The Theory of Economic Diplomacy Facts and Realities

Introduction
Economic diplomacy is " the way in which states conduct their economic relations, how decisions are made at the national level and then negotiated in the international arena, and how these two processes interact" (Bayne and Woolcock).
In another words, Economic Diplomacy is an umbrella term which covers the activities of a country to advertise and shield its economic interest and benefits among the intentional society. It is a mixture of both economic and political aspects of a country that leads to incorporate all the traditional diplomatic communications and cooperation skills in negotiations with other countries to boost the national economy by searching for new open markets and to attract foreign investments, as well as promoting tourism in all its fields.
Throughout history, all kinds of human social groups, from the smallest cell (the family) to the largest one (tribe – state), do the best they could to insure the welfare of the group. This was maintained by ensuring food, water and security which were the basic, yet the most important factors to stay alive. Tribes, states and even empires engaged in harsh wars to protect their land´-or-to overtake other lands for the same reason. As a result, the need for agreement, settlements and negotiation stemmed, which we call now "Diplomacy". This paper specifically will deal with "Economic Diplomacy", which is greatly considered a mere necessity in our modern and postmodern times, nationally and internationally.
If we look back at the 20th century, we can notice the fast and huge transformation in the international relationships and affairs. After World War I, Arab countries had witnessed a lot of changes due to the settlements and agreements between the imperial powers (Sykes Picot), which if we look in depth, was not only about political strategies, but also about economic interests. To divide Arab lands into territories under the governance of an imperial industrial power (France´-or-Great Britain) to ensure, as they claimed, the welfare and prosperity of Arab countries. Whereas, the real disguised reason was to gain more colonies and to rule territories rich in raw materials needed for its industry and to control foreign markets in order to discharge excess production.
Economy has become the key ingredient in diplomatic relations after World War Ⅱ-;-, especially with the emergence of so what called "Economic Powers", and the split of the world into two strong economic poles, USSR and USA, with the emergence of the EU as a global economic player under the Treaty of Lisbon, which gained Europe an independent identity in Economic Diplomacy.

Oil
Oil, on the other hand, played a very important role in defining the shape and setting the rules of relations between countries and states, whether diplomatic, economic´-or-political. It is considered as the winning card in the hand of the player. A good example of that is the oil crisis (1973)´-or-as it was called "The first oil shock" which started in October 15th 1973 when "OPEC", in addition to Egypt and Syria, announced that "Oil is forbidden" to "push western countries to urge "Israel" to withdraw from the Arabic occupied lands in 1967 war". OPEC members also agreed on using their influence to raise the price of oil all around the world after the failure of the negotiation with the big oil companies "the seven sisters" earlier that month.
As most of the economic industries depend mainly on crude oil, OPEC was its only initial supplier, and because of the inflation that was going on that time, all the blame was thrown on the increase of the prices of oil considering that was the reason why the economic activity was being suppressed. However, the Western countries had responded with wide initiations and most of it was permanent for the future dependence on other countries.
The Oil crisis (1973) alongside with the stock market crash (1973-1974) was considered the first incident after the Great Depression which had a continuous economic effect.
The change in world economy highlighted by the disintegration of the totalitarian regimes (USSR – 1989), made the US a "Uni – Pole" player on the international field, where it controlled the political, economic, diplomatic aspects around the world.
On the other hand, China, as a "developing country", and after joining the WTO in 2001, had become a major player, on the international economic arena, in which the US is no longer considered the core agent in the economic growth, where China and other Asian countries such as Japan added a heavy economic weight, in particular, adding millions of people to the world’s new middle class, and this had led to a keen change in the international economic scene and of course this change disturbed these powers.
The impact of "Globalization" and the back lash against it, has driven the world into a multipolar globe economy, which was very crucial on the development of diplomatic economy, the world has become inter – connected, communication and transportation has developed largely, trade has expanded to cross all the local, national and regional boarders to become global.
Over the past five decades, International Economic Order has undergone a drastic change, many International Financial Institutions, such as The World Bank (1944), World trade Organization (1995) and The International Monetary Fund (1944) where found by and for the industrial countries own interests and benefits, which they were the main power at that time.
The dissolution of the bipolar system after the Cold War in the 20th century and the gradual move into a multi polar one in the 21st century led to adopt non- violent methods, especially when the known global economic system and military confrontation declined, which according to Fukuyama, the ideological confrontation between states with the expansion of liberal – democratic values of the western model in the world.

