Economic Diplomacy: A New Dimension of Nepalese Foreign Policy

Contemporaneous with the end of the Cold War and the collapse of the Panchayat regime in the 1990s, policy makers in Nepal faced a sudden existential crisis in the foreign policy front. In the early 1990s, therefore, the discourse on economic diplomacy attained greater prominence in the domain of foreign policy. After two and half decades of its adoption as a component of our foreign policy, it’s the time to judge its role in fostering economic development. It may be argued that the objective of economic diplomacy has not been met owing to various factors. While it is obvious that the inordinate expectations on the ability of economic diplomacy to make contributions to economic development is probably misplaced, it is nonetheless true that, shorn of much strategic and political role in either the region or the world stage, Nepal's economic diplomacy is more relevant today than in than past. The way to do this is to set clear institutional guidelines and goals, improve the Foreign Ministry's co-ordination not only with its missions abroad but also with the line ministries, private stakeholders, and enhance the interface between the human resources and modern technology backed by sound political environment at home.
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1 Background
The framework of international relations has undergone substantial changes in the past two decades. The period did not only witness the end of ideological rivalry but also paved the way for the onset of liberalization and the diffusion of technology across the globe. Economic diplomacy has gained in importance in the modern world for both the developed and developing countries. Globalization of economies including markets further bolstered by the end of cold war and the establishment of World Trade Organization (WTO) has provided greater emphasis on and support to Economic Diplomacy.
Today there are increasing calls for a new international order that can effectively promote the interests of all countries around the world. Similarly, there is also a demand for a new financial architecture that can effectively deal with international crises and be more responsive to the needs and aspirations of the developing countries. These developments give sustenance to the fact that the developing countries have to make vigorous efforts to promote their interests in the international arena. Considering our land-locked position, underdeveloped status, low level of economic activities and the incidence of poverty, the enhancement of national economic interest abroad is a fundamental pre-requisite ensuring long term peace progress and prosperity of the nation (Acharya, 2000). Economic diplomacy is therefore a response to the current trends in international relations. The first priority of our foreign policy is to building our economic strength by socio-economic development (Acharya, 2009). Adjusting itself to the changing times and requirements, Nepal has therefore made economic diplomacy as one of the priorities of her foreign policy.
After the political change in Nepal in 1990 and the subsequent election of the new democratic government, Nepal’s foreign policy had incorporated two new components - human rights and economic diplomacy (Lohani, 2009). The pace of globalization with a paradigm shift in international relations from political to economic had also played vital role in adopting the economic diplomacy as an important component of our foreign policy (Acharya, 2000). Even though the concept and pursuit of economic diplomacy have roots in Nepal's diplomatic history, the emphasis is therefore quite recent.
Different countries may have different components of economic diplomacy depending upon their areas of competence as well as on the basis of their potentiality in terms of competitive and comparative advantage. In Nepal's context, Foreign Direct Investment (FDI), Promotion of Tourism, Promotion of Export Trade, Development Cooperation (Foreign Aid) and Promotion of Foreign Employment have been identified as the main components of economic diplomacy ( Quite recently, cultural diplomacy has been accepted as a component of economic diplomacy. Hence, the context of economic diplomacy in the case of Nepal consists of directing diplomatic activities in order to promote economic interests mentioned above.
2 Concept of Economic Diplomacy
The objectives of foreign policies are achieved through different means and one of the most important means is diplomacy (Leguey and Jean, 2010). From a state perspective, diplomacy is concerned with advising, shaping and implementing foreign policy (Barston, 2007). Diplomacy is the technique by which the objectives of foreign policy are accomplished. Diplomacy is one of the means or methods of conducting foreign policy of a nation (Rathod, 2004). Diplomacy involves diverse area and issues ranges from political to military to economic handled by different actors in different forms ranges from bilateral to multilateral to conference to shuttle (Barston, 2007), among others. One of the most significant forms of contemporary diplomacy is economic diplomacy.
Smith Simpson describes diplomacy as ‘the means by which governments seek to achieve their objectives and the principles they seek to advance in international affairs. It is the process by which policies are converted from rhetoric to realities, from strategic generalities to the detailed actions or inactions of other governments (Rana, 2000). Melissen observes diplomacy as the mechanism of representation, communication and negotiation through which states and other international actors conduct their business (Mellissen, 1999). For an underdeveloped country like ours, diplomacy is one of the most important instruments to achieve socio-economic development. In the past, it has proved to be an effective instrument to achieve foreign policy goals defined in terms of national interests.
From among the several facets of diplomacy, economic diplomacy, which is the practice of diplomacy in the pursuit of economic objectives, is of vital significance. In essence, economic diplomacy is essentially a process of mainstreaming economic dimension into our foreign policy perspective with the objective of further promoting our interest with the cooperation of the outside world through well informed negotiation (IFA, 2002).
