European Union

European Parliament, which represents the EU's citizens and is directly elected by them:

o approves, amends or rejects EU laws, together with the Council of the European
Union, based on European Commission proposals

o adopts the annual EU budget jointly with the EU Council

o reviews the Commission's work programme

European Commission, which represents the interests of the EU as a whole.

o 28 Commissioners, one from each EU Member State

o proposes legislation

o enforces legislation and EU treaties

o implements EU budget

EU Court of Justice

EU agencies

European Union

EU policies

By EU treaties, Member States delegate some of their decision-making powers to EU level

EU exclusive competence:

- only EU adopts legally binding decisions

- Member States negotiate within EU Council working parties and committees

- i.e. Trade Policy, Competition Policy, Monetary Policy (only for Eurozone members)

Shared competence:

- both EU and Member States may adopt legally binding decisions

- i.e. Common Agriculture Policy, Internal Market, Cohesion Policy, Environment

National competence:

- only Member States adopt legally binding decisions

- Member States coordinate their policies at EU level

- i.e. Fiscal Policy, Social Policies, Education, Health

European Union

EU Member States divisions:

 Euro/non-Euro

 Net contributors / net receivers of funds

 Net exporters / net importers

Co-existing business models:

- high added value products and services incorporating cutting edge technology and
high skills;

- standardized low added value goods and services, lack of competitiveness aggravated
by brain drain.

Difficulties in devising and enforcing common policies (different needs in terms of financing
priorities, but also of macroeconomic, regulatory or foreign trade related policies). Risk of
devolution into a two-speed Europe?

Challenges of co-existing in a trade and currency area with the World’s most competitive
export-led economy

European Union

Main topics of interest of the economic diplomacy of Member States within the EU:

- negotiation of EU multi-annual budget (allotments for Cohesion policy, Common

Agriculture Policy, Trans-European Infrastructure Programmes, Education
Programmes (Erasmus), Research Programmes (Horizon) etc. )

- EU's economic governance – coordination of the economic policies to correct

potentially problematic economic trends in Member States and prevent their
spreading

- adoption of EU Single Market regulations and decisions

- promoting national interests related to the development of trans-European transport

and energy projects

- promoting national interest related to the negotiation of trade deals between EU and
external economic partners and to the adoption of EU position within WTO
 International Economic Organizations

Organization for Economic Co-operation and Development (OECD)

Established in 1961. OECD grew out of the Organization for European Economic Co-
operation (OEEC), set up to co-ordinate the American aid granted under the Marshall Plan for
reconstruction of Europe after World War II.

36 members – highly developed countries (two thirds of global GDP) -> “the club of the
richest nations”.

Headquartered in Paris. The Governing body of the Organization is the OECD Council made
up of the representatives of member states.

Mission: coordination of economic policies between member states

Effective forum for policy analysis, recommendation and consensus-building and for
monitoring and discussing international policies and processes.

OECD’s activities are carried on within 200 committees and working groups, undertaking
research and analysis on macroeconomic policies, finance, debt, investment, development
policies.

International Economic Organizations

Regional economic organizations:

Free Trade Agreements: North American Free Trade Agreement (NAFTA) , European Free
Trade Association (EFTA) , Southern American Common Market (Mercosur), Common
Market for Eastern and Southern Africa (COMESA)

Regional Cooperation Organizations: Organization of the Black Sea Economic

Cooperation (BSEC), Association of Southeast Asian Nations (ASEAN), Asia-Pacific
Economic Cooperation (APEC) , African Union (AU), Caribbean Community (CARICOM)

Regional Development Banks: European Bank for Reconstruction and Development

(EBRD), Asian Development Bank (ADB), Asian Infrastructure Investment Bank (AIIB),
Inter-American Development Bank (IADB), Black Sea Trade and Development Bank
(BSTDB)

European Union

Population ~ 500 million

GDP ~20 trillion USD

Political project: to create a single market for business and workers, accompanied by a
single currency, while striving toward convergence of living standards. Ultimate goal:
political union?

