Tatoul Manasserian “Economic diplomacy: from theory to real life”

Economic diplomacy: from theory to real life
Tatoul Manasserian
Founder, Research Center ALTERNATIVE

Executive summary
Our purpose is to reveal the relationship between the basic principles of
economic diplomacy and current trends of economic globalization, particularly in
post-soviet countries (based on Armenia’s case). The efficiency of the second generation
economic reforms being implemented in the Republic of Armenia, in our
opinion, is highly correlated with (associated with/attributed to) the ability to
respond to both internal (domestic) and external challenges properly. If the impact
(consequences) of the internal challenges can be, mainly, assessed (estimated) using
the indicators/variables of the domain of economic threats and explain the
(respective) potential of economic security, then the external challenges, in addition
to the imperative of neutralizing (canceling out) the external economic threats, require
clear direction and program of economic diplomacy.
Obviously, the meaning, forms and ways of economic diplomacy vary from
country to country depending on the level of economic development1. At the same
time, nearly each nation in the modern (contemporary) world stresses (pays close
attention to) the role of economic interests in political processes; the trends (patterns)
observed in building international economic relations; and identification of the new
role of the state in regulating external economic relations. Therefore, the need for
designing both applied and theoretical methods and approaches to be utilized in
economic diplomacy and to explain possible developments with regard to shifts in
the respective directions. Meanwhile, the issues of high efficiency of participation of
the economic agents; ensuring favorable conditions; methods used by the
Government to address problems, and diplomatic specifics of measures in
international economic relations are stressed.

Economic globalization and economic diplomacy
It is of a particular importance to design the Concept Note of Economic
diplomacy in the current stage of economic globalization, when the estimated impact
of the latter one on the national economy being interpreted differently forces the
policy makers to find out (look for) ways to stabilize the situation and to report
progress in the future. Both state officials and the nation’s economic elite need to set
more specific objectives for the design/formulation of diplomacy by the diplomatic
institutions established since the independence of Armenia favoring economic
development and for educating/training respective competent
officials/professionals for these institutions.
It is noteworthy, that the dynamic developments of the global economy directly
affect the forms, methods, tools and principles of the economic diplomacy, while
increasing the circle of influence and getting other players engaged in diplomacy.

1 R. Saner, L. Yiu, International Economic Diplomacy: Mutations in Post-modern Times, Discussion Papers
in Diplomacy, Netherlands Institute of International Relations “Clingendael”, p.10
Currently, the most important economic diplomacy makers are not only states and
the international organizations, but also regional economic and financial
organizations, specialized institutions, private companies and non-governmental
organizations (chamber of commerce, and business unions), individuals (natural
persons) and legal entities and etc., the number of which is constantly growing. Not
only tools and policies designed, but also modern techniques utilized in economic
diplomacy have been substantially changed. More often they are utilized and
polished during bilateral and multilateral negotiations.2
The role of international organizations
The above-mentioned tools and techniques were especially utilized by the
Republic of Armenia during the period preceding Armenia’s accession to the World
Trade Organization (WTO), when the issues of compliance of economic and
government system with the requirements of the WTO, and perspectives on mutually
beneficial trade and cooperation with other WTO members states were discussed in
bilateral and multilateral formats. It is worth to note, that since 2003, the accession to
the WTO, the number of existing challenges with regard to the economic diplomacy
has been constantly increasing. In addition to international financial and economic
organizations, Armenia is currently forced to clarify also the main directions of
foreign economic cooperation with the regional economic and political units. The
most difficult situation has emerged in recent years within the framework of
economic cooperation with the EU and CIS Custom Union, mainly taking into
account current/existing conditions of latters’ mutually exclusive provisions. In this
case the possibility of effective choice with the use of economic diplomacy of Armenia
could be limited without the participation of third party or harmonization and
approximation of above mentioned provisions, tariffs and principles between CU and
EU. One of the ambiguities of this political-economic puzzle is that countries standing
in front of choice between CU and EU, Armenia, Ukraine and Moldova, together with
Russia are member-countries of CIS, which basically gives an additional opportunity
to apply international standards and principles. Generally, the half of post-soviet
union countries are the members of the WTO, which is basically might facilitate
application of any format of economic integrity with the same international standards
in the region.
As for bilateral and multilateral procedures and principles, they are developed
and applied by the UN, WB, IMF, WTO and other international institutions.
Moreover, they are getting rich through the direct influence of new trends and
developments observed in the world economy. In this regard, the WTO functions,
main agreements for compulsory ratification by member countries, principles and the
protection mechanisms applied in international trade rules3. Before the establishment
of the WTO, such activities were carried out within the framework of the General
Agreement on Tariffs and Trade (GATT), which is basically played an important role
both in shaping international trade regime, and clarifying the roles of its main