Powers

J. Nye (professor of international affairs at Harvard University) asserted that: military and economic influence are part of the "hard power" where as "soft power" is the ability to make people want what you want by not using forceful power´-or-seduction to make them follow you. Therefore, soft power is the ability to depend on attraction and persuasion instead of forcing countries to follow certain policies.
Moreover, the ambiguity of using "soft tools in diplomacy and international affairs led to adopt new concepts of power, such as "smart power", which is a mixture of both (rigid and soft) and "clever power" that was developed by J. Nam was considered as a combination between solid force on the one hand and persuasion and attraction on the other.
The "smart power" concept, as a political vision of President Barack Obama and secretary of state Hillary Clinton, was adopted by their administrations as a rational mixture between diplomacy, defense and other means of hard and soft power, but according to J. Nye the application of the so what called "clever force" in Obama s administration is-limit-ed to the US only. Whereas "developing" states such as China for example, use the "smart power" concept to benefit them selves on the national level.

Economic Diplomacy Actors
All the above mentioned leads us to talk about the actors of the economic diplomacy, who plays that major role? And whom are the decision makers in the negotiations?
It is true that the state actors such as presidents, prime ministers, ministers of foreign affairs and diplomats play a major role in political negotiation with other parties, but economic diplomacy is not affected by this institutional framework. Whether the actors are officials´-or-non – officials, private´-or-public, governmental´-or-non – governmental, the path and framework of negotiations and its goals are determined and sometimes altered according to the private sector activities who is represented by non-state actors like international organization (IBRD, IMF, ILO), transnational corporations, lobbyists, banks and investment groups, who also plays a key role in economic diplomacy plans in addition of course to the public sector and the country s strategies.
Countries and government are considered one of the prime actors in economic diplomacy, together with a number of ministries and diplomatic negotiators, who all take into consideration the state s needs in two correlative path ways:
First – in the international arena and with the diplomatic negotiators of other parties.
Second – on national grounds according to ministries in charge of the selected issue.


Strategies and Methods

The existence of a special strategy of economic diplomacy is not linked to a specific time period, historically they dealt with each other according to a commercial view whenever their interests required that. However, this method began to show its features clearly in Europe at the beginning of modern times, accompanied with the flourishing of Bourgeoisie s commercial activity. The states found it necessary to recognize each other, and also found themselves compelled to reconcile their conflicting interests,´-or-at least with similar ones if not conflicting, by establishing international relations that are built on a stable legal system.
It can be said that the method of economic diplomacy is based on several pillars that distinguished it from other forms, where other Methods of diplomacy can pursue. These pillars are:

1- The method of economic diplomacy is a commercial one, which depends mainly on the idea of mutual accreditation and this idea represents the main starting point for negotiators, as there is a certain need that must be met in reliance on the other party to satisfy it, and therefore there is no hostility between the parties and any party must end and settle any dispute´-or-litigation.

2- The method of economic diplomacy is based on the existence of conjoining interests that increase the diplomatic efforts towards coordination within the framework of a specific agreement.

3- With respect to this method, negotiations take place according to the principle of mutual concessions. Each party draws a certain framework for itself. It includes a number of demands that it moves within its-limit-s and does not exceed them, as it cannot accept less than the minimum. This is because it is the least that can be gained from these negotiations, and it cannot exceed the upper-limit-. Otherwise, the negotiations will be halted by the other party, which considers itself as a loser.

