The New Economic Diplomacy

Decision Making and Negotiation in International Economic Relations

Stephen Woolcock, Nicholas Bayne

• Publisher: Taylor & Francis
• Year: 2017
• Print ISBN: 9781138742581
• eBook ISBN: 9781351724357
• Edition: 1
• Topic: Politics & International Relations
• Subtopic: Politics
• Index: Politics & International Relations

This title was first published in 2003. This text explains how states conduct their external economic relations as the 21st century begins: how they make decisions domestically; how they negotiate internationally; and how these processes interact. It documents the transformation of economic diplomacy in response to the end of the Cold War, the advance of globalisation and the terrorist attacks of September 2001 and illustrates the growing influence of non-state actors like private business and civil society. The book integrates a full academic and theoretical analysis with the experience of senior practitioners in economic diplomacy and is based on the authors' work in the LSE's graduate programme on "The Politics of the World Economy".

List of Abbreviations

• ACP African, Caribbean and Pacific associates of the EU
• AFTA ASEAN Free Trade Area
• AIDS Acquired Immune Deficiency Syndrome
• APEC Asia-Pacific Economic Cooperation
• ASEAN Association of South-East Asian Nations
• Bank Short for World Bank, incorporating IBRD, IDA and IFC
• BATNA Better Agreement Than No Agreement
• BDA Bundesverband der Deutschen Arbeitsgeber
• BDI Bundesverband der Deutschen Industrie
• BEUC Bureau of European Consumers
• BIAC Business and Industry Advisory Committee (of the OECD)
• BIS Bank for International Settlements
• BIT Bilateral Investment Treaty
• BSE Bovine Spongiform Encephalopathy (mad-cow disease)
• CAP Common Agriculture Policy (of the EC)
• CBC Commonwealth Business Council
• CBI Confederation of British Industry
• CDU Christian Democratic Union (of Germany)
• CFSP Common Foreign and Security Policy (of the EU)
• CHOGM Commonwealth Heads of Government Meeting
• CQMESA Common Market for Eastern and Southern Africa
• COREPER Committee of Permanent Representatives (of the EU)
• CSD Commission for Sustainable Development (of the UN)
• CSU Christian Social Union (of Bavaria, Germany)
• DFID Department for International Development (of the UK)
• DG Directorate General (of the European Commission)
• DTI Department of Trade and Industry (of the UK)
• EBRD European Bank for Reconstruction and Development
• EC European Community
• ECJ European Court of Justice
• ECOSOC Economic and Social Council (of the UN)
• ECSC European Coal and Steel Community
• ED Executive Director (of Fund or Bank)
• EEC European Economic Community
• EFTA European Free Trade Area
• EMU Economic and Monetary Union
• EP European Parliament
• ETUC European Trade Union Congress
• EU European Union
• FATF Financial Action Task Force
• FCC Federal Communications Commission (of the US)
• FCO Foreign and Commonwealth Office (of the UK)
• FDA Food and Drug Administration (of the US)
• FDI Foreign Direct Investment
• FTA Free Trade Agreement
• FTAA Free Trade Area of the Americas
• Fund International Monetary Fund (see also IMF)
• GATS General Agreement on Trade in Services (in the WTO)
• GATT General Agreement on Tariffs and Trade
• GDP Gross Domestic Product
• GMOs Genetically Modified Organisms
• GNP Gross National Product
• G5 Group of Five (finance ministers)
• G7 Group of Seven (summit, finance ministers and other groups)
• G8 Group of Eight (summit and other groups)
• G10 Group of Ten (finance ministers and officials in the IMF)
• G20 Group of Twenty (on new financial architecture)
• G24 Group of Twenty-four (developing countries in the IMF)
• G77 Group of Seventy-Seven (developing countries in the UN)
• HIPC Heavily Indebted Poor Countries
• HST Hegemonic Stability Theory
• IBRD International Bank for Reconstruction and Development
• ICC International Chamber of Commerce
• ICFTU International Confederation of Free Trade Unions
• IDA International Development Association
• IEA International Energy Agency (linked to OECD)
• IEC International Electrotechnical Committee
• EFC International Finance Corporation
• IFF Intergovernmental Forum on Forests
• IGC Inter-Governmental Conference (in the EU)
• ILO International Labour Organisation
• IMF International Monetary Fund, also known as the Fund
• MFC International Monetary and Financial Committee (of the IMF)
• IPCC Intergovernmental Panel on Climate Change
• IPE International Political Economy
• IPF Intergovernmental Panel on Forests
• IPR Intellectual Property Rights, see TRIPS
• IR International Relations
• ISO International Standards Organisation
• IT Information Technology
• ITA International Tin Agreement
• ITC International Trade Commission (of the US)
• ITO International Trade Organisation
• LSE London School of Economics and Political Science
• MAI Multilateral Agreement on Investment (in OECD)
• MEA Multilateral Environmental Agreement
• METI Ministry of Economics, Trade and Industry (of Japan)
• MFA Multi-Fibre Agreement (for textiles in GAIT)
• MFN Most-Favoured-Nation treatment (in GAIT and WTO)
• MNC Multi-National Company
• MOSS Market Oriented Sector Selective talks between US and Japan
• NAFTA North American Free Trade Agreement
• NATO North Atlantic Treaty Organisation
• NEPAD New Partnership for Africa's Development
• NGO Non-Governmental Organisation
• NDEQ New International Economic Order
• NTB Non-Tariff Barrier
• OAU Organisation for African Unity
• OECD Organisation for Economic Cooperation and Development
• OEEC Organisation for European Economic Reconstruction
• OFTEL Office of the Telecommunications Regulator (in the UK)
• OPEC Organisation of Petroleum Exporting Countries
• PBEC Pacific Basin Economic Council
• QMV Qualified Majority Voting (in the EU)
• Quad Quadrilateral - of trade ministers (US, EC, Japan, Canada)
• RIIA Royal Institute for International Affairs, also called Chatham House
• RSPB Royal Society for the Protection of Birds
• RTA Regional Trade Agreement
• RTAA Reciprocal Trade Agreements Act (of the US)
• SADC Southern Africa Development Commission
• SDR Special Drawing Right (in the IMF)
• SEM Single European Market
• SII Structural Impediments Initiative (between US and Japan)
• SMEs Small and Medium-sized Enterprises
• SPD Social Democratic Party (of Germany)
• SPS Sanitary and Phyto-Sanitary agreement in the WTO
• TABD Trans-Atlantic Business Dialogue
• TEC Treaty Establishing the European Community
• TEU Treaty Establishing the European Union
• TRIMS Trade-Related Investment Measures agreement of WTO
• TRIPS Trade-Related Intellectual Property Rights agreement of WTO
• TUAC Trade Union Advisory Committee (of the OECD)
• UK United Kingdom
• UN United Nations
• UNCED United Nations Conference on Environment and Development
• UNCTAD United Nations Conference on Trade and Development
• UNEP United Nations Environment Programme
• UNFF United Nations Forum on Forests
• UNICE Union of European Industry and Employers' Confederations
• US United States of America
• USSR Union of Soviet Socialist Republics - also Soviet Union
• USTR United States Trade Representative
• WEOG West Europe and Others Group (in the UN)
• WHO World Heal th Organisation
• WMO World Meteorological Organisation
• WSSD World Summit on Sustainable Development
• WTO World Trade Organization