Juma, Calestous, “Africa and Brazil at the Dawn of New Economic Diplomacy”, The Belfer Center for
Science and International Affairs, Kennedy School of Government. February 26, 2013.
participants, effective institutional structure, organizational components, principles
and conditions of participation, improving dispute settlement mechanism. The
successful solutions of those issues are derived from the multilateral negotiations of
new GATT round (Doha Development Round). In this stage, especially, the
conditions and procedures of the WTO membership had been clarified. As for
association of Armenia to the WTO, the purpose and issues of that process had been
discussed in details during the negotiations through special working group, through
bilateral and multilateral consultations by channels of economic diplomacy, which, in
its turn, set the main results recorded in successive stages of negotiations. The increase
of the role of economic diplomacy, in our opinion, is mainly associated with
challenges of the economic globalization and regionalization and new emerging
conditions and opportunities for the national economies, which in its turn requires
real strategic state-business partnership4. Meanwhile the goals and objectives of the
global changing regimes require new approaches to the management of processes and
concepts that rely on these approaches. In all of this, the people’s diplomacy has a
crucial role to play that in unofficial and friendlier environment allows focusing on
comparison of interests of various nations and benefiting from perspectives on
efficient utilization of the competitive advantages, As the best practices indicate,
people’s diplomacy, in its turn, can be more efficient when it is implemented by the
specific and target groups by the vital participation of the prominent SME businesses,
scientists, artists, and representatives of other sectors.
The role of the state
We don’t exaggerate when we note, that the economic diplomacy currently
provides additional opportunities for Armenia to set strategic objectives more
aggressively and from new perspectives and to choose the most efficient methods and
techniques to address them. Foreign economic policy can be more efficient taking into
account current socio-economic reforms in case of rethinking the role of the state5, the
meaning, objectives and principles of foreign economic policy that are somehow
There is no consensus on especially constrains imposed on monopolies by the
interventions of the government, enforcement of anti-trust laws, and the necessity of
enforcement of these laws in the market economy when the capital is highly
concentrated. Based on our observation of recent trends in the global economy
interventions related to legislative changes supporting the state regulation, with no
exceptions, tend to increase. Addressing the above-stated issues is equally important
both for regulating domestic economic relations, and for estimating, interpreting the
trends in international trade to rely on them for the benefits of the economic system
being established and to be tackled in economic diplomacy.
Meanwhile, all this helps to choose the most realistic methods to address and
meet the objectives of the economic policy with the support of the government. It is
worthy to note that, the role of diplomacy aimed at the development of the nations is

4 Public Private Partnership is at the core of second-generation reforms being currently implemented.
5 See United Nations Conference on Trade and Development, World Investment Report Foreign Direct
Investment and the Challenge of Development, United Nations, New York and Geneva, 1999-2012,
considered as a tool to ensure that foreign policy and economic interests are
addressed that is mainly associated with and the structure, size, and dynamics, and
of geographic location the support is channeled to, and political and economic
conditions. Development issues always have been under the consideration of
organized special conferences with different formats, especially, keeping on the
priorities and favorable conditions development aid, decision and negotiation
making rules, role of international institutions in donor mobilization and
coordination, strategic partners, and in business activation. The G-8, G-20, UN global
conferences and UN General Assembly, International Bank of Reconstruction and
Development, WB institutions, regional banks (Asian Development Bank, African
Development Bank, Inter-American Development Bank, European Bank of
Reconstruction and Development), UN special organizations and foundations,
USAID, Canadian Agency of International Development and others pay a special
attention to the role of development of economic diplomacy.
Economic diplomacy and economic security
Ensuring economic growth and human development, as the majority of
international experts are stating, the issues of economic diplomacy are closely related
to the economic security and its strategies of the country6. Taking into account the fact,
that traditional threats of economic security day to day are supplemented by new
resources7, the role of economic diplomacy is obviously growing in neutralizing the
threats to the country’s economic security (providing fair competition conditions,
unrestricted exit to foreign country’s products, raw materials and other markets, joint
programs on use of global ocean and space, security for international transportation,
prevention of nature disaster, support the Republic of Armenia in the world economic
processes integration, increase of both political and economic image and etc.). In
generally, economic security indicators have marginal values, and in case of latter’s
increase they turn into threats.
Currently the most important issues the economy is facing are the chronic deficits
of the budget, balance of payments and trade. Thus, there is no doubt that providing
favorable conditions to trade and export development through economic diplomacy is
required8. Particularly, it the role of foreign bilateral and multilateral trade is crucial
in economic development. At the same time, it is possible to strengthen significantly
country’s positions through effective foreign trade both in international and economic
multilateral cooperation, which in its turn could become a reality by the consistent and