Economic diplomacy employs economic resources, either as rewards or sanctions, in pursuit of a particular foreign policy objective. This is sometimes called ‘economic statecraft’. Economic Diplomacy may have two-way meaning--diplomacy backed by economic strength or diplomacy being used to achieve economic development. To put another way it might mean either as economy for diplomacy or diplomacy for economy (Adhikari, 1996). Diplomacy by economic clout is mostly used by developed countries in order to exert influence on relatively underdeveloped countries to achieve their national interest whereas diplomacy for economic development is pursued by underdeveloped countries in order to achieve socio-economic development of the country by getting their support in terms of aid and expansion of trade as a way to fulfill the resource gap. Therefore, economic diplomacy means to use the available diplomatic apparatus of countries in order to promote its socio-economic development and interest.
Economic diplomacy uses a full range of instruments ranging from negotiation, regulation and rules that are binding. But economic diplomacy is best defined not by its instruments but by the economic issues that provide its content. A distinct feature of economic diplomacy is that it is also sensitive to market developments and makes adjustments accordingly. Hence economic diplomacy has primacy for all countries, big or small, advanced or developing or for countries in transition (Rana, 2008). However, the priorities, issues, apparatus and mechanisms for the conduct of economic diplomacy may vary from one country to another depending on their interests, comparative and competitive advantages, and capability to undertake action, among others. Thus, economic diplomacy seeks to advance the economic interests of a country in international affairs through its diplomatic apparatus.
3 Theoretical Perspectives
Economic diplomacy is the blend of both economics and diplomacy; therefore, its foundation is based both in economic theories and diplomatic/political theories. The issues are more influenced by economic concept whereas the execution aspect is influenced by diplomatic foundation. Economic diplomacy involves multiple issues, and engages various actors at different levels. Therefore, it is important to make it clear at the outset that there is no single theory of economic diplomacy that can provide answers on how states under given circumstances will conduct their policies. International relations theories, strictly speaking, are concerned with the prediction of outcomes and with states as unitary actors with clearly defined and stable policy preferences. Hence the different theories may need to analyze the very nature of economic diplomacy and its successful conduct (Bayne and Woolcock, 2011).
There are various theories that underpin the concept of economic diplomacy such as Realist Theory, which highlights the importance of political factor in economic diplomacy; Regime Theory which discusses the multiple actors and institutions in economic diplomacy; Two Level Game Theory or Rationalist Theory which explains the involvement of various issues and factors in economic diplomacy etc. However, the concept of globalization and how it has direct impact on diplomacy thereby making it economic in nature and the different levels where economic diplomacy is practiced are being discussed hereunder.
3.1 The Globalization and Economic Diplomacy
After the end of cold war, interdependence mutated into a worldwide trend, was renamed ‘globalization’ and became a dominant economic current of the age. Globalization is the process of increasing interconnectedness between societies (Baylis and Smith, 2005). It heralded the reorientation of international relations from political to economic issues. Globalization is mainly associated with economic aspects though it has many forms. Economic globalization constitutes integration of national economies into the international economy through trade, FDI, short-term capital flows, international flows of workers and technology (Bhagawati, 2007). Therefore, the notion of and practice of economic diplomacy has gained in prominence over the past two decades due to new challenging economic issues, the global interdependence of states and the proliferation of regional trade initiatives within and across the continents (Soobramanien, 2011).
Never before has improvement of commercial and economic mutual relations between the countries been at the very center of diplomatic actions as recently. The principal causes of interest of diplomacy to its historical economic back-ground are based on the following elements (Gostisan 2012):
• In the most of developed countries, the share of foreign trade and in-vestments in GDP (Gross Domestic Product) is constantly growing in comparison with local manufacture;
• Implementation of economic reforms in processes of orientation to market economy of the developed countries, as well as the strategy of development which is based on strengthening of export, promotes faster integration of the country into the global economy;
• Globalization of trade and business means production escalating and services sector expansion, also creates necessity to activate multilateral regular communications between the countries;
• Expansion of regional trade agreements for elimination of barriers for international trade and investment processes.
Globalization is intimately connected with international affairs, because it accentuates the interconnections between countries and leads to increasing mutual interdependence (Rana, 2007). The process of globalization has changed the form and nature of international relations, foreign policy and diplomacy. The growing complexity of specialized economic issues and their increasing importance in a globalized world profoundly affect the way states conduct their relations nowadays. This means that there is not only the increasing of importance of economic diplomacy but also it is becoming more and more complex and crucial. As a result, there are increasing numbers of issues to address, a multitude of states to interact with, and variety of regional and multilateral forums to be represented (Soobramanien, 2011).