4- The method of economic diplomacy is a method that relies on the presence of incentives and rewards when bargaining, which is often a basis for any diplomatic activity, so the parties must have a clear vision of what they will gain from this bargaining, as it assumes that the other parties will make a great effort to benefit from negotiations without bearing any cost,´-or-at least the lowest cost.

5- It is a method in which states have long accepted to waive, even partially, their sovereignty in order to take advantage of the open markets and international trade. The traditional conception of sovereignty becomes more lenient, especially in issues of international economic relations, as the concept of national sovereignty, especially with regard to natural resources has evolved, in response to technical and economic changes.

6- The style of economic diplomacy is based on persuasion and temptation, in which negotiators try to persuade the parties who are negotiating the importance of the advantages and objectives that they seek and which will be achieved in reaching an agreement between the parties. It is a method that small countries resort to, as these countries do not have much other means, in addition, the method of persuasion is less risky and costly. As for the temptation method, rich countries resort to it, as their economic capabilities allow them to provide rewards and loans for what they want to obtain in return.

Tools of Economic Diplomacy

It can be said that the purpose of the economic diplomatic activity practiced by any country, within the general framework of its foreign policy, is to support the objectives of this policy, whether these objectives are -dir-ected to the economic, military´-or-propaganda aspects.
It seems that the use of the tools of economic diplomacy is aimed at merely achieving purely economic goals, such as encouraging trade, and removing barriers and obstacles that stand in the way of the flow of economic transactions.
In general, although the economic objectives are of course contained, and there may be another strategic´-or-political objectives that the state seeks to achieve. A country may take a decision that affects its international economic relations, but this decision does not apply to its national economy, rather it is applied to the economy of other countries in order to obtain benefits´-or-achieve their goals

The most important tools used by economic diplomacy to achieve the goals of countries, whether economic´-or-political, is as follows:

1- The first of these tools is economic sanctions known as coercive diplomacy, it requires additional diplomatic effort and measures to ensure compatibility and understanding in international relations to impose these sanctions. These sanctions aim to incur the targeted countries economic losses at a certain speed and size. This tool has emerged as one of the means that countries use to pursue their goals and to apply their foreign policy. the methods of applying this tool may differ, and has proven its ability to adapt according to the situation that calls for its imposition. The goals of sanctions are not-limit-ed to economic terms, as its goal, may be to discourage a country from following a political´-or-economic approach. These sanctions often carry targets which are either obvious´-or-vague.
Governments may impose economic sanctions unilaterally, bilaterally´-or-collectively,´-or-may be pressurized by a regional´-or-international organization, and they may be imposed against a state´-or-group. Negotiations are also about easing economic sanctions´-or-lifting them from some of the areas targeted´-or-suspended, and are considered one of the tools of economic diplomacy.
A good example is the economic sanctioned imposed against Iraq in UN Resolution (661) on August 6, 1990, just after the Iraqi invasion of Kuwait. As well as the sanctions inflicted upon Cuba, Iran and Russia after the Ukrainian War.


2- Providing financial aids and loans to some countries with special credit facilities,´-or-at interest rates less than the rate of the market-;- which means that international cooperation to help the poorest countries in the world to open up and evolve aid for trade and development. There is no doubt that the main objective of providing this foreign economic aid is to support the self-interests of countries that provide it in the first place, and we must mention that one of the most important first reasons for the expansion of the economic aid programs, after World War II is the intensification of the Cold War and the ideological conflict between the two worlds, the capitalist and the communist, which made the aim of the competition to influence the situation of the nonaligned countries.
This tool is considered one of the most important tools of economic diplomacy, as it is used in addition to the economic goal as a tool for political pressure. It is either in the form of setting specific conditions aimed at serving economic goals and interests of developing countries,´-or-the threat to block loans and grants in order to modify the -dir-ections and policies of the recipient countries that affect the donor countries, so that the greater the amount of aid provided by one country to another country, the greater the influence of the donor country over the receiving countries, and the greater its ability to control their behavior.

