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Economic Diplomacy and Connectivity What Role for the OSCE?

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Economic Diplomacy and Connectivity What Role for the OSCE? Stefan Wolff Institute for Conflict, Co-operation and Security University of Birmingham 2 Economic Diplomacy and Connectivity Chişinău Railway Station in the Moldovan capital is the starting point for a 180km journey to Odesa through the Transdniestrian region. The resumption of the passenger railway service Chişinău-Tiraspol-Odessa in 2011 was a significant step in a confidence-building process long supported by the OSCE. (Credits: OSCE/Jonathan Perfect) What Role for the OSCE? 3 Contents Acknowledgments 4 List of Abbreviations 5 Introduction 6 The Context of Economic Connectivity and Diplomacy in the OSCE Region 9 From the Helsinki Final Act to Ministerial Council Decision 4/2016 9 The Crowded Space of Economic Diplomacy and Connectivity in the OSCE Region 11 Free Trade Organisations 11 Multilateral Organisations 11 Development Organisations 12 Examples of Economic Diplomacy and Connectivity in the OSCE Region 14 Sub-regional Economic Diplomacy and Connectivity 14 Central Asia 14 South Caucasus 16 Western Balkans 17 Economic Diplomacy and Connectivity in the Context of Protracted Conflicts 19 Cyprus 19 Georgia 20 Moldova 22 A Role for the OSCE? Conclusions and Recommendations 24 Economic Diplomacy and Connectivity across the OSCE Area: Drivers and Factors of Success 24 Economic Diplomacy and Connectivity: A Future Perspective for the OSCE 26 Annex: OSCE Activities with Regard to Economic Connectivity 28 References 30 Cover Image: Flags with the OSCE logo in Russian, English and German in front of the Hofburg in Vienna. (Credits: OSCE/Mikhail Evstafiev) 4 Economic Diplomacy and Connectivity Acknowledgments My interest in economic diplomacy and Realising this idea has only been possible Bicer, Dagmar Caganova, Alexandra Dienes, connectivity was sparked several years ago with the support of many individuals and Samuel Goda, Jonas Graetz, Lala Jumayeva, when Wolfang Zellner of the Centre for OSCE organisations. Thanks are due to my own Argyro Kartsonaki, Nino Kemoklidze, Nadejda Research at the University of Hamburg and institution, the University of Birmingham, for Komendantova, Brigitte Krech, Daniel Kroos, Philip Remler invited me and my colleague their generous financial support of my work George Kyris, Jacopo Maria Pepe, and Nino Kemoklidze to write a paper on ‘Trade as with the OSCE for the past three years, Sebastian Relitz. a Confidence-building Measure’. This paper allowing me and other colleagues involved informed a report by the OSCE Network of to travel and to host two workshops here in Moreover, I have had the privilege of many useful Think Tanks and Academic Institutions on Birmingham. Another workshop was kindly conversations with colleagues from the OSCE ‘Protracted Conflicts in the OSCE Area: hosted by the Secretariat of the Energy and Delegations of participating States, and the Innovative Approaches for Co-operation in Community in Vienna, in co-operation with report has much benefited from their insights the Conflict Zones’.1 The following year, I was the Office of the Co-ordinator of OSCE and observations. Thanks are therefore also due in the fortunate position to lead a project of Economic and Environmental Activities, to Aida Balganova, Alina Belskaia, Tomáš Bičan, the OSCE Network on ‘OSCE Confidence and I am also very grateful for an insightful David Buerstedde, Sabine Feyertag, Bernd Building in the Economic and Environmental discussion with Dr Dirk Buschle, the Deputy Forster, Marion Gratt, Claudio Habicht, Alistair Dimension: Current Opportunities and Director of the Energy Community. Hodson, Rati Japaridze, Noura Kayal, Kornelia Constraints’, which resulted in a report of Lienhart, Giulia Manconi, Kairat Sarybay, the same title.2 In the course of working This report is based on many different Franziska Smolnik, Andreas Stadler, and on this second project, intellectually very contributions. Invaluable assistance was Yaroslav Yurtsaba. stimulating discussions began with the provided first of all by Alessandro Savaris, Economic Governance Unit within the Office who worked as the principal research fellow Ultimately, the usual disclaimer applies: the of the Co-ordinator of OSCE Economic on the project, thanks to financial support from views expressed in this report are my own and and Environmental Activities. After many such the Economic and Social Research Council do not necessarily reflect those of any of the discussions with Andrei Muntean, Brigitte University of Birmingham Impact Acceleration individuals and organisations mentioned above. Krech, and Zukhra Bektepova, the idea of Account. Contributions at the workshops in a more comprehensive report on economic Vienna and Birmingham have informed specific diplomacy and economic connectivity sections of the following report and thanks was born. are due to their authors: Luca Anceschi, Devin What Role for the OSCE? 5 List of Abbreviations AA Association Agreement GIS Geographical Information System AHDR Association for Historical Dialogue and Research GIZ Deutsche Gesellschaft für Internationale Zusammenarbeit ASEM Asia-Europe Meeting GLR Green Line Regulation BEREC Body of European Regulators for Electronic ICT Information and communication technologies Communications IPA Instrument for Pre-Accession (European Commission) BRI Belt and Road Initiative ITC Inland Transport Committee BTC Baku-Tbilisi-Ceyhan oil pipeline ITIO International Transport Infrastructure Observatory BTE Baku-Tbilisi-Erzurum natural gas pipeline OECD Organisation for Economic Co-operation and Development C2C City-to-City OSCE Organization for Security and Co-operation in Europe CAEWDP Central Asia Energy-Water Development Program RCC Regional Co-operation Council CBM Confidence-building measure SDC Swiss Agency for Development and Co-operation CEFTA Central European Free Trade Agreement SEECP South-East European Co-operation Process CEI Central European Initiative SGS Société Générale de Surveillance DANIDA Danish International Development Agency SIDA Swedish International Development Agency DCFTA Deep and Comprehensive Free Trade Area SMEs Small and medium-sized enterprises EATL Euro-Asian Transport Links SMMU Special Monitoring Mission to Ukraine EBRD European Bank for Reconstruction and Development SPECA Special Programme for the Economies of Central Asia EEA European Economic Area TERP Transitional Economic Rehabilitation Programme EEU Eurasian Economic Union UNDP United Nations Development Programme EFTA European Free Trade Area UNECE United Nations Economic Commission for Europe ERP Economic Rehabilitation Programme UNODC United Nations Office on Drugs and Crime EU European Union UNOMIG