In the globalized world, the methods and parameters of diplomacy have also witnessed radical transformation. States will find it necessary to interact even more vigorously among themselves than before (Lamsal, 2009). They need to create new institutions, adopt various policy measures, establish new mechanisms to face the challenges posed by the globalization and minimize its impact. The advance of globalization thus made heavy demands on governments in economic diplomacy (Bayne, 2011):
• The range and variety of economic diplomacy greatly increased
• Economic diplomacy penetrated deep into domestic policies and was no longer limited to measures applies at the border. It involved many more actors inside and outside governments
• The range of countries active in economic diplomacy spread across the entire globe.
On the one hand, globalization affected cutting costs, improving qualities, developing new technologies, bringing new investments, developing new markets and creating new jobs thereby transforming many societies into prosperous one but on the other it contributed in increased gap between rich and poor, haves and have nots especially small and poor countries affected most negatively by this global phenomena (Stiglitz, 2002). One of the darkest aspects of globalization is that it appeared good for the rich but bad for the poor, unless active measures were taken to help those left behind (Collier, 2007). Therefore, economic diplomacy has a herculean task to deal with this difficult situation too. In such a way, the advancement and results of globalization both contributed further to the importance of economic diplomacy.
After the paradigm shift in international relation in 1990s the diplomacy also witnessed changes within its various forms and activities which can be illustrated by following matrix (Rana, 2011).
Globalization, not only contributed in the changing nature of diplomacy, but also because of globalization diplomatic activities are interlinked with each other making it more complex and difficult; the same is the case with economic diplomacy which now covers all those areas covered by commercial diplomacy in the past and present which can be illustrated through the following figure. The figure, on the one hand, illustrates the existence of special features of different types of diplomacy and need to have special skills and capability to deal with and on the other hand, the overlapping of the issues with one another and relatedness of each other making it more delicate, complex and difficult to manage.
SN Issues Classic Diplomacy Globalized Diplomacy
1 The home part-ners Major line ministries active in external issues, office of the head of Government, parliament. Minimal contact with the media and business. Virtually all official agencies, plus non-state partners from business, the media, academia, think tanks, S&T, civil society, NGOs. Fairly open communication.
2 The external
The foreign ministry, the offices of the heads of government and state, the parliament, regional governments, the ministries of direct concern in dialogue plus contact with the media and business. All the above, with a special focus on the non-state actors, and the sub-state agen-cies like provincial governments, city and local administrations; plus ethnic diaspo-ras communities, students and others from home based in the assignment country.
3 Subjects in
Main focus on “high diploma-cy,” i.e. issues of peace, security, cooperation. Huge diversity; MFA cannot master all dossiers, leaves technical subjects to functional ministries, while playing coor-dination role.
4 Style of external
affairs governance MFA-centric, limited role of other agencies
Each agency has external role; MFA is the coordinator and networker; “Whole of government” approach.
5 Role of head of
government in
normal times
Sporadic; infrequent summit meetings
No other ministry is supervised as closely by the Head and his Office as the MFA; MFA works closely with the Head, and his Office, as no other ministry; frequent bilateral, regional and global summits.
6 Typical diplo-matic
Highly professional, career stability, limited interchange with other government branch-es; respected public image. High morale. Routine methods of HR management. Blend of professional career track and lateral entry, frequent churning; increas-ing “in” and “out” placements; publics question relevance. Morale level variable depends partly on quality of HR man-agement.
7 Role of embassies
To advise home government, implement policy, promote relationships. Set pattern of embassy-MFA dialogue. Blurring of role distinction between the MFA and embassy, embassy may act as co-manager of relationships. Continual dialogue with MFA.
3.2 Five levels of Economic Diplomacy
Modern diplomacy encompasses several cross-cutting issues. In much the same spirit, economic diplomacy involves various issues handled by several actors and is practiced at various levels – unilateral, bilateral regional, plurilateral and multilateral (Bayne and Woolcock, 2011). Economic diplomacy is multi-layered in scope and involves the art and science of negotiations ranging from bilateralism to sub-regionalism, regionalism as well as internationalism to multilateralism and plurilateralism (Rana, 2009). Nepal’s present engagement and involvement in various regional and global organizations and orientation of our overall foreign policy also signifies this fact of contemporary diplomacy.

Source: Rana: New Economic Diplomacy, 2011
The best example of unilateralism is liberalization of domestic policies and opening up of country’s market in order to boost trade. It is done either as the initiation from the country concerned or as a reaction to other countries’ action. At the bilateral level, development cooperation, FDI, trade and foreign employment issues are handled with different mechanisms like joint forums, agreements on trade, investment or avoidance of double taxation. Nepal has bilateral trade agreements with seventeen countries. Activities such as high level, official and business level visits, bilateral agreements, establishing joint mechanisms etc. at the bilateral level provide resonance foundation for the promotion of economic interests between the countries.