3- Compensatory aid is also considered as one of the tools of economic diplomacy, which compensates the countries, in return for the damages that is caused by the implementation of international economic sanctions. The problem lies in how to achieve compatibility between the performance of countries international obligations on the one hand, and on the other hand, the reduction of the negative effects that may be inflicted on them as a result. It may carry negative effects on countries other than those targeted by the decision.


Conclusion

There is very strong interaction between the international economy and international politics, especially after World War II. From a political point of view, the economic diplomacy of developed countries aimed to avoid future wars, it also aimed to contain the spread of communism-;- the issues of international politics have imposed certain arguments on states for economic cooperation, which allows countries to make progress in their economic relations.
The end of the Cold War and the advance of globalization created a new set of international political pressures in the beginning of the nineties. Western countries entered with high ambitions to re-transform centrally planned economies towards a global open market system.However, the situation that prevailed in the post-World War II years did not continue into the nineties of the century.
In the past, industrialized countries imposed their own ideas, and they are still working to make economic organizations seek to achieve its own interests, and therefore the developing countries see that these organizations do not play a positive role in the development of its national economy, as is the case in developed countries.
Not all countries benefited from globalization equally, as the industrial countries became richer, and the poor countries become poorer. The International Monetary Fund attributed this to the economic policies pursued by these countries, as the volume of the aid provided to them decreased and the international capital went elsewhere, and the share of developing countries in international trade decreased. In order to reduce this gap, the IMF asked developing countries to have special development programs, for it can t be imposed on them from abroad. This view was reflected in successive international conferences, where measures were proposed to reduce the debt of the poorest countries in the world, and the IMF has linked its own strategies to help developing countries to implement political and economic measures and adjustments so that it can attract foreign aid and investment into its national economy.
Finally, despite the efforts made by economic diplomacy in creating a new international economic system, the final result that came out of the conferences that were held, and the requests made for adjusting the international economic system, is that the third world remained weak in its relations with the developed countries, as the developing countries remained exporters of raw materials and importers of industrialized goods. The developing oil-producing countries - especially the fiscal surplus countries - realized that, apart from oil, they were not able, under the existing economic conditions, to constitute an effective pressure factor, although some partial successes that were achieved for the benefit of developing countries did not lead to the establishment of a more just world order, but the developing countries returned to deal in a bilateral relations with developed countries according to their conditions.



References:

1- Shwehnha S. (2013). Economic Diplomacy (master s thesis). University of Aleppo, Faculty of Law, Department of International Law.p.45-57.

2- Imbert B.F. In – Depth Analysis: EU Economic Diplomacy Strategy. -dir-ectorate – General for External Policies. Policy Department, 3 March2017, p.4-8.

3- Arystankulova G. Economic Diplomacy – Important Component. of Foreign Policy of Modern State, special edition of the Turkish online Journal, Art and Communication, September 2018, pp. 2864 – 2873.

4- Zirovcic DD. Theoretical Principles of Economic Diplomacy. Dag Hammorskjold University – collage of International Relation and Diplomacy.4 January 2016, pp.1-5.

5- Yueh L. Economic Diplomacy in the 21st Century: Principles and Challenges. LSE IDEAS.27 August 2020.

6- Alshatery b, القوة الناعمة في العلاقات الدولية. Albayan newspaper.15 february 2017.


7- OPEC Oil Embargo, 1973-1974 (archive.org)

8- https://archive.globalpolicy.org/previous-issues-and-debate-on-iraq/41759.html




بحث بقلم د. عبد الحسين شعبان باللغة الإنجليزية بعنوان The Theory of Economic Diplomacy
Facts and Realities ، by dr. Shaban "الديبلوماسية الاقتصادية - الواقع والحقيقة" ،
نشر في كتاب “La diplomatie economique et les affaires internationals au Moyan - Orient”
"الديبلوماسية الاقتصادية والعلاقات الدولية في الشرق الأوسط" من إعداد د. نيكولاس بدوي، ويتضمن 12 بحثًا معظمها باللغة الفرنسية وبعضها باللغة الإنكليزية، وصدر عن دار L’Harmattan” “في باريس، Paris، 2023.

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