European Union

28 Member States

Main institutions:

European Council, which consists of the Heads of State or Government of the EU Member
States:

o decides on the EU's overall direction and political priorities

o sets the EU's common foreign and security policy

EU Council, which represents the governments of the EU Member States:

o negotiates and adopts EU laws (regulations, directives – binding), together with the
European Parliament, based on proposals from the European Commission

o adopts the annual EU budget jointly with the European Parliament

o decisions usually require a qualified majority

o 10 configurations – attended by ministers in charge of different sectors from each

member state

o working parties and committees (essential role in reaching an agreement - Permanent

Representatives Committee/Coreper)

International Economic Organizations

o World Bank Group

o International Bank for Reconstruction and Development (IBRD): established in 1945;

provides longer-term (15-30 years) loans for development (major construction projects,
health & human services, technology development, etc.) to developing nations.
Financed member states contributions and bonds issued on international financial
markets (AAA – maximum solvability -> lowest interest);

o International Development Association (IDA): established in 1960; provides

concessional financing (interest-free loans, mostly non-reimbursable) to the less
developed countries; financed by member states & IBRD contributions;
o International Finance Corporation (IFC): established in 1956; provides various forms of
financing without sovereign guarantees, primarily to the private sector from developing
countries; financed mainly from bonds issued on international financial markets;

o Multilateral Investment Guarantee Agency (MIGA): established in 1988; provides

insurance against certain types of risk, including political risk, primarily to the private
sector (foreign investors to developing countries);

o International Centre for Settlement of Investment Disputes (ICSID): established in

1965; international arbitration institution for legal dispute resolution and conciliation
between states and international investors.

o International Economic Organizations

o World Trade Organization (WTO)

o Headquartered in Geneva, Switzerland.164 members representing 98 per cent of world

trade

o Origin: General Agreement on Tariffs and Trade (1948) – first international

arrangement attempting to promote worldwide free trade.

o The only way GATT could pass trade policy was if all member nations agreed. Main
incentive: Most favored nation (MFN) status.

o In 1995, GATT was reorganized as the WTO.

o WTO MISSION:

o Administering WTO trade agreements

o Promoting multilateral trade negotiations

o Settling trade disputes

o Evaluating the trade policies of nations

o International Economic Organizations

o WTO KEY AGREEMENTS

o General Agreement on Tariffs and Trade (GATT): Nations agree to open their borders
(reduce import tariffs and other non-tariff barriers) to the exporting of goods from
around the world.

o General Agreement of Trade in Services (GATS): Nations agree to open their borders
to the exporting of services from around the world.
 o Agreement on Trade-related Intellectual Property (TRIPs): Nations agree to enforce the
intellectual property laws of other nations

o Agreement on Trade-Related Investment Measures (TRIMs): Nation's agree to open

their borders to the inflow & outflow of capital.

o Agreement on Technical Barriers To Trade: Prohibition of trade quotas, embargos, or

bans.

o “The essential goal of the WTO is to deregulate international trade. To accomplish

this, WTO rules limit the capacity of governments to regulate international trade or to
interfere with the activities of corporations.”

International Economic Organizations

INTERNATIONAL MONETARY FUND (IMF)

The IMF and the World Bank were conceived in July 1944 at the United Nations Bretton
Woods Conference in New Hampshire, United States.

How to stabilize the international monetary system in the post WW2 context?

Keynes Plan (UK) White Plan (US)

Central Global Bank with the authority to issue International financial institution financed by
international currency (Bancor) -> member states contributions -> controlled by
independence from governments, under the financing governments
authority of the future UN
 
 
Adjustment of imbalances : countries with BoP
Adjustment of trade and debt accumulation deficit to reduce domestic consumption
imbalances : countries with Balance of (through macroeconomic policies) and increase
Payments surplus to stimulate imports from economic competitiveness through structural
countries with deficit policies supported by short-term loans

The IMF is often used to advance the foreign policy aims of its depositors. The more money a
nation deposits in the IMF, the more say it gets in determining the terms of the loan—such as
structural changes the borrower must make in its policies & economic structure & policies.
Thus, IMF loans can be a potent form of global political influence.

International Economic Organizations

189 member countries (currently)

IMF primary aims:

- Promote international monetary cooperation;

- Facilitate the expansion and balanced growth of international trade;

- Promote exchange stability;

- Assist in the establishment of a multilateral system of payments;

- Make resources available (with adequate safeguards) to members experiencing

balance-of-payments difficulties.

Activities:

- Providing short-term (3-5 years) loans to help member states struggling with trade
balance problems & unstable currencies. Lender of last resort

- Monitoring member country policies as well as national, regional, and global

economic and financial developments.

- Issuing Special Drawing Rights/SDRs - an international reserve asset that can

supplement the official reserves of member countries.