At the regional level, the economic issues are discussed and mechanisms are developed for the interest of all the member countries. There are several issues and problems which can be dealt effectively in the interest of a country in particular and region in general with clearly defined economic diplomacy in terms of regional cooperation. Nepal has joined the regional trading blocs to promote regional trade by using complementarities within the region. Nepal is a party to two regional agreements – Agreement on South Asian Free Trade Area (SAFTA) and Framework Agreement on the Bay of Bengal’s Initiative for Multi-Sectoral, Technical and Economic Cooperation (BIMSTEC) Free Trade Area in 2004. There is the need to be transformed into zones of economic cooperation among regions that once were part of the same culture and political space (Raja Mohan, 2003). In this way, regionalism can be a viable forum to promote economic interest irrespective of political complication.
At the plurilateral level Nepal deals with plurilateral bodies like Organization for Economic Cooperation and Development (OECD), G8, G20 etc. Nepal’s developmental activities are heavily dependent on Official Development Assistance (ODA) and there are numbers of international declarations and agreements on aid effectiveness such as Paris Declaration, Accra Agenda for Action, Bussan Declaration etc. At multilateral level, Nepal is deeply engaged at international forums both at the UN and World Trade Organization (WTO) systems including UNCTAD, World Intellectual Property Organization (WIPO), International Labour Organization (ILO), World Health Organization (WHO), International Organization of Migration (IOM), International Trade Center (ITC) and other relevant institutions.
Nepal became a member of the WTO in April 2004 and became the first LDC member to accede to WTO through the accession process. Organizations like WTO, BIMSTEC, and SAFTA etc. are economic in nature and hence, deal with economic issues. As an LDC, Nepal can benefit from these global and regional bodies from the provisions such as financial and technical support aimed to promote LDCs’ concerns. Therefore, our efforts should be geared to reap maximum benefits from these mechanisms by means of our effective economic diplomacy at all levels.
4. Nepal’s Economic Diplomacy
Economic diplomacy in different incarnations has remained a part of the conduct of Nepal’s foreign relations and diplomacy. During the eighteenth and nineteenth centuries, Nepal pursued an activist trade policy and her foreign policy was mostly focused on her trading interests. The thrust of Nepal’s economic diplomacy was then directed primarily towards achieving, consolidating and safeguarding her position as the only entrepot in the trans-Himalayan trade routes (Subba, 1999). The concept of development assistance came to be introduced in the foreign policy particularly after the popular revolution of 1950 as Nepal started receiving economic assistance. This led to formulating policies for effective utilization of foreign assistance and promoting trade and commerce (Bhattarai, 2012).
After the political change in 1990 and the subsequent election of a democratic government, Nepal’s foreign policy incorporated two new components in it: human rights and economic diplomacy (Lohani, 2009). The government elected under the 1990 constitution gave a new dimension of the country’s foreign policy by laying emphasis on human rights, freedom of press and economic diplomacy (Pokharel, 2009). In the changed political context, economic diplomacy, which was first mooted by the country’s policy makers in the early 1990s, has continued to receive priority and focused attention as a new dimension of Nepal’s Foreign Policy. The rationale behind the adoption of economic diplomacy as the new component of our foreign policy is due to the least developed status of the country and need to achieve socio-economic development on a priority basis in order to meet the rising expectations of the people in a changed political environment.
The directive principles of the Constitution of 1991 gave emphasis to the socio-economic development of the country and in raising the living standards of the people. The Interim Constitution promulgated after the successful Jana Andolan (People's Movement) and following the end of over a decade long armed conflict, included a provision for priority to national development by pursuing 'a policy of attracting foreign capital and technology, giving priority to national investment'. The State Policies in the present Constitution recognize the labor force as the major socio-economic force in the country. The present constitution has clearly mentioned “Nepalese diplomatic missions abroad will be made to perform works on foreign trade, development cooperation, labor management, and tourism promotion with priority, as one of its state policies (Law Book Management Committee, 2007).
The goal of our economic diplomacy has been to help enhance Nepal’s comparative and competitive advantages in the global economy and maximize the benefits from globalization ensuring rapid economic development (IFA, 2008). Here, comparative advantage refers to the ability of a country to produce a particular good or service at a lower marginal and opportunity cost over another country. Even if one country is more efficient in the production of all goods than the other, both countries will still gain by trading with each other, as long as they have different relative efficiencies in different items. On the other hand, competitive advantage is the ability to stay ahead of the present or potential competition, thus superior performance reached through competitive advantage will ensure market leadership. It gives emphasis for enhanced development of human resources, skill and new technology and thereby being competitive than others in the market.
