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Economic Diplomacy in times of Pandemic

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The coronavirus presents Germany’s most significant challenge in its postwar history; Chancellor Angela Merkel told viewers across the German nation. COVID triggered the most profound economic recession in nearly a century, threatening almost every fundamental aspect of our societies. The IMF estimates our global economy went down by 4.4% in 2020, the worst decline since the Great Depression. The only major economy to grow in 2020 was China of 2.3%.

The immediate outlook on the pandemic’s impact has made us think on how governments have dealt with prospects for economic growth. Most forecasts envision a 5 per cent contraction in global GDP, despite the outstanding efforts of governments to counter the economic spiral with fiscal and monetary policy support and even austerity. During the COVID-19 crisis peak, EU leaders regularly met via e-conferences to discuss and assess the situation and coordinate action COVID economic reactions. The same happened in other states internally, namely Canada, who spearheaded federal strategic communication and policy building under the Trudeau government to reboot the economy. Something that will cost Canadians considerably down the line. Yet most if not all world leaders know that this situation is expected to leave lasting scars through lower investment, an erosion of human capital through lost work and schooling, and fragmentation of global trade and supply linkages. We are just about to enter a new world era. It is instructive for us international relation practitioners to review and refine our diplomatic, economic strategies to guide us through these hardships. What diplomatic tools can we use to help our communities get through, and how to go about it?

A little refresher for those interested in economic diplomacy and its study has rapidly developed over the past decade that is very relevant today, especially. Yet, there is still no strict consensus among academics about its definition. Despite this lack of agreement, in this short article, I will try to outline the basics of economic diplomacy theory and some examples of its practice.

We could see economic diplomacy as a policy practice, institutional structure, behavioural aspects, and policy aims and results in dealing with the state and businesses’ financial and commercial interests. Indeed, different thinkers have given a variety of angles of practice and theories on economic diplomacy yet they all agree that: economic diplomacy can be defined as a set of methods and processes related to cross border economic activities such as exports, imports, investment, lending, aid and migration, all of which are pursued by state and non-state actors. It is divided into three main elements; economic diplomacy encompasses the use of political influence and relationships to promote trade and investment, monetary assets and relationships to increase economic security including multilateral negotiations to consolidate the right political climate and political-economic environment to facilitate the institution’s objectives.

To distinguish it from diplomacy in general, we would have to highlight the private sector’s involvement in decision-making processes precisely because market developments are closely monitored by private sector actors and not government agencies to stay informed about where and how to invest in their country of interest. Economic diplomacy became particularly important within our globalized economic interdependence context to set the tone of foreign policy. It is also essential for domestic markets while managing regional trade and competitive international investment agreements. To get the desired financial results, states would have to use their available resources agencies, networks, and yes – diplomatic tools, while practising economic diplomacy.

The subject touches many levels, and governments practice informal dealing on various issues such as trade agreements and investment agreements. Multilateral approaches are assisted with pre-established guidelines within a set framework of international organizations in different levels such as the World Trade Organization, the Organization of Economic Co-operation and Development, etc. Strategic communication is imperative between the private and government sectors to agree on set positions, hardliners, in other words, taken between government actors and their stakeholders before negotiating with other countries or organizations in this framework.

Moreover, we must not forget the plurilateral or more commonly known as the regional approach. It offers a streamlined, expressway for exploring the market opportunity, The EU being the best example of this approach. From the plurilateral perspective, we can observe how economic diplomacy has many tools to remove trade barriers while its users aspire to liberalize economies. Liberalizing markets, of course, has proven itself easier done in the regional context.

Contemporary practices see economic diplomacy as mainly concerned with formal government activities to promote their economic interest. However, our readers are invited to see the idea in the broader sense, which goes much further than foreign ministers’ mandated responsibilities. Engagement in economic diplomacy concerns all government agencies that have economic responsibilities, it is not exclusive to the foreign ministries, although they might not acknowledge it themselves. That is, in other words, all ministers, and independent public agencies and institutions that are involved with economic issues are engaged in economic diplomacy.

