Economic diplomacy is the use of the full spectrum economic tools of the state to achieve its national interest, including external economic sector, foreign aid or official development assistance, export, import, foreign investment, lending, free trade arrangements, joint economic commissions. Economic diplomacy is concerned with economic policy issues. Economic diplomats are monitor and report on economic policies in foreign countries and give the home government advice on how to best influence them. Economic diplomacy employs economic resources - powerful countries sometimes use such resources either as rewards or sanctions in pursuit of their foreign policy objectives.
Emerging economies of south Asia have learned that they are not flowers and businesses are not like bees; in other words, a nation that wants to attract business must be proactive rather than passive. They must seek out opportunities and learn to bring them home. Tax and other concessions will likely be necessary which, in the short term, may be costly. However, creative support of new business opportunities can create major chances for success.
There are three elements in economic diplomacy:
Commercial diplomacy: This uses 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 (including property rights). The commercial wing of an embassy should emerge as a salesman of the commodities produced by the home country and at the same time it should facilitate export of required commodities of the host country to the home country.
Structural policies and bilateral trade and investment agreements: These involve use of economic assets and relationships to reduce the cost of conflict and to strengthen mutual benefits of cooperation and politically stable relationships, i.e. to increase economic security. Economic diplomats are required to study research and advocate for home country policies to the host country as well as explain the best policies in the host countries to the home front.
International organisations: As representatives of the country to international organisations economic diplomats should raise voice in favour of framing policies favourable to their own country. They should keep the home country appraised of developments in the international arena and suggest to mould and reform trade, investment and economic policies at home.
South Asian economies are striving for making a concerted effort to engage in economic diplomacy with the both developed and developing economies to acquire and disseminate knowledge applied to social and economic development. These economies may practise the concept of not simply receiving knowledge from developed countries, but also sharing its own experiences with others in effective partnerships towards development. South-South cooperation contributes to consolidating south Asian nations' relations with partner countries as it enhances general interchange; generates, disseminates and applies technical knowledge; builds human resources capacity; and strengthens institutions in all nations involved. This would benefit the region .
India, for example, has traditionally engaged in economic diplomacy primarily through the use of trade and aid. For example, in order to build a stronger, more stable relationship with neighbouring countries, it grants soft loan, and also provides grants. India set up a development wing - the Development Partners Administration (DPA) - in 2012. The DPA is building 50,000 housing units in Sri Lanka, a large transmission line in Afghanistan, and extends Lines of Credit projects globally, particularly in Africa. Economic diplomacy and the DPA are very important to Indian foreign policy objectives of transforming the country into a global player.
Multilateral economic diplomacy takes place within the framework of World Trade Organisation (WTO), as well as numerous international economic and financial organisations such as the World Bank (WB), the International Monetary Fund (IMF), various UN agencies etc. With the establishment of WTO, there has been a policy shift in global trading system towards the promotion of economic activities. Sustaining competitiveness, however, continues to represent an important challenge for instruments and mechanisms established by bilateral and multilateral trade agreements.
Dr Muhammad Abdul Mazid, Adviser of SEACO Foundation, is a former Chairman of South Asian Federation of Exchanges (SAFE)