In order to achieve our economic interest through our diplomatic efforts the following strategies are being employed in case of economic diplomacy (IFA, 2008):
• Consolidating Nepal’s foreign economic relations with friendly countries
• Exploring the economic opportunities for Nepal,
• Focus on Mission’s economic diplomacy
• Coordination with the stakeholders on economic activities
• Implementation of program-based activities by the mission
Economic diplomacy is therefore a response to the current trends in international relations. After all, it is in the promotion of overall national interests such as territorial integrity, sovereignty, national pride, standing in the comity of the nations and economic development and social progress that a nation can boast of its comprehensive development. Adjusting itself to the changing times and requirements, Nepal has therefore made economic diplomacy as one of the priorities of its foreign policy (Acharya, 2000).
4.1 Government Initiatives
After incorporating economic diplomacy as one of her important components of foreign policy, the government has consistently been making efforts for its effective implementation. In this connection, it has, for the first time explicitly discussed in the Three Years Interim Plan (TYIP) of 2064/65-2066/67, though Nepal started the concept of development plan from 2013 BS (1956 A D). The plan, realizing the importance of Economic Diplomacy, incorporated it under the heading ‘International Relations and Economic Development’. It clearly mentioned the problem and challenges as well as opportunities related with economic diplomacy while setting long term vision, objectives, and policies. Another Three Year Plan (TYP) (2010/11-2012/13) also mentions economic diplomacy under the title ‘International Relations and Economic Development’. It discusses the initiatives made in the past for improving economic diplomacy and in addressing the challenges ahead (NPC, 2010).
A High Level Task Force (HLTF) was commissioned under the convenorship of a sitting Member of Parliament in 1996 with the objective of strengthening the institutional role of the Foreign Ministry, and developing professionalism within the Foreign Ministry to enhance Nepal's position in international negotiations. It also aimed in devising a diplomatic mechanism for effectively executing Nepal’s economic interest so that Nepal may benefit from the new opportunities offered by international environment (MOFA, 1996). The terms of reference of HTLF included, inter alia, to examine the organizational structure of the Ministry of Foreign Affairs and propose necessary reforms to it, to suggest the appropriate guidelines for the role to be played by the Ministry in the changed context, for coordination, communication and contacts of the Foreign Ministry with other line ministries, and recommend necessary changes and reforms in the functioning of Nepali missions abroad (MOFA, 1996).
The HLTF was largely focused on making economic diplomacy functional within the MOFA's institutional framework, and to strengthen Nepalese missions for the conduct of economic diplomacy. It suggested measures for both briefing and debriefing ambassadors and economic counselors and suggested the creation of country specific business plans to be formulated in consultation with the private sector. It also made it clear that without proper training on various theoretical aspects of diplomacy, officials would not be able to conduct economic diplomacy with proper inter-ministerial coordination. The absence of separate Foreign Service was cited as an obstacle to the effectiveness of the performance. The Task Force envisaged an efficient and effective role to support the diplomatic machinery of the Ministry. It laid special emphasis on economic diplomacy for the Government in view of the changed context of international relations and national priorities..
In 2002, the Institute of Foreign Affairs (IFA) was assigned to look at Nepal’s economic diplomacy as a follow up to the recommendations made by the HLTF and prescribe viable mechanisms that are needed to achieve the objectives of further promotion of Nepal’s economic interests. The IFA formed the Policy Study Group (PSG) on Nepal’s Economic Diplomacy composed of eminent Nepali personalities from various fields to recommend to the government what practical measures were needed to make economic diplomacy more effective. It focused on how to evolve a mechanism for forging a workable and meaningful partnership with the private sector for the promotion of trade, tourism, employment generation, water resources, technical and economic cooperation and private sector investment in the country. The PSG concluded that economic diplomacy cannot be conducted without properly qualified manpower to execute its objectives effectively and efficiently. It recommended the need for reorientation and reformulation of Nepalese foreign policy so as to make economic diplomacy effective and meaningful.
The High Level Foreign Policy Task Force that was constituted following the successful peaceful People’s Movement of April 2006 with a view to ‘recast its foreign policy and make it consistent with the emerging political economic climate to achieve Nepal’s foreign policy objectives’ has identified training as a necessary component to improve the overall performance. The Task Force also said that the foreign policy establishment that worked as a tool to preserve the regime of the day and to service the strong and powerful has to be geared to create a positive image and promote national interests in a competitive realm of international relations. It has recommended the creation of a ‘separate professional foreign service so that it could stipulate specific and relevant qualifications including language skills and competencies, that would help improve the efficiency and effectiveness of MOFA and the missions under it’.
The IFA constituted a group comprised of experts from different areas, in 2008, to suggest measures to enhance the effectiveness of economic diplomacy. In its report, the group highlighted the need for sufficient resources in the missions abroad to conduct economic diplomacy and the activities missions can conduct to promote the economic diplomacy, among others. It also discussed the programs that could be conducted by diplomatic missions related to the different areas of economic diplomacy in terms of regions.