International Economic Organizations

IMF’s role of lender of last resort

When a country borrows from the IMF: high and persistent current account deficits, financed
by short-term loans rather than by stable financial inflows (FDI, long-term credits for
development projects) ->lack of confidence from international lenders in the ability to repay,
inability to access credit for refinancing current debts.

IMF credit is made available in tranches (drawings) under a stand-by arrangement, provided
that the member observes the commitments (conditionality) to strengthen its economic and
financial policies set out in the adjustment program.

Macroeconomic indicators such as monetary and budgetary targets are assessed, on a

quarterly or semi-annual basis, for the member to qualify for the next drawings under the
phasing schedule of the Stand-By Arrangement.

Main goal: the member state to achieve financial sustainability, to avoid a credit default that
would destabilize financial markets and restore confidence of private lenders.

Precautionary Arrangement - a stand-by arrangement under which the member agrees to

meet specific conditions agreed with IMF although it has indicated its intention not to make
use of IMF resources, except for emergency situations.

International Economic Organizations

Defining features:

• Made up of sovereign states

• Common goal (related to economic cooperation)

• Established by an multilateral legal instrument (treaty, convention, charter)

• Subject to international law - international legal personality

Main reasons for establishment:

to preserve peace

to promote international economic relations

International Economic Organizations

Types of International economic organizations:

- Global ( United Nations, World Trade Organization) / Regional (European Union,

Association of Southeast Asian Nations) / Inter-regional (OECD - Organization for
Economic Co-operation and Development, OPEC - Organization of the Petroleum
Exporting Countries)

- Broad purpose (UN, EU) / Specialized (WTO, IMF, World Customs Organization,
International Labor Organization)

- Cooperative - state led (UN, OECD) / Integrative – supra-national (EU)

International Economic Organizations

United Nations

 Most representative global forum - 193 members

 Established in 1945 by the Charter of the United Nations, signed at San

Francisco Conference

 Venue : New York ( offices in Geneva, Vienna and Nairobi)

 Main goals: preserving international peace and security, promoting

international cooperation and friendly relations among states, protecting
fundamental human rights.

 Structure:

 UN General Assembly: deliberative organ of all member states;

 UN Security Council: responsible for international peace and security;

  UN Economic and Social Council (ECOSOC) : responsible for economic and
social matters and coordination of UN's specialized agencies;

 International Court of Justice: universal court for international law;

 UN Secretariat: administrative organ headed by UN Secretary General.

International Economic Organizations

International development cooperation

International development policy

Typically, the donor countries decide which developing countries are to receive aid, how
much, in what form (loans or grants, financial or technical assistance), for what purpose,
and under what conditions

ODA channelled through multilateral agencies may be also earmarked by the donors for
specific purposes, projects or countries.

Criticism

Foreign aid’s primary goal is to help people abroad, but the selection of recipients and aid
modalities may prioritize instances where it maximizes the direct and indirect benefits to
the donor country.

Often, political and economic interests of donors may outweigh the developmental needs or
merits of the recipients.
Donor countries may use foreign aid, with its aura of beneficence, in pursuit of the
following kinds of self-regarding agendas:

Diplomatic and Political Influence: to stabilize friendly regimes, to buy votes at the United
Nations, to coerce recipients (by withholding aid or threatening to reduce it), to raise the
donor’s profile internationally ;

Geostrategic and Military Advantage: to reward countries that take part in international
military operations, to buy goodwill in a country where the donor country’s troops are
deployed;

Mercantile Gain: to facilitate the negotiation of trade agreements and the exports of donor
nation goods and services in the recipient countries, to secure long-term access to strategic
resources:

o Tied aid is a type of foreign aid in the form of bilateral loans or grants that require
the recipient country to use the funds to purchase goods or services from the donor
country.

o If there is no such conditionality, then the loan or grant in question is called

“untied aid”.

Trade, investment and financial aims are major drivers of foreign aid.

International development cooperation

Romania’s Development Cooperation Policy

(www.mae.ro/en > Ministry of Foreign Affairs/ Key Policy Areas/ Development

Cooperation Policy)

Romania became a donor of official development assistance (ODA) in 2007, after having
joined the European Union. Its development cooperation policy is coordinated in relation
with Romania’s foreign policy.

Romania’s development cooperation policy consists in supporting people in developing

countries, including low- and medium-income countries, both through the bilateral-driven
efforts geared at development cooperation and by joining the EU’s efforts in the field.

The overall objective of Romania’s development cooperation policy is to support the

partner countries’ efforts to implement their own national development strategies.