6 Moons, Selwyn and Van Bergeijk, Peter A. G., Economic Diplomacy and Economic Security, New
Frontiers for Economic Diplomacy, Carla Guapo Costa, ed., Instituto Superior de Ciéncias Sociais e
Politicas, 2009, pp. 37-54; Экономическая дипломатия в условиях глобализации. / под общей
ред. Л.М. Капицы (авторы: Л.М. Капица, Горбанёв В.А., Мавланов И.Р. и др.)// – М.: “МГИМО-
Университет”, 2010. 62- 63с.,
7 Ãëàçüåâ Ñ. Îñíîâû îáåñïå÷åíèÿ ýêîíîìè÷åñêîé áåçîïàñíîñòè ñòðàíû- àëüòåðíàòèâíûé ðåôîðìàöèîííûé
êóðñ. ÐÝÆ N 1 è 2, 1997; Ãëàçüåâ Ñ. Ñòàáèëèçàöèÿ è ýêîíîìè÷åñêèé ðîñò. Âîïðîñû ýêîíîìèêè N 1, 1997;
Ãëàçüåâ Ñ. Öåíòðàëüíûé Áàíê ïðîòèâ ïðîìûøëåííîñòè Ðîññèè. Âîïðîñû ýêîíîìèêè N 1 è 2, 1998; Ãëàçüåâ
Ñ. Ãåíîöèä. Ðîññèÿ è íîâûé ìèðîâîé ïîðÿäîê. Ñòðàòåãèÿ ýêîíîìè÷åñêîãî ðîñòà íà ïîðîãå XXI âåêà.
Ìîñêâà, 1997.
8 Glasser, Bonnie, “China’s Coercive Economic Diplomacy: A New and Worrying Trend”, Center for
Strategic and International Studies, August 6, 2012.
joint efforts of highly skilled, competent and professional foreign relations agents. The
main efforts, naturally, need to be channeled to multilateral and bilateral negotiations
the objectives and main directions of which depend on the drafts of the trade
agreements at stake proposed by other negating parties that defend the positions and
views of separate or groups of nations. Today for Armenia the most important are the
long-term trade agreements on knowledge-based leading sectors with export
potential, as well as on exportability issues of agricultural products and services. It is
important especially to increase resources allocated for science which could be solved
with the assistance of not only internal, but also external funding. But now as we know
these resources are insufficient.
In reality, a diplomatic support in bilateral and multilateral negotiations plays a
substantial role mainly in international negotiations for formulating position of
national delegation, as well as mobilizing assistance of possible partners, on reaching
a consensus or a compromise for developing solutions on key issues and providing
participation of interested national economic agents. Economic diplomacy has an
important role in issues on providing information-analytical support to country’s
government bodies and reliable and comprehensive public awareness about the
negotiation process on country specific issues9.
Support of economic diplomacy is more demanded in investment activities as
well. Particularly, within the framework of foreign direct and portfolio investments
diplomatic support is expected to properly introduce opportunities preferential
investment regimes and other relevant measures. In recent years, bilateral and regional
investment agreements on ensuring a favorable investment environment have been
acquired a special importance.
At the same time, the components of investment agreements and regimes on
investment activities that are based on the most favorable, reasonable and effective
principles of national interests are more effective. By the help of these principles it is
possible to distinguish, particularly, international investment programs initiated by
transnational organizations, and these programs are not always can be equally useful
and effective for those companies and for host countries. This, in turn, suggests, that
more often it is better to decide/orientate not only on investments coming from abroad
but being proactive, use diplomatic methods for attracting foreign investments. These
include organizing a foreign investment forum, not only in a given country but also in
countries with more realistic expectations; ensure favorable conditions for national
investments in host countries, coordination of national investments activities in host
countries by embassies and etc. A special attention in investment process should be
paid also on the appropriate informational and analytical activity, ensure legal
consultancy/assistance to investment projects and etc. At the same time, in our
opinion, the promotion of national/local investments, lobby of special programs of
interstate importance, weakening of political pressures in the investment climate and
formation of attractive mechanisms for national/local investors are of great
importance. It is not less important for national/local investors the assistance at

