close calls. and lasted until Congress approved in 2000 the terms by which the United States would recognize China’s impending accession to the WTO. The principal departure from the norm comes in the almost one-sided nature of the pressures that have been brought to Capitol Hill. Political demands have usually triumphed in Congress because the low level of trade has prevented the emergence of a ‘Russia lobby’ that might serve as a counterweight to the demands for sanctions. It is nevertheless important to note that some aspects of the cases reviewed here are special. insofar as they col- lectively offer one more example of the power that the legislative branch wields in the making of US foreign policy. San Diego] at 17:59 07 January 2017 This analysis has described a persistent pattern by which Russian–American economic affairs are heavily coloured by politics. there is a more balanced struggle between political and economic interests. and thus to avoid the invocation of non-application upon China’s WTO accession.

the average was 17. One should not generalize from the particular and conclude from the cases reviewed here that ethnic lobbies will always trump economic lobbies. the Irish-Americans who had it in for the United Kingdom offer a prominent example. San Diego] at 17:59 07 January 2017 the American public.8 Oil companies and defence contractors lobbied heavily in support . when the pro-Israel lobby failed to block the sale of advanced weapons systems to Saudi Arabia. quite the opposite occurred. and official anti-semitism in the Soviet Union renewed that historical animus. and the United States may not only have invoked non-application but acted to block the country’s accession altogether. The Russian–American cases also speak to the significance of diaspora politics in a country of immigrants. It is true that while trade affects the preferences of Downloaded by [University of California. but once again it is important to note the special aspects of this representation. In this instance.045 Jews in their districts.7 The Russian experience is not entirely unique. and they will often favour closer economic relations between their old and their adopted countries. and Israel offers the most prominent example of the countries that have benefited from the activism of their American diaspora. it is immigration that will help to determine who comprises that public in the first place. The great major- ity of the Americans who immigrated from Russia.623. as well as their descendants. As a gen- eral rule. The influence of Jewish-Americans can be directly measured by looking at the voting patterns for members of the House of Representatives in the debate over Jackson-Vanik. The large Polish- American community was responsible for the fact that Poland was one of the few communist countries that retained MFN treatment during the Cold War.814 per district. Only five of the 106 votes that were cast against Jackson-Vanik were from legislators serving districts in which the Jewish population was greater than the national mean of 13. as there are other countries that face a hostile immigrant community in the United States. on average. MFN treat- ment might well have been withdrawn in 1989 or 1990. however. There are also examples of diaspora communi- ties in the United States that have demanded a harder line against countries that are the antagonists of their ancestral homes. the House rejected by 106–298 a motion to strike the Jackson-Vanik provi- sions from the pending trade bill. and the voting was not random. however. US trade relations with Russia 133 one could well imagine a very different post-Tiananmen outcome. The results were quite different in 1981. diaspora communities in the United States are more likely to favour closer trade with the countries of their origin or ancestry. That point is especially true for exile groups that have pressed their grievances against the regimes that they fled (e. On 11 December 1973. as do the Armenian-Americans and Greek-Americans who are not kindly disposed towards Turkey. The success of the Jewish lobby on Jackson-Vanik is explained by the absence of countervail- ing opposition from an economic lobby. for example. Representatives who voted to strike the Jackson-Vanik amend- ment ha