International development cooperation

Romania supports the development of states in geographic areas labelled as priorities for
the Romanian foreign relations, i.e. the Eastern European states, the Western Balkans and
South Caucasian countries. However, in principle, Romania will also support least
developed and low-income countries. The list of beneficiary countries can be expanded
towards Central Asia, Africa and Latin America, once Romanian capacities in the field of
assistance for development are consolidated.

Romania signed the Millennium Declaration of 18 September 2000 and endorsed the main
international engagements in the field of development cooperation.

The Romanian Ministry of Foreign Affairs (MFA) is the main institution in charge of
managing and implementing the national development cooperation policy. The
development assistance, including humanitarian assistance, is financed from the MFA’s
budget.

Financial diplomacy

Relations with creditor/debtor countries - settlement of external financial debts/claims

External financial debts/claims may result from inter-governmental loans, state

guarantees of company loans, participation in joint ventures (subsequently
bankrupt)

Ways of settlement:

o Bilateral negotiation of financial terms (debt reduction, refinancing, rescheduling).

Need to take into account terms already negotiated by heavily indebted poor countries
with main international public creditors (Paris Club), IMF& World Bank;

o Settlement through converting financial claims into imports of merchandise or equity

ownership (linked to the interest in developing trade and investment bilateral
relations);

o Trading claims on the international debt markets (not politically advisable).

Energy diplomacy

Diplomatic approach dealing with energy resources and transfer routes for maximizing
national interests in bilateral, regional and global relations of energy demand and supply

Focus on oil&gas resources – diplomatic assets due to rarity and uneven distribution of
reserves and the international rivalry for the control over energy transit routes. Access to
energy resources is often influenced by international political concerns more than by
economic motivations.

Main goals:

For energy exporters (i.e. Russia, Middle Eastern countries, US – shale oil and gas):
development and more efficient utilization of the reserves, investing on new reserves,
maximization of revenues, securing markets (i.e. by offering incentives and subsidies to keep
its energy resources attractive, subsidies in exchange for favorable trade deals and sometimes
for political favors, cooperating with importers to develop energy infrastructure), cooperating
with other importers to reduce market competition (OPEC).

Energy diplomacy

For energy importers (EU, China, Japan, India, etc.): to access cheap and continuous energy
inflow, secure the energy supply, and maintain the variety of energy resources, efficiency, and
stability of international energy market.

For transit countries (Ukraine, Turkey): to use geographical position on the energy transfer
routes as an international bargain asset in order to secure energy supply and maximize
revenues from transit fees

Steps to achieve energy supply security:

- strengthening comprehensive and mutually beneficial ties with resource-rich countries,

providing official development assistance, including technical cooperation and human
resources development in the resource sector;

- participation in implementing major regional energy projects (oil/gas pipelines, LNG

plants and terminals);

- cooperation with other energy importers to ensure security of transportation routes,

energy markets interconnection, utilization of international fora and multilateral rules for
market stabilization.

Energy diplomacy

Nuclear energy

Sector of high interest for most states in order to improve their energy mix

Access to nuclear fuel is important, but essential is access to nuclear technology

Production of nuclear energy is closely linked with international concerns on nuclear non-
proliferation and the safety of nuclear material and facilities

-> scientific research and development and trade in nuclear material, goods, equipment
and services are strictly regulated under International Atomic Energy Agency (IAEA) and
Nuclear Suppliers Group rules

Negotiations driven not just by technical considerations but also by foreign and trade policy

Limited number and fierce competition among nuclear technology vendors for safe buyers
due to high costs and potential profits involved

-> enticing purchasing countries with degrees of technology transfer, state- backed
financing arrangements (loans from export credit agencies), linkages with other
investments and trade opportunities (offset arrangements – similar in military technology
procurement)
Involvement of political leaders at various points in the negotiation, most visibly through the
participation of heads of state in various agreements to purchase nuclear technology .

International development cooperation

Foreign aid - transfer of goods, services, financial funds and know-how from more
economically developed countries (international donors) to less developed ones (aid
recipients).