Analyzing the current global cooperation structures shifts economic diplomacy to be deployed by states seeking to achieve the newly flexible international environment’s financial goals. These flexible approaches and the weakening adherence to strict multilateral rules have made bilateral policies more attractive to economic diplomacy. The same could also be said about plurilateral methods; geo-economic power shifts encourage governments to reassess their national and foreign policies to be compatible with regional power shifts. Modifications and changes spark new thinking, such as on commercial diplomats’ mandate working on trade and investment promotion. In emerging economies and small states, a larger role for the ministry in international economics becomes necessary for success because emerging forms are seen to have a much stronger influence on the domestic private sector. Therefore public institutions have a larger stake in economic diplomacy than the private sector alone.

Nonetheless, economic and cultural and historic reasons explain why trade partners in emerging economies expect state involvement from their foreign partners in investment and trade. This contrasts the separation of public and private sectors as seen in larger capitalist economies. Economic diplomatic practices reflect the larger private sector and allow these to have an essential role in diplomatic practices. In the same way, states must be flexible; they have to change how they go about diplomacy depending on the economy they are dealing with.

As mentioned above, due to its main concerns with governments’ actions and what they do to promote their economic interests, economic diplomacy involves government agencies as primary actors. It recognizes the involvement of non-governmental entities in shaping economic diplomacy strategies. The case study of Latvia’s economic interests regarding economic diplomacy manifests in facilitating exports and promoting foreign investment, a good form of flexible economic diplomacy. Of course, most of the work concerning economic diplomacy is done through the Latvian Ministry of Foreign Affairs and its diplomatic representation network across many countries, each with commercial representatives that would deal with economic diplomacy. However, other ministries such as the Ministry of Economics, the Ministry of Transportation, the Ministry of Justice, the Ministry of Agriculture and the State Chancellery are also in touch with, say the embassies to define commercial targets.

Meanwhile, other government agencies such as the Investment and Development Agency of Latvia are involved, indirectly, in dealing with various issues more or less related to the realm of economic diplomacy. Relations between government agencies and non-governmental actors have been coordinated through several forms of cooperation, both formal and informal. Diplomacy, commerce, trade and international investment concepts are therefore hard to separate in cases of practical implications for Latvia, which leads to an assumption that businesses may have an easier way to access decision-making. Indeed, economic diplomacy favours the discussions as direct as a business owner and an ambassador. Internationally, Latvia’s economic diplomacy policy is highly influenced by its business sector and its membership in the EU. Since the EU has an exclusive role for trade policy and significant part of the investment policy, the EU monopolizes much of the economic diplomacy arena; the EU institutions are also negotiating EU-level treaties and agreements on behalf of Latvia. However, Latvia is still free to negotiate bilateral agreements with third-party countries, although only in cases where the EU has not already started negotiations and with the formal approval of other member states, and engage in external economic activities to promote trade and investment. Over the last 25 years, the Latvian government established a fully functioning set of state organizations from the ground up, responsible for formulating and executing an economic policy which includes economic diplomacy.

These frameworks imply action on both domestic and external levels for Latvia to be competitive enough in the international environment. Main policy initiatives suggest that the government is pursuing an active partnership with non-government actors to facilitate a better environment for business. Other state institutions, indirectly would do their part by informing and supporting Latvian companies that wish to enter foreign markets and provide useful services to foreign investors and enterprises looking to invest in Latvia. That said, it is evident that the Ministry of Foreign Affairs is not only the only coordinator since other agencies’ activities help towards this end as well. Yet the foreign affairs organizations have become the spearhead of foreign economic management since they are best positioned to represent and promote Latvian businesses abroad and access foreign markets. While there is no universally useful institutional framework of economic diplomacy applicable for every country, the coordination of economic diplomacy in Latvia has adapted to the changing environment and issues that are most pressing in a particular time frame, and that is so considering the current changes and tensions coming from contemporary EU challenges. This and other institutional frameworks’ success or failure can be observed only by an in-depth look at specific issues of economic diplomacy, not a general overview. To conclude, for those who are embarking in studying the challenges of a state’s economic diplomacy, they must dissect and uncover its layers due to its broad umbrella covering a series of stakeholders interconnected through formal and informal activities.

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Iran has an integral role to play in Russian-South Asian connectivity

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Iran is geostrategically positioned to play an integral role in Russian-South Asian connectivity. President Putin told the Valdai Club during its annual meeting in October 2019 that “there is one more prospective route, the Arctic – Siberia – Asia.