In 2009, the Association of Former Career Ambassadors of Nepal (AFCAN) organized a comprehensive seminar and deliberation and came up with the compilation of a report entitled 'Pursuit of Economic Diplomacy: Prospects and Problems'. This publication considered the trade, investments, tourism and foreign employment as the core focus of economic diplomacy. It also emphasized the role of the private sector in economic diplomacy.
In 2011, Parliamentary Committee on International Relations and Human Rights Committee of the Legislative-Parliament produced a report ‘Nepal’s foreign policy in the changed context'. Part III of the Report is devoted to economic diplomacy. The report identifies possible areas for conducting economic diplomacy that include foreign employment, trade, industry, investment, tourism, water resources, services sector, and agriculture and forestry. It has also identified some possible areas for foreign investment in construction, industry, and trade in services sectors. It recommends, inter alia, appointment of attaches for promotion of economic diplomacy, policy formulation, implementation and monitoring in fields of finance, labor and tourism; Diplomatic Missions should mobilize manpower, technical and financial resources for expanding economic diplomacy; Consulates to move beyond traditional functions and focus on promoting economic development; create an inter-ministerial mechanism at the secretary level to be assisted by divisions and sections, and make this mechanism effective for inter-ministerial coordination.
These aforementioned efforts and recommendations have clearly mentioned the present mechanism, the reforms needed with regard to Nepal’s foreign policy, economic diplomacy and the institutions involved in it especially MOFA and missions abroad, new initiative that shall be taken in reference to the effective conduct of foreign policy in general and economic diplomacy in particular.
Issues and Challenges
It has been almost two and half decades that Nepal officially adopted economic diplomacy. It is time we analyzed it in terms of its effectiveness which could be judged in terms of role played by Nepalese diplomatic missions abroad and other various institutions involved with the conduct of economic diplomacy, among others. Another aspect of analysis could be the indicators or status of the different sectors especially officially identified components of our economic diplomacy. The status and present scenario provide a picture on the effectiveness of Nepal’s economic diplomacy. In terms of focused discussion on the effectiveness of economic diplomacy based on the research conducted by the writer during his M. Phil. Thesis, four factors could be identified namely political, institutional, resources, and role of the private sector. These factors could be discussed in brief as follows:
Political Factor
Major foreign policy decisions are the prerogatives of the political leadership. They are to set vision and mission of the foreign policy. Diplomacy, conducted by diplomats, is directed to achieve those objectives of foreign policies formulated by the politicians. As the foreign policy is also the extension of domestic policy, the ideology of the government of the day influences the conduct and the success of the diplomacy. As economic diplomacy is influenced by economic issues mostly, this concept is even more crucial. Aspects like political stability, leadership role in MOFA and other related line ministries, the consistency in policies that are related to economic diplomacy could be taken as the considering factors. The strategy pursued in economic diplomacy matters, and finally appropriate instruments economic diplomacy can only be effective if there is leadership and political will at the top (Gostisan, 2012). Economic diplomacy cannot yield any result or may become ineffective when political diplomacy fails (Pyakurel, 2010). The importance of political leadership, their vision and sound political environment with regard to foreign policy in general and economic diplomacy in particular can easily be highlighted by Former Prime Minister of UK William E Gladstone who once said ‘here is my first principle of foreign policy: good governance at home (quoted by Shrestha, 2009). Diplomacy, of course, reflects the overall situation of the country, and it is not easy to have an exceptionally well performing foreign service, when the rest of the country is caught in the quagmire of political instability and administrative inefficiency (Gautam, 2009).
The Institutional Factor
Another factor that is responsible in the effectiveness of economic diplomacy could be described as the role of institutions responsible to its conduct. The major institutions are the Ministry of Foreign Affairs (MOFA) and Nepalese Diplomatic Missions abroad. Diplomacy is globalized. One consequence is that almost all Foreign Ministries are reorganizing themselves, and fine tuning their domestic machinery to deliver the improved performance. As a response to changed context, a score of countries have combined foreign trade and external aid with the traditional foreign ministry in order to make their effort effective (Rana, 2007).
But it is no wonder that the MOFA and its diplomatic apparatus that deals with ‘abroad’ and ‘external affairs’ has lost its monopoly; it is jostled by a multitude of domestic actors (Rana, 2007). It is imperative to have better coordination and cooperation apart from mutual trust among the institutions involved (Pokharel, 2009). Therefore, the MOFA has to integrate economic objectives into external policy. It must treat economic objectives virtually on par with the political ones. For this, MOFA needs ‘pragmatism, inventiveness, flexibility and preparedness’ (Rana, 2007). There must be well coordinated and concerted efforts from all the actors involved at the national and international level in terms of both decision making and execution level. Economic diplomacy covers a wide range of issues thereby demanding the involvement of various actors and institutions. The areas covered by economic diplomacy are distinct in nature, therefore, no one institution is fully capable of handling it perfectly.