Types:

- Humanitarian / emergency aid (following disasters)

- Official development assistance (ODA)

ODA supports a wide range of sectors:

- social development (health, education)

- economic development (infrastructure projects, SMEs)

- environment

- governance

- conflict prevention

International development cooperation

ODA flows comprise contributions of donor government agencies, at all levels, to:

- developing countries - bilateral ODA - recipients can be government agencies,

private enterprises, NGO;

Priority >Least developed countries (LDCs) identified by the UN as having the poorest
economic and human development indicators

or to

- multilateral institutions which then distribute them to developing countries

( UNFPA: United Nations Population Fund

UNDP: United Nations Development Program

UNHCR: Office of the United Nations High Commissioner for Refugees

 WHO: World Health Organization

WBG: World Bank Group

Regional development banks and agencies

International funds – i.e. Global Fund to Fight AIDS Tuberculosis and

Malaria )

International development cooperation

To be counted as ODA, contributions need to contain the three elements as defined by

IMF:

(a) undertaken by the official sector

(b) with promotion of economic development and welfare as the main objective

(c) at concessional financial terms (if a loan, having a grant element of at least 25 per
cent).

Excluded from ODA:

- Lending by export credit agencies with the purpose of export promotion;

- Grants, loans, and credits for military purposes.

International development cooperation

In addition to financial flows, technical cooperation is included in aid. Technical

assistance (either bilateral or multilateral) takes the form of the transfer of expert
personnel, technicians, scientists, educators, and economic advisers, and particularly their
use in training local personnel, rather than a simple transfer of funds.

One of the factors that determine a given amount of ODA’s success in achieving
development goals is absorptive capacity - recipient country’s ability to use aid funds wisely
and productively. Many types of assistance ( such as resources for building infrastructure,
technical assistance, scholarships) are aimed at strengthening the absorptive capacity.

International development cooperation

Global Goals

In 2000, United Nations signed the United Nations Millennium Declaration, which
includes 8 Millennium Development Goals (with measurable targets and defined
indicators) to be achieved by 2015:

- To eradicate extreme poverty and hunger

- To achieve universal primary education

 - To promote gender equality and empower women

- To reduce child mortality

- To improve maternal health

- To combat HIV/AIDS, malaria, and other diseases

- To ensure environmental sustainability

- To develop a global partnership for development

The MDGs served a successful framework to guide international development efforts,

having achieved progress on some of the 8 goals (i.e. by 2015 the extreme poverty rate had
already been cut into half).

In 2015, succeeding the MDG agenda, 17 Sustainable Development Goals (SDGs) were set
for the year 2030, focusing on areas of climate change, economic inequality, democracy,
poverty, and peacebuilding.

Trade and investments agreements

The regulatory dimension of the external economic activity has gained in importance as the
increasingly managed nature of trade and economic relations directly involves governments in
cooperating for setting up a complex legal infrastructure.

Free/preferential trade agreements – covering wide range of areas, such as reduction or

elimination of tariffs and/or non-tariff barriers on goods and services, intellectual property
rights, custom rules, government procurement

Investment protection and promotion agreements - stipulating the protection of investors and
investment, enhancement of transparency in rules and expansion of investment opportunities

Trade and investment promotion

Tax conventions - legal basis to avoid international double taxation against cross-border
economic activities, exempt investment income from taxation (dividends, interest, and
royalties) in source country, prevent international tax evasion or tax avoidance, and promote
international cooperation between tax authorities through such measures as information
exchange in tax matters

Social security agreements - legal basis to resolve the issues of double payment and refund of
social security insurance premiums in the context of labor migration

Sectoral agreements (civil aviation, maritime transport, tourism, telecommunications, etc.)

Financial diplomacy
Specific area of the economic diplomacy, dealing with a state’s financial interests in
relation with other states, international organizations and private entities

Main activities

Communication and cooperation with private, public and inter-governmental banks and
financial institutions, rating agencies, financial consultants, exchange markets operators,
stockbrokers, mutual funds, insurance companies, hedge funds, etc.

Special attention: state owned development banks, sovereign wealth funds.

Nature of their foreign-government ownership makes them uniquely susceptible to
exert political influence.

Negotiation of loan agreements and guarantee agreements

Monitoring the implementation of projects financed with foreign loans and

proposing measures to overcome the problems occurring during their preparation and
implementation

Financial diplomacy

Launch of Government (Treasury) bonds issued on foreign markets

Cooperation with an international bank/financial institution underwriting the

issuing;

Prepared/preceded by organizing (non-deal) road-show events – series of

presentations made in various locations leading up to an initial public offering.
Targeted: institutional investors, analysts, fund managers;

Finance/Central Bank officials to introduce country’s economic situation and

financial standing, agreements with international institutions, bonds issuing
history and estimated conditions addressing the actual issue;

After meetings and discussions take place, may evaluate if an issue would be
over/under subscribed and/or if the offer conditions need corrected according to
this aspect.