The idea is to connect ports along the Northern Sea Route with ports of the Pacific and Indian oceans via roads in East Siberia and central Eurasia.” This vision, which forms a crucial part of his country’s “Greater Eurasian Partnership”, can be achieved through the official North-South Transport Corridor (NSTC) and tentative W-CPEC+ projects that transit through the Islamic Republic of Iran.

The first one refers to the creation of a new trade route from Russia to India through Azerbaijan and Iran, while the second concerns the likely expansion of the China-Pakistan Economic Corridor (CPEC, the flagship project of China’s Belt & Road Initiative [BRI]) westward through Iran and largely parallel to the NSTC. W-CPEC+ can also continue towards Turkey and onward to the EU, but that branch is beyond the scope of the present analysis. The NSTC’s terminal port is the Indian-backed Chabahar, but delays in fully developing its infrastructure might lead to Bandar Abbas being used as a backup in the interim.

CPEC’s Chinese-backed terminal port of Gwadar is in close proximity to Chabahar, thus presenting the opportunity of eventually pairing the two as sister cities, especially in the event that rumored negotiations between China and Iran result in upwards of several hundred billion dollars worth of investments like some have previously reported. The combination of Russian, Indian, and Chinese infrastructure investments in Iran would greatly improve the country’s regional economic competitiveness and enable it to fulfill its geostrategic destiny of facilitating connectivity between Russia and South Asia.

What’s most intriguing about this ambitious vision is that Iran is proving to the rest of the world that it isn’t “isolated” like the U.S. and its closest allies thought that it would be as a result of their policy of so-called “maximum pressure” against it in recent years. While it’s true that India has somewhat stepped away from its previously strategic cooperation with Iran out of fear that it’ll be punished by “secondary sanctions” if it continued its pragmatic partnership with the Islamic Republic, it’s worthwhile mentioning that Chabahar curiously secured a U.S. sanctions waiver.

While the American intent behind that decision is unclear, it might have been predicated on the belief that the Iranian-facilitated expansion of Indian influence into Central Asia via Chabahar might help to “balance” Chinese influence in the region. It could also have simply been a small but symbolic “concession” to India in order not to scare it away from supporting the U.S. anti-Chinese containment strategy. It’s difficult to tell what the real motive was since American-Indian relations are currently complicated by Washington’s latest sanctions threats against New Delhi in response to its decision to purchase Russia’s S-400 air defense systems.

Nevertheless, even in the worst-case scenario that Indian investment and infrastructural support for Iran can’t be taken for granted in the coming future, that still doesn’t offset the country’s geostrategic plans. Russia could still use the NSTC to connect with W-CPEC and ultimately the over 200+ million Pakistani marketplaces. In theory, Russian companies in Pakistan could also re-export their home country’s NSTC-imported goods to neighboring India, thereby representing a pragmatic workaround to New Delhi’s potential self-interested distancing from that project which could also provide additional much-needed tax revenue for Islamabad.

Iran must therefore do its utmost to ensure Russia’s continued interest in the NSTC regardless of India’s approach to the project. Reconceptualizing the NSTC from its original Russian-Indian connectivity purpose to the much broader one of Russian-South Asian connectivity could help guarantee Moscow’s support. In parallel with that, Tehran would do well to court Beijing’s investments along W-CPEC+’s two branch corridors to Azerbaijan/Russia and Turkey/EU. Any success on any of these fronts, let alone three of them, would advance Iran’s regional interests by solidifying its integral geo-economic role in 21st-century Eurasia.

From our partner Tehran Times

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The phenomenon of land grabbing by multinationals

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Since 2012 the United Nations has adopted voluntary guidelines for land and forest management to combat land grabbing. But only a few people know about the guidelines, which aim to protect small farmers particularly in Third World countries.

When multinational investors buy up fields for their huge plantations, the residents lose their livelihood and means of support and will soon only be sleeping in their villages. If they are lucky, they might find work with relatives in another village. Many also try their luck in the city, but poverty and unemployment are high. What remains are depopulated villages and the huge palm oil plantations that have devoured farmland. People can no longer go there to hunt and grow plants or get firewood. The land no longer belongs to them!