Chapter 1
What is Economic Diplomacy?

Nicholas Bayne and Stephen Woolcock

This is a book about how states conduct their international economic relations at the start of the 21^st century: how they make decisions domestically; how they negotiate with each other internationally; and how these two processes interact. While states are at the centre of this study, it also includes non-state actors, whose influence on decision-making is growing. In general, this book is about the methods and process of decision-making and negotiation, ie about economic diplomacy, rather than about the content of policy. It is not intended to be a manual for negotiators, but rather to explain why governments (and other actors in economic diplomacy) behave in the way they do.

We call this book The New Economic Diplomacy to emphasise how much this activity has changed in the 1990s and early 2000s. Through most of the period since World War II, economic diplomacy was dominated by governments and, within them, by permanent officials. It was shaped by the constraints of the Cold War. Now, with the end of the Cold War and the advance of globalisation, there are far more non-government players; ministers and heads of government are active alongside their officials; and a single economic system covers the entire world. Economic diplomacy is concerned not only with measures taken at the border, but increasingly operates 'within the frontier'. Finally, Cold War political impulses are being replaced by worries about globalisation and since 11 September 2001, the fight against terrorism. All these themes will shape this book.

Most of this book, including the first seven chapters, is written by Nicholas Bayne and Stephen Woolcock of the LSE. But economic diplomacy is not just a subject for academic study. It is an activity pursued by state and non-state actors in the real world of today. In some respects economic diplomacy is like sex: easier to describe if you have practised it yourself. So an integral part of this book is provided by a series of chapters, starting at Chapter 8, written by experienced practitioners of economic diplomacy. These practitioner chapters will provide case studies and illustrations of how economic diplomacy works.