Support by the diplomatic missions of national companies issuing debts/equity on foreign

stock markets

Trade and investment promotion

The reasons and need for conducting commercial diplomacy:

Business perspective:

- Diplomatic networks generate economic intelligence that would have otherwise been
unavailable;
 - Intelligence gathered by diplomatic networks is centralized, and this creates
efficiencies (esp. for the SMEs sector);

- Diplomatic activities are usually more visible in the media and may thus draw
attention (marketing) at a relatively low cost;

- Diplomatic networks usually have easier and influential access to high-level contacts
than most individual businesses;

- Diplomatic networks have a high ‘trust factor’ and that makes it easier to attract
foreign partners.

Government perspective:

The intended outputs of commercial diplomacy include economic stability, home country
welfare, increasing added value (GDP) technological upgrading and climbing up international
supply chains, building national competitive advantage through increased innovation capacity.

Trade and investment promotion

Trade promotion

Types of commercial diplomacy services:

Commercial intelligence:

 Informing home business associations and individual enterprises on the basic

economic conditions in the target country;

 Analyzing the potential markets for the home country –matching the export basket of
own country with the import basket of the target country;

 Providing sector-specific guides for home exporters;

 Identifying the potential competitors and analyzing their products that reach that
market. That provides clear indication of the areas where one might concentrate,
provided the price and other conditions are suitable.

 Services provided via embassy websites: information on trade fairs, how to establish a
business in a host country, market information, export and import regulations.

Trade and investment promotion

Business advocacy:

 Providing consultancy-like services to companies that want to engage in commercial

activities in the host country: answering to specific inquiries (i.e. on taxation,
regulations), counselling on market entry strategies and local business culture,
providing lists of potential buyers, distributors, importers, suggesting access to
 local experts for the economy and market analysis (when
special knowledge is required), monitoring contract implementation.

[CONTROVERSIAL] Lobby:

 Larger [multinational] corporations based in home country may aim to use commercial
diplomacy in order to influence relevant policy-making and regulations in the host
country. Diplomatic missions have a role in assisting to sustain an enabling
environment, with discreet intervention as needed by the home enterprise. These
points connect with the issue of country image.

 Associated risks: helping private friends and encouraging corruption within the
diplomatic service, distorting host country’s market, transferring resources from the
public sector to the private business sector, not clear if the private benefits justify the
cost (incl. reputational) of such practices.

Trade and investment promotion

Networking:

 Cultivating relations, building partnerships and mobilizing wide clusters of supporting

actors from home and host country: industry bodies, chambers of commerce, think-
tanks, universities, media, local associations;

 Promoting/supporting bilateral chambers of commerce (based on enterprises already

engaged in economic interactions), friendship associations, network of honorary
consuls;

 Establishing contact with importers/distributors of selected products or services and

sensitizing them on what the home country might offer (it also helps to put potential
importers in contact with existing local importers of other products, to overcome
potential hesitation and other obstacles);

 Organizing congresses, seminars, round tables, exhibitions, road-trips, etc.;

 Diaspora can be a key associate in economic diplomacy.

Trade and investment promotion

Trade missions:

 Most widely used commercial diplomacy instrument to overcome barriers to

internationalization of companies. Consists in organizing visits by business
delegations in order to introduce them to potential partners in foreign markets and by
letting them observe those markets themselves.

 The embassy’s professionalism is visible in the way such visits are planned; the effort
to create a broad catchment of potential business partners eventually narrows down to
a handful, for first business contacts and trial orders. It is the one-to-one meetings that
 lead to business, and this hinges on effective matchmaking between the buyer and
seller.

 Taking advantage of the international (general/specialized) trade fairs and exhibitions

organized in the host country - networking events with matchmaking opportunities
that can result in the acknowledgment of export opportunities and the potential of
finding partners that can help companies operate in the target market.

Trade and investment promotion

 Embassy’s contribution: assessing impact of participation in the trade fair, negotiating

facilities with the organizers who are interested in a broad international participation
(i.e. preferential booth renting, poss. free of charge national booth/pavilion,
promotional facilities), promoting the event to home industry associations
(participation may be subsidized by home government).

 Allowing exporters to hold buyer-seller shows on the premises of the diplomatic

mission, if necessary, charging the exporter for any additional direct expenses.
Embassies of larger countries have their own trade centers that can host such events.
This may add to the credibility of the exporter.