9 “Remarks by Secretary of State Hillary Rodham Clinton”. Economic Club of New York. October 14,
2011. Retrieved 4/10/2013.; MacLeod,
Calum, “China asserts its territorial claims in South China Sea”, USA Today, April 26, 2012.
investment biddings participation in foreign countries, which is also considered as one
of the main functions of diplomacy10.
Dealing with intellectual property
Taking into account the fact, that one of the most important competitive
advantages of Armenia is the country’s intellectual potential, the economic diplomacy
should be directed to the proper presentation of Armenian intellectual resources
abroad, providing commercialization of national intellectual resources and
technologies, access to international markets through diplomatic agencies and
international organizations.
Unlike other goods and services, intellectual resources have their specific
features. Country’s intellectual property and its main forms are regulated not only by
national/local legislation, but also by the procedures of international regime for the
protection of intellectual property and should be equal to (commensurate, compatible
with) the WTO and WIPO (World Intellectual Property Organization) standards,
which regulates the international trade of intellectual product.
Among other issues in the commercialization of intellectual resources
(evaluation, patent protection, efficiency of IP market structure) is the acquisition of
international patents and licensing procedures clearly regulated by the international
organizations, which determines the specific features of investments in IP. There is no
doubt that without the use of diplomatic methods, it would make insurmountable
difficulties for individual scientists, innovators to promote national/local intellectual
product abroad. Thus, economic diplomacy, on the one hand, should ensure the
participation of scholars and practitioners in research and knowledge exchange in
international projects, on the other hand, it should provide an access to international
markets of new technologies to economic agents, as well as attract foreign intellectual
resources and new technology to the national economy. Providing equal market
conditions for new technologies markets and diplomatic support for joint investment
and technology innovative projects should be directed to support the same goal.
According to the Global Innovation Index 2009-2010 (INSEAD and CII, 2010) Armenia
improved its position from 104th rank to 82nd rank. However, this is mainly due to the
change in methodology and use of fresh data, than the implementation of drastic
measures or positive developments in the economy of Armenia. Armenia’s position is
relatively favorable to indicators of innovation output, such as the application of
knowledge, social welfare benefits and other terms, which speaks about the fact that
people working in science continue to produce despite rapidly worsening inputs
(investments) or environment factors. However, Armenia’s innovation indicators are
below 100th rank: quality of educational institutions, utilization and use of
infrastructure, private loan accessibility, companies’ innovation environment and
general innovation environment, as well as openness to foreign and domestic
competition. Local innovation is not stable and threats to hinder international
competitiveness. Depletion of resources and inherited advantages is a real threat that