The resources needed for economic diplomacy could be identified as human, financial, and information and communication technology, among others. The volume of diplomatic works to be performed and the availability of human and financial resources is said to not match in our context. On the contrary it adversely affects the efficiency of the Ministry and diplomatic missions (Suman, 2009). Without adequate resources earmarked for this type of diplomatic activity, any country’s effective participation in international level would be severely jeopardized. Small countries suffer in comparison to larger and more advanced countries which are able to mobilize and allocate more resources for this type of diplomacy (Soobramanien, 2011).
One of the most important resources that is crucially responsible in the effectiveness of economic diplomacy is human resources. These resources must be sufficient in number, highly skilled, trained, motivated and having international exposure and in-depth knowledge of the issues they are dealing with (Devkota and Pokharel, 2012). It covers all human resources ranging from Chief of Mission to diplomatic and administrative staff as well as local staff serving at the missions.
The availability of resources in terms of budget for all activities of missions in general and the economic diplomacy related activities in particular is a very essential aspect of economic diplomacy. The effectiveness of the role played by mission heavily relies on sufficient budget. The extent of the use of information and communication technology also plays a vital role in the successful conduct of economic diplomacy. In the era marked by the development of science and technology, diplomatic activities could be successful, easy, effective and efficient with the use of modern information and communication technology (Devkota and Pokharel, 2012).
Hence, it is a herculean task for a small and low income country to define and protect its interests at the multilateral or regional level. Therefore, the cost of pursuing an active economic diplomacy is onerous for small and low income countries. Notwithstanding this, adequate level of resource base must be ensured for effective conduct of economic diplomacy as the successful economic diplomacy is instrumental in enhancing national interest especially protecting its economic interest in international relations.
Role of Private Sector
The present day world is characterized by the success of the market. Economic diplomacy must be adjusted in tune with changes in the market. With changing concept of governance, the other actors are also involving in it and the private sector is one of these. The public-private partnership model will be suitable in ensuring effective role of the private sector in appropriate areas of economic diplomacy for its effective implementation as both are equal stakeholders (Pokharel, 2009). To make economic diplomacy effective, both the public and private sectors should go hand in hand.
There are bilateral chambers of commerce under FNCCI which can play a vital role in promoting bilateral trade, investment and tourism. The private sector can provide essential inputs to the policy makers. To make investments it is the private sector which has resources and efficiency. Even private sector and our diplomatic mission can work together after making country specific action plans and making a mechanism for funds needed for the activities (PSG Report-IFA, 2002).
The Way Forward
Effectiveness of our economic diplomacy depends on many variables, such as, individual capacity, competency and professionalism of those involved in eco-nomic diplomacy; training, orientation and development of the concerned personnel especially to diplomats; enhancement of institutional capability of the Missions abroad, MOFA and relevant Ministries and departments of the Government; role, capacity, willingness and support of the private sector and other institutions, availability of the resources; strength of the Missions both in terms of human and other resources; local environment, policies and priorities of the host Government and private sector there, support from Non-resident Nepalese (NRN) etc.
When we view the economic diplomacy from the political front, there must be clear policy guidelines, planning and programming with set objectives and desired results, competent, visionary, committed leadership, political consensus on ED related policies, measurable targets and priority, annual plan of actions. Apart from these issues, there are other concerns as well such as political stability, peace and security, resolution of chronic labor problems, improving the power supply, infrastructure development, among others, which affect the business environment at home.
From the institutional point of view, there must be a clear-cut mandate to all whose involvement is with economic diplomacy. The first and foremost issue is the coordination among these institutions for concerted effort to promote eco-nomic diplomacy since no single institution is capable of handling the cross-cutting issues of contemporary economic diplomacy at different levels. While lip service is paid to MOFA’s co-coordinating role, in reality this role is increasingly being assigned to other agencies. This practice must come to an end. MOFA has to be recognized as the leading actor for economic diplomacy to make it an effective tool of Foreign Policy. MOFA has to play such a role that can ensure the effective coordination with all other institutions both government and non government as the cardinal task of modern MOFA is the management of complex and crisscrossing relationships, bilateral regional and international dialogue (Rana, 2007).
In terms of resources, there are several issues to be addressed such as allocation of budget on the basis of requirements of the missions in terms of annual plan of action and potentiality of promoting economic diplomacy. Timely disbursement of budget for effective implementation of economic diplomacy related program is necessary. There must be flexibility on the part of the mission to utilize the budget as per their requirement and effectiveness. The budget shall be allocated and utilized on priority basis. There shall be effective monitoring and evaluation system to ascertain the effectiveness of the program and further improve the program formulation processes. The budget allocation must be linked with reward and incentives based on the outputs.