 Another opportunity: organizing trade missions in the margin of high-level/high-

visibility official visits. Such visits can transform the perception of key decision-
makers in the host country’s business sector.

 Embassies also facilitate visits by business and economical/political delegations from

the host country. The latter especially includes visits of delegations led by ministers
and local or provincial leaders, who frequently take with them business delegations.
The embassy’s contacts and credibility hinge on how effectively it supports such
visits.

Trade and investment promotion

National branding:

 Shaping a more favorable perception of the home country by audiences (nation’s

brand) by communicative processes that include both rhetorical tools, such as
marketing and advertising, based upon substantive features – such as public policies
and development projects. A positive country image facilitates trade exchanges and
foreign investments.

 Economic diplomacy connects closely with the country brand, because a country’s
trade and investment destination profile both contributes to, and is influenced by the
reputation that the country enjoys internationally.

 The activities of diplomatic missions (but also of established citizens and companies)
in a host country strengthen the brand identity of a nation and establish new networks
which can be exploited in subsequent nation branding and public diplomacy activities.
Trade and investment promotion

Investment Promotion

The same mix of issues comes up as with pushing exports: establishing credibility; finding the
first breakthrough; cultivating potential investors from the target country; organizing business
delegations; taking part in investment promotion events, and the like.

Specific requirements:

 Cultivating business chambers and industry associations on a permanent, ongoing

basis is essential, especially when local companies are unfamiliar with the partner in
an investor role.

 Investors are attracted by ‘success stories’ the more when they are narrated in honest
terms by other foreign investors. Everyone expects the representatives of the country
seeking FDI, be it at an investment-promotion seminar or at a large business
conference, to say good things about their home country. It is the narratives from other
investors that are listened to with special attention. The embassy should invest effort
into searching out such participants and bringing them on board in their investment
mobilization efforts.

Trade and investment promotion

 Clinching element in investment promotion is sustained cultivation of selected target

companies. Effort goes into making the determination as to the best targets to pursue;
home agencies can help in this, but the embassy can act on its own initiative, using
common sense, combined with real understanding of the business environment in the
host country.

 Embassies can also play a key role in improving the ‘conversion rate’ between
investments that are approved by home authorities, and those that are typically
implemented. Part of the reason for this gap between the two is that even after
approval, some foreign companies take time to move forward with the investment
project; some projects are abandoned if business plans change.

 Expanding the network of science & technology counsellors in embassies is very

useful for investment-promotion activities, and also to harness their technical
knowledge to identify the sectors that should be a priority.

Trade and investment promotion

 Usually, technology comes in with FDI flows, but in some cases a foreign partner
prefers a lower form of collaboration, such as technology licensing agreement. This
can be a major vehicle of partnership, and sometimes serves as a prelude to direct
investments.
  Besides FDI, ‘portfolio investment’ and other forms of indirect investments that come
in through the stock market or as private-equity contributions are also sought, but they
have a lower priority because such investments are more volatile. They have a positive
role, but are usually not the focus of promotional efforts.

 As economic development moves forward, countries that were primarily recipients of

FDI slowly morph into exporters of capital, venturing out to external markets with
their own FDI.

Trade and investment promotion

Promoting business and trade can only be successful by acknowledging that:

 Business networks are the most important resource. Practice of commercial diplomacy
inherently involves communicating with key actors and establishing networks in host
countries.

 Creating and managing vast business networks are only effective when an embassy is
established in the receiving country.

 Initiative taken by diplomatic missions often provides the initial impetus, especially in
the promotion of new export products and the exploitation of new markets. If the
mission official on the spot identifies an opportunity and flags it for action, it is not
difficult to motivate home agents (government agencies, export councils, trade
associations, business enterprises).

 The image of a country is referred as a major variable for success by commercial

diplomats. The more negatively a country is perceived by foreign business firms, the
greater the need for commercial diplomacy and commercial diplomats.

ECONOMIC DIPLOMACY

ECONOMIC DIPLOMACY

 Specific area of modern diplomatic activity, related to cross border economic activities
(export, import, investment, technology transfer, energy, financial transactions, aid,
migration, tourism).    

 Economic diplomacy is a component of foreign policy
(the international activity of the country)

but also a component of the country’s economic policy mix:

  Consolidation of national competitiveness assumes a complex of the interrelated and

mutually complementary measures both in the area of domestic economic politics (assistance
to technological development, innovative activity), and in the area of external economic
politics (export promotion, improvement of terms of access to foreign markets, engagement of
foreign investments, technologies). Therefore from a political and economic point of view,
economic diplomacy takes special place, forming a favorable environment for the practical
solutions of increase of competitiveness.