Land grabbingis the process whereby mostly foreign investors deprive local farmers or fishermen of their fields, lakes and rivers. Although it has been widely used throughout history, land grabbing – as used in the 21st century – mainly refers to large-scale land acquisitions following the global food price crisis of 2007-2008.

From 2000 until 2019 one hundred million hectares of land have been sold or leased to foreign investors and the list of the most affected countries can be found here below:

Such investment may also make sense for the development of a country, but it must not deprive people of their rights: local people are starving while food is being produced and turned into biofuels for export right before their eyes.

In 2012, after three years of discussion, the UN created an instrument to prevent such land grabbing: the VGGTs (Voluntary Guidelines on the Responsible Governance of Tenure of Land, Fisheries and Forests in the Context of National Food Security:

Detailed minimum standards for investment are established, e.g. the participation of affected people or how to safeguard the rights of indigenous peoples and prevent corruption. Formally, the document provides a significant contribution to all people fighting for their rights.

The document, however, is quite cryptic. The guidelines should be simplified and explained. Only in this way can activists, but also farmers and fishermen, become aware of their rights.

Others doubt that much can be achieved through these guidelines because they are voluntary. After all, the UN has little or no say in the matter and can do no more than that. If governments implemented them, they would apply them as they will.

In Bolivia, for example, there are already laws that are supposed to prevent land grabbing. In the Amazon, however, Brazilian and Argentinian companies are buying up forests to grow soya and sugar cane, often with the approval and agreement of corrupt government officials. Further guidelines would probably be of little use.

At most, activists already use the guidelines to lobby their governments. Together with other environmental and human rights activists, they set up networks: through local radio stations and village meetings, they inform people of the fact that they right to their land.

Nevertheless, in many countries in Africa and elsewhere, there is a lack of documentation proving land ownership. Originally, tribal leaders vocally distributed rights of use. But today’s leaders are manipulated to pressure villagers to sell their land.

The biggest investors are Indians and Europeans: they are buying up the land to grow sugar cane and palm oil plantations. This phenomenon has been going on since 2008: at that time – as noted above – the world food crisis drove up food prices and foreign investors, but also governments, started to invest in food and biofuels.

Investment inland, which has been regarded as safe since the well-known financial crisis, must also be taken into account. Recently Chinese companies have also been buying up thousands of hectares of land.

In some parts of Africa, only about 6% of land is cultivated for food purposes, while on the remaining areas there are palm oil plantations. Once the plantations grow two or three metres high, they have a devastating effect on monocultures that rely on biodiversity, because of the huge areas they occupy. There is also environmental pollution due to fertilisers: in a village, near a plantation run by a Luxembourg company, many people have suffered from diarrhoea and some elderly villagers even died.

Consequently, the implementation of the VGGTs must be made binding as soon as possible. But with an organisation like the United Nations, how could this happen?

It is not only the indigenous peoples or the local groups of small farmers that are being deprived of everything. The common land used is also being lost, as well as many ecosystems that are still intact: wetlands are being drained, forests cleared and savannas turned into agricultural deserts. New landowners fence off their areas and deny access to the original owners. In practice, this is the 21st century equivalent of the containment of monastery land in Europe that began in the Middle Ages.

The vast majority of contracts are concentrated in poorer countries with weak institutions and land rights, where many people are starving. There, investors compete with local farmers. The argument to which the advocates of land grabbing hold -i.e. that it is mainly uncultivated land that needs to be reclaimed – is refuted. On the contrary, investors prefer well-developed and cultivated areas that promise high returns. However, they do not improve the supply of local population.

Foreign agricultural enterprises prefer to develop the so-called flexible crops, i.e. plants such as the aforementioned oil palm, soya and sugar cane, which, depending on the market situation, can be sold as biofuel or food.

But there is more! If company X of State Y buys food/fuel producing areas, it is the company that sells to its State Y and not the host State Z that, instead, assigns its future profits derived from international State-to-State trade to the aforementioned multinational or state-owned company of State Y.

Furthermore, there is almost no evidence of land investment creating jobs, as most projects were export-oriented. The British aid organisation Oxfam confirms that many land acquisitions took place in areas where food was being grown for the local population. Since local smallholders are generally weak and poorly educated, they can hardly defend themselves against the grabbing of the land they use. Government officials sell or lease it, often without even paying compensation.