10 Bose, Pratim Ranjan, “Economic Diplomacy, Indian Style”, The Hindu Business Line, March 28,
Мировая экономика, 2-ое издание. Под. ред. д.э.н., проф. Булатова А.
С., ЭКОНОМИСТ, Москва, 2007 г.
needs to be addressed immediately. According to the regularly published
International Innovation Index our country is ranked 75th among 110 countries.
Currently Armenia is among those countries that are facing real problems in
implementing innovative programs.
The best practices suggest that some public and private interests could clash in
this sector. These contradictions might be successfully addressed within the
framework of country’s priorities on the economic development priorities.
Thus, the main purpose of economic diplomacy is the increased professional
assistance to national development and proactive policy. Particularly, for
development purposes it is important to meet the economy’s demand on additional
financial resources, including, attraction of external financial resources (both public
and private). In this sense, the issues related with the efficient use of attracted financial
resources for ensuring nation’s development are of vital importance; among these
issues the followings are stressed: debt management, debt reduction, design of
effective structure of debt, and issues related to the growth dynamics. Despite the
government’s policy on providing the forms and regulations of conditions of financial
resources, international financial organizations, UNDP, UN specialized agencies and
others, regularly refer to the external and internal debt service problems as well.
Various national organizations, as well as unions of donor countries and
organizations implement development assistance functions, therefore, they combine
their efforts leading to addressing the same issues by different parties. In our country,
these functions are implemented by the Armenian Development Agency, the
performance of which is far from being perfect. Referring to practices utilized and
adopted in economic diplomacy by individual countries and regional groupings, it
should be noted that the goals, objectives and tools and techniques utilized in the
economic diplomacy by the western developed countries sometimes differ from those
ones utilized by developing nations and transition economies. For example, some
experts state11, that U.S. economic diplomacy is based on “economic expansion”
scenario, while a “conservative” version is specific to UK’s economic diplomacy, and
Germany’s economic diplomacy is characterized by a more “flexible” approach. While
developing countries try to adopt the goals, objectives specific to economic diplomacy
of developed countries and utilize most efficient tools; however, there are also
significant differences. In case of China, the economic diplomacy is closely related to
the Effect of “Big Numbers” and utilization of potential of Chinese Diaspora12. India’s
economic diplomacy stands out as a system of concepts and benefits supporting the
development of IT (information technology), pharmaceutical, and agriculture sectors.
The economic diplomacy of South Korea is also the subject of a special analysis that
managed in a relatively short period of time to contribute to more efficient utilization
of competitive advantages of the nation. Finally, the “Collective Group” option of

11 Roche, Elizabeth, “India goes from aid beneficiary to donor”, Ministry of External Affairs,
Government of India, July 1, 2012.
12 Bijian, Zheng, “China’s ‘Peaceful Rise’ to Great-Power Status”, Foreign Relations, October 2005;
Glaser, Bonnie, “China’s coercive economic diplomacy: a new and worrying trend”, Center for
Strategic and International Studies, August 6, 2012.
economic diplomacy of developing countries is not a unique phenomenon (The Group
of 77). A number of countries are promoting their economic interests not separately,
but together, sometimes preferring to establish strategic alliances. The most popular
among those, is the economic diplomacy of countries exporting raw material, such as
the example of OPEC, oil exporting countries organization13, which practically,
allowed them not only to combine and protect the interests of these countries, but also,
in some sense, to shape and control world oil market prices. Currently, regional
economic diplomacy is becoming more common. This is usually common in case of
regional groupings; such as the North American Free Trade Zone, the Association of
Southeast Asian Nations, the Customs Union, and the European Union’s economic
diplomacy has a “continental” cooperation context. It has become a common policy
which involves the European Union’s global strategy towards third countries. The
latter has several forms of expression and cooperation formats: “EU enlargement”,
“European Neighbourhood Policy”, “Good Neighbor Agreements”, “Stability and
Growth Pact”, “Common Economic Space”, “Eastern Partnership”, that necessarily
require tools, standards, harmonization of rules and procedures, trade liberalization
and development, approximation of investment regimes, economic and technical
assistance14. It is important to consider also the forms of inter-grouping in economic
diplomacy, particularly, within the context of terms that are dynamically elaborating
between developed and developing nations15. They also require design of mechanisms
for common approaches to be adopted by donor countries and organizations while
cooperating with developing countries, that enabled the establishment of the Paris
Club, and the Transatlantic Partnership, in recent years, and to apply the principles of
Washington Consensus. Moreover, for this purpose they rely on “developed countries
club”, Organization for Economic Cooperation and Development (OECD)
consultations, new tactics of negotiations, and the use of economic incentives and
political pressure, as well. Customs Union could be considered a kind of format for
Armenia to join that makes it possible to consider new forms of regional economic
integration and benefit from new opportunities.

14 Van Bergeij, Peter A. G., “Economic Diplomacy and the Geography of International Trade”, Edward
Elgar Publishing, North Hampton, 2009, pp. 127.
15 Каррон де ла Каррьер Г. Экономическая дипломатия. Дипломат и рынок , М.: «Российская
политическая энциклопедия» (РОССПЭН), с. 201.

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