 Economic diplomacy provides the necessary connection between diplomatic

demarches and the goal of ensuring the economic welfare of the country’s citizens. Its
objective is to put all foreign policy instruments to good use to further advance the
economic interests of the country and of the national entrepreneurs.

 Economic diplomacy requires application of technical expertise that analyzes the

effects of a country's (host state) economic situation and political climate on the own
state's economic interests.

 Understanding the dynamics of the international interactions in political
and economic spheres helps to define the development of mutual relations and interde
pendence  between the countries. 

Typically economic diplomacy consists of three elements:

 The use of political influence and relationships to promote and/or influence

international trade and investment, to improve on functioning of markets and/or to
address market failures and to reduce costs and risks of cross border transactions.
Typically this subfield of economic diplomacy comprises promoting trade and
investment, facilitating financial flows, securing access strategic resources and
technologies, tourism promotion etc.

 The use of economic assets and relationships to promote political interests, i.e. to
strengthen security by increasing the cost of conflict, strengthening the mutual benefits
of cooperation and politically stable relationships. This subfield both contains bilateral
trade and investment agreements (aimed at achieving specific geographic trading
patterns), financial arrangements, development assistance, politically justified
distortion of trade and investment through boycotts and embargoes.

 Ways to consolidate the right political climate and international political economic
environment to facilitate and institute these objectives. This subfield covers
multilateral negotiations and is the domain of the supranational organizations and
institutions such as the World Trade Organization (WTO), International Financial
Institutions (IMF, World Bank Group), the Organization for Economic Cooperation
and Development (OECD), the European Union (EU), etc.

Players: State and non-state actors

 All government agencies that have economic mandates operate internationally and are
players in economic diplomacy though they do not describe them as such.

Economic diplomacy requires an efficient framework for institutional cooperation that

supports the concerted efforts aimed at promoting national economic interests abroad.

 Supranational (inter-governmental) organizations and institutions – led by states

  Non-state actors such as NGOs engaged in economic activities internationally.

 Businesses and investors are also actors in the process of economic diplomacy,
especially when contacts between them and governments are initiated or facilitated by
diplomats.

Diplomatic mission is the basic structural unit for the economic promotion in the field.

Increased role of  economic diplomacy in the modern system of the international

 relations:  

Internationalization processes and reinforcement of interdependence of the World  economic
system, moving in two planes ‐ global and regional integration;

Expansion of regional trade agreements for elimination of barriers for international trade and
investment processes – EU, NAFTA, Mercosur, etc.;

Expansion of market economy model, liberalization of national economies and their
interaction through trade and international investments; 

Increasing number of global economy entities
- transnational corporations, banks, investment groups, business associations;

Expanding dependence of economies on world markets, investments, technologies;

Expansion of the share of foreign trade and investments in GDP (Gross Domestic Product) in
comparison with local manufacture;

Increased economic uncertainty due to the increasing speed of globalization and issues related
to the new scarcity reflected by fluctuations in the prices of oil, raw materials and other
elementary goods and products.

Governance networks, cooperation and multiple actor interaction have become crucial
components of international economic policy making.

Globalization  process  is  accompanied  by the sharpening  of  the  international 

competition, which   strongly  requires  active  participation  in  advancement  of 

the  country and protection of  the national interests on  the world market. 

Trade and investment promotion

Commercial diplomacy - the work of a network of public and private actors who manage
commercial relations using diplomatic channels and processes. Commercial diplomacy
facilitates business connections, provides business advisory services, and represents the needs
of businesses in host countries.
Commercial diplomacy combines the interests of both government and business by
highlighting new markets and investment opportunities (trade and investment promotion),
focusing on business support and promotion.

Government provides support services to the business community, aiming at the development
of socially beneficial international business projects that enhance own country’s economic
welfare. Successful commercial diplomacy gains access to new markets and serves the home
country economy.

Trade and investment promotion

Fields: trade in goods and services, investment, tourism, science & technology cooperation

Main activities: gathering economic intelligence, advocacy, networking and public relations,
lobby, formal and informal contract negotiations, negotiating regulatory framework for trade
and investments (free/preferential trade agreements, investment protection and promotion
agreements, tax conventions, sectoral cooperation agreements)