Land grabbing is also present in ‘passive’ Europe. Russia, Ukraine, Romania, Lithuania and Bulgaria are affected, but also the territories of Eastern Germany. Funds and agricultural enterprises from “active” and democratic Europe, i.e. the West, and the Arab Gulf States are the main investors.

We might think that the governments of the affected countries would have the duty to protect their own people from such expropriations. Quite the reverse. They often support land grabbing. Obviously, corruption is often involved. In many countries, however, the agricultural sector has been criminally neglected in the past and multinationals are taking advantage of this under the pretext of remedying this situation.

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No let-up in Indian farmers’ protest due to subconscious fear of “crony capitalism”

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The writer has analysed why the farmers `now or never’ protest has persisted despite heavy odds. He is of the view that the farmers have the subconscious fear that the “crony capitalism” would eliminate traditional markets, abolish market support price and grab their landholdings. Already the farmers have been committing suicides owing to debt burden, poor monthly income (Rs. 1666 a month) and so on.”Crony capitalism” implies nexus between government and businesses that thrives on sweetheart deals, licences and permits eked through tweaking rules and regulations.

Stalemate between the government and the farmers’ unions is unchanged despite 11 rounds of talks. The farmers view the new farm laws as a ploy to dispossess them of their land holdings and give a free hand to tycoons to grab farmers’ holdings, though small.

Protesters allege the new laws were framed in secret understanding with tycoons. The farmers have a reason to abhor the rich businesses. According to an  a  January 2020 Oxfam India’s richest one  per cent hold over four times the wealth of 953 million people who make up the poorest 70 per cent  of the country’s population. India’s top nine billionaires’ Inc one is equivalent to wealth of the bottom 50 per cent of the population. The opposition has accused the government of “crony capitalism’.

Government has tried every tactic in its tool- kit to becloud the movement (sponsored y separatist Sikhs, desecrated Republic Day by hoisting religious flags at the Red ford, and so on). The government even shrugged off the protest by calling it miniscule and unrepresentative of 16.6 million farmers and 131,000 traders registered until May 2020. The government claims that it has planned to build 22,000 additional mandis (markets) 2021-22 in addition to already-available over 1,000 mandis.

Unruffled by government’s arguments, the opposition continues to accuse the government of being “suit-boot ki sarkar” and an ardent supporter of “crony capitalism” (Ambani and Adani). Modi did many favours to the duo. For instance they were facilitated to join hands with foreign companies to set up defence-equipment projects in India. BJP-ruled state governments facilitated the operation of mines in collaboration with the Ambani group  just years after the Supreme Court had cancelled the allotment of 214 coal blocks for captive mining (MS Nileema, `Coalgate 2.0’, The Caravan March 1, 2018). Modi used Adani’s aircraft in March, April and May 2014 for election campaigning across the country.

“Crony capitalism” is well defined in the English oxford Living Dictionaries, Cambridge and Merriam –Webster. Merriam-Webster defines “crony capitalism” as “an economic system in which individuals and businesses with political connections and influence are favored (as through tax breaks, grants, and other forms of government assistance) in ways seen as suppressing open competition in a free market

If there’s one”.

Cambridge dictionary defines the term as “ an economic system in which family members and friends of government officials and business leaders are given unfair advantages in the form of jobs, loans, etc.:government-owned firms engaged in crony capitalism”.

A common point in all the definitions is undue favours (sweetheart contracts, licences, etc) to select businesses. It is worse than nepotism as the nepotism has a limited scope and life cycle. But, “crony capitalism” becomes institutionalized.

Modi earned the title “suit-boot ki sarkar” when a non-resident Indian, Rameshkumar Bhikabhai virani gifted him a Rs. 10 lac suit. To save his face, Modi later auctioned the suit on February 20, 2015. The suit fetched price of Rs, 4, 31, 31311 or nearly four hundred times the original price. Modi donated the proceeds of auction to a fund meant for cleaning the River Ganges. `It was subsequently alleged that the Surat-based trader Laljibhai Patel who bought the suit had been favoured by being allotted government land for building  a private sports club (BJP returns ‘favour’, Modi suit buyer to get back land, Tribune June21, 2015).

