Economic diplomacy is a tool of a government to achieve the country's national interests. It should also remain focused on economic policy issues. Economic diplomats are to monitor and report on economic policies in foreign countries and give the home government advice on how best to address those.
Emerging countries of South Asia have learnt that they must be proactive rather than reactive in pursuing economic interests. They must seek out opportunities and learn to bring those home. Tax and other concessions are likely to be necessary and in the short term, even costlier.
There are three key elements of economic diplomacy:
1. Commercial diplomacy: Political influence and relationships should be used 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 commodities produced by the home country. At the same time, it should act as a buyer of required commodities from the host country.
2. Structural policies and bilateral trade and investment agreements: Economic diplomats are to advocate for home country's policies to the host country.
3. International organisations: Ways should be found to consolidate right political climate and international political economic environment to achieve these objectives. As representatives to the international organisations, the economic diplomats should keep the home country appraised of developments in international arena and suggest ways to mould and reform trade, investment and economic policies at home.
South Asian states are, however, striving for engaging in economic diplomacy with both developed and developing countries. These countries may not simply receive knowledge from developed states, but also share their own experiences with others in effective partnerships towards development. The South-South cooperation contributes to consolidation of South Asian countries' relations with partner countries as it enhances general interchange, generates, disseminates and applies technical knowledge; builds human resource capacity and, mainly, strengthens institutions in all countries involved.
As a single country, for instance, India has traditionally engaged in economic diplomacy primarily through trade and aid. For example, in order to build a stronger, more stable relationship with Bangladesh, India granted it $800 million soft loan and provided $200 million in aid. India set up a development wing in its government in January 2012. The Development Partners Administration (DPA) is responsible for pursuing economic diplomacy. In this case, development aid is being used as a tool of economic diplomacy. The DPA is building 50,000 housing units in Sri Lanka, a large transmission line in Afghanistan, and extends credit to projects globally, particularly in Africa. Economic diplomacy through DPA is very important for Indian foreign policy objective of transforming India into a global player.
Multilateral economic diplomacy takes place within the framework of the 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 promotion of economic activities. Sustaining competitiveness, however, continues to represent an important challenge to instruments and mechanisms established by bilateral and multilateral trade agreements.
The writer, a former Secretary to the Government and Chairman of NBR, is the Chairman of the Chittagong Stock Exchange.