This opening chapter covers the following:

• It begins with a broad definition of economic diplomacy;
• It briefly identifies the theoretical approaches relevant to economic diplomacy;
• It sets out the main analytical framework used throughout the book, based on three tensions and eight questions;
• It explains the multi-level nature of economic diplomacy, which is the principal theme of Part II of the book.

The chapter concludes with a brief review of the structure of the book and how the academic and practitioner chapters fit together.

Why Study Economic Diplomacy?

It is worth asking why economic diplomacy deserves attention There are four main reasons.

First, economic diplomacy is about process rather than structures. Academic studies in International Political Economy (IPE) normally focus on the structural factors that shape economic relations between states. These will include international structures, such as the relative power of different nation states in the economic system, or the structures of influence within national economies, in which different sectoral interests compete in determining policy. Likewise IPE discusses the main political causes of the evolving structure of the international economy, and the implications of this structure for national policy choice. Associated studies of international business take firms as the focus of attention, rather than government, although government policy obviously affects international business.

This book is different in being concerned with process, ie with decision-making processes in governments and international institutions. The relative importance of process over power structures in determining policy choices will vary. When there are major differences in economic power and influence, these are likely to be the shaping factor in any policy outcome. But when power relationships are more balanced, the process of negotiation is likely to be more important. As Professor John Odell points out in his book Negotiating the World Economy (Odell 2000), outcomes vary between cases when structural features are the same, which suggests that process is important. Hence a study of decision-making processes in international economic relations fills a gap in the field.

Second, economic diplomacy is becoming more important. During the Cold War international relations were dominated by security concerns and the study of international relations reflected this. Economic diplomacy was going on the whole time, of course, but it did not have the same prominence as it has gained since the end of the Cold War. After the Cold War security factors play a reduced role and economic relations have assumed a greater importance. The terrorist attacks against the United States on 11 September 2001 have placed security once again in the forefront of debate. But economic diplomacy remains relevant to efforts aimed at tackling some of the root causes of terrorism, such as poverty and marginalisation.

Third, governments need to be efficient and pursue the aims of enhancing economic welfare in a global economy. To a far greater extent today than in the 1970s or 1980s, national economic performance is dependent on international factors. With the advance of globalisation, governments need to choose policies that shape the interaction between the domestic and the international economy. In order to deliver results in terms of economic welfare at home, governments have to pay more attention to foreign economic relations and thus engage in economic diplomacy.

Fourth, at the same time, governments are under increased pressures of accountability. They have to ensure that their decisions in economic diplomacy are accountable to the growing number of constituencies affected (or disaffected) by globalisation. This requires a better understanding of decision-making processes and how they might be improved. But these processes have in the past been based on policy elites. This means that a 'democratic deficit' has grown, which has been reflected in the criticism of established channels of democratic accountability by civil society. Some of this has found expression in the streets of Geneva, Seattle, Washington, Genoa and even Gothenburg. Transparency and accountability are now the watchwords in the debate on globalisation. These issues relate directly to decision-making by governments in response to globalisation and are reflected in today's economic diplomacy.

Defining Economic Diplomacy

Diplomacy and its stereotypes

'Economic diplomacy' is the term chosen to describe the subject of this study. This has the advantage that 'diplomacy' is a broad and elastic term. But precisely because it admits of wide interpretation, some further definition is needed, to make clear what is and is not included in this book about economic diplomacy.¹ 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 peaceful means.²

A more recent definition says that:

Diplomacy is concerned with the management of relations between states and between states and other actors.³

To do justice to economic diplomacy, it will be necessary to stretch these definitions and dispose of some misleading stereotypes associated with the term diplomacy, as set out below.

The first stereotype is that diplomacy is conducted only by diplomats, ie by people from foreign ministries.

The second stereotype is that diplomacy applies to informal negotiation and voluntary cooperation, but not to rule-based systems and legal commitments. For example, Professor John Jackson contrasts what he calls "the negotiation and diplomacy approach" with "the rule-oriented approach" in his analysis of the dispute settlement mechanism o...

Table of contents

• Cover
• Half Title
• Title
• Copyright
• Contents
• List of Tables
• List of Figures
• Preface and Acknowledgements
• List of Abbreviations
• Bibliography
• Index