Miffed by opposition’s vitriolic opposition, Ambani’s $174 billion conglomerate Reliance Industries Ltd. Categorically denied collusion with Modi’s government earlier this month. Reliance clarified that it had never done any contract farming or acquired farm land, and harboured no plans to do so in future. It also vowed to ensure its suppliers will pay government-mandated minimum prices to farmers. The Adani Group also had clarified last month that it did not buy food grains from farmers or influence their prices.

Modi-Ambani-Adani nexus

Like Modi, both Adani and Ambani hail from the western Indian state of Gujarat, just, who served as the state’s chief for over a decade. Both the tycoons are reputed to be Modi’s henchmen. Their industry quickly aligns its business strategies to Modi’s nation-building initiatives. For instance, Adani created a rival regional industry lobby and helped kick off a biannual global investment summit in Gujarat in 2003 that boosted Modi’s pro-business credentials. During 2020, Ambani raised record US$27 billion in equity investments for his technology and retail businesses from investors including Google and Face book Inc. He wants to convert these units into a powerful local e-commerce rival to Amazon.com Inc. and Wal-Mart Inc. The Adani group, which humbly started off as a commodities trader in 1988, has grown rapidly to become India’s top private-sector port operator and power generator.

Parallel with the USA

Ambani and Adani are like America’s Rockefellers and Vanderbilt’s in the USA’s Gilded Age in the second half of the 19th century (James Crabtree, The Billionaire Raj: a Journey through India’s New Gilded Age).

Modi government’s tutelage of Ambanis and Adanis is an open secret. Kerala challenged Adani’s bid for an airport lease is. A state minister said last year that Adani winning the bid was “an act of brazen cronyism.”

Threat of elimination of traditional markets

Farmers who could earlier sell grains and other products only at neighbouring government-regulated wholesale markets can now sell them across the country, including the big food processing companies and retailers such as WalMart.

The farmers fear the government will eventually abolish the wholesale markets, where growers were assured of a minimum support price for staples like wheat and rice, leaving small farmers at the mercy of corporate agri-businesses.

Is farmers’ fear genuine?

The farmers have a logical point. Agriculture yield less profit than industry. As such, even the USA heavily subsidies its agriculture. US farmers got more than $22 billion in government payments in 2019, the highest level of farm subsidies in the last 14 years, and the corporate sector paid for it. The Indian government is reluctant to give a permanent legal guarantee for the MSP. In contrast, the US and Western Europe buy directly from the farmers and build their butter and cheese mountains. Even the prices of farm products at the retail and wholesale levels are controlled by the capitalist government. In short, not the principles of capitalization but well-worked-out welfare measures are adopted to sustain the farm sector in the advanced West.

Threat of monopsonic exploitation

The farmers would suffer double exploitation under a monopsony (more sellers less buyers) at the hands of corporate sharks.  They would pay less than the minimum support price to the producers. Likewise, consumers will have to pay more because the public distribution system is likely to be undermined as mandi (regulated wholesale market) procurement is would eventually cease to exist.

Plight of the Indian farmer

The heavily indebted Indian farmer has average income of only about Rs. 20000 a year (about Rs. 1666 a month). Thousands of farmers commit suicide by eating pesticides to get rid of their financial difficulties.

A study by India’s National Bank for Agriculture and Rural Development found that more than half of farmers in India are in debt. More than 20,000 people involved in the farming sector died by suicide from 2018-2019, with several studies suggesting that being in debt was a key factor.

More than 86 per cent of India’s cultivated farmland is owned by small farmers who own less than two hectares of land each (about two sports fields). These farmers lack acumen to bargain with bigger companies. Farmers fear the Market Support Price will disappear as corporations start buying their produce.

Concluding remarks

Modi sarkar is unwilling to yield to the farmers’ demand for fear of losing his strongman image and Domino Effect’. If he yields on say, the matter of the farm laws, he may have to give in on the Citizenship Amendment Act also. Fund collection in some foreign countries has started to sustain the movement. As such, the movement may not end anytime soon. Unless Modi yields early, he would suffer voter backlash in coming elections. The farm sector contributes only about 15 per cent of India’s $2.9 trillion economy. But, it employs around half its 1.3 billion people. 

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