On human resources, much has to be done. There must be well tailored orientation programs for all those involved in economic diplomacy especially to those who are to assume diplomatic assignments in diplomatic missions. Training programs at home and abroad would be beneficial for familiarization with the issues related with economic diplomacy that would help ensure better deliberations at the international level. In-house seminars and interaction programs within the MOFA including other concerned line ministries as well as private sector and other institutions in various issues related with economic diplomacy also enhances the knowledge and sharing of information and ideas among the employees and stakeholders.
The use of information and communication technology enhances the effective access to the information to the public. Reliable dissemination of information about the services that missions offer would make their service delivery more effective and fast. The implementation of the concept of e-governance is also possible with the utilization of well established ICT system. MOFA and missions as well as line ministries must be well connected to share the information instantly. It would be better if most of the official correspondence could be done through ICT technology to minimize the administrative cost and for speedy service delivery. The ICT mechanism must be reliable and responsive.
The role of the private sector is indispensable to promote economic diplomacy. The private sector must come forward and put their expectation as towhat they want from the government and what they can do themselves and how they want to forge a productive collaboration with MOFA, line ministries and missions. Bilateral Chambers of Commerce (BCC) have to focus on their respective countries and make country specific programs with the help of Nepal’s diplomatic missions stationed there and vice versa. Diplomatic missions should establish good channel of communication with the private sector organizations and get the required input from them.
In order to make Nepalese diplomatic missions role effective as regards economic diplomacy, various measures shall be initiated. First and foremost they must be provided adequate budget with timely earmarking based on the concrete plan of action. Orientation and training programs to the human resources involved in economic diplomacy at the missions are essential. MOFA must make country or region specific programs for economic diplomacy such as programs related with religious tourism for Myanmar, Sri Lanka, and Thailand etc. Missions shall be equipped with full information on every aspect of economic diplomacy for which well connected network between missions and MOFA, line ministries and other relevant institutions should be established.
High level visits and other political visits must adopt economic agendas as priority issues. Long-term perspective plans for economic diplomacy, the clear-cut role to be performed by the government, private sector, civil society, NGOs/INGOs and our strategy at bilateral, regional, plurilateral and multilateral forums in relation to economic diplomacy are some issues among others for the effective implementation of economic diplomacy.
The need for placing greater emphasis on economic diplomacy is now universally acknowledged. Economic considerations must remain in the forefront of efforts to achieve foreign policy goals. Countries which have not recognized this fact in time, they have been marginalized from the economic prosperity that some of the countries have achieved tremendously in the same period of time. The processes of globalization have almost completely obliterated the distinction between political and economic diplomatic business. Even the so-called core bilateral political negotiations and engagements are not free from the economic components. There are very limited areas of work what we do in present days of diplomacy where there is no strong economic undertone. Foreign relations can no longer be divided between political and economic spheres.
For countries which are developed, economic diplomacy is the art of serving economic interests and strategic interests of the country by the use of the economic instrument in the conduct of state-to-state relations. For those countries which are developing like ours, it is the mobilization of policy apparatus, especially foreign policy through diplomatic channels to serve economic interest, particularly socio-economic development of the country. In this context, contemporary economic diplomacy is facing three types of tensions that need reconciliation. The first tension is between politics and economics. States are political entities rather than economic one so that politics constantly encroaches on economics in the pursuit of international objective (Bayne and Woolcock, 2011). A good deal of balance must be maintained between political issues and economic ones. These issues must play a complementary role to each other in order to produce better outcomes from economic diplomacy.
The second tension is between international and domestic forces. Due to the rapid growth of globalization the international penetration of domestic economics, for example, by trade, foreign direct investment and financial flows, has been giving steadily complicating domestic decision making with different actors involved and ranges of issues to be dealt with (Bayne and Woolcock, 2011). Hence, economic diplomacy is a complex process to deal with especially for the least developed countries like ours.
The third major tension in economic diplomacy which has greatly advanced since 1990 is between the government and other forces. The penetration of international factors into domestic economics is led not by the government but by the private sector and NGOs etc. As globalization advances, other groups and social movements become involved in economic diplomacy. With the changing concept of governance and involvement of various actors, the economic diplomacy has to strike a balance between government institutions and private sector and other actors.
Having faced all the aforementioned challenges in general and those arising from within its domestic setting in particular and taking note of its meager progress towards achieving the economic development in the past especially through its recognized components of economic diplomacy, Nepal needs to reorient its policy of economic diplomacy learning from the past, based on the needs and challenges of the present and lead the country to a prosperous and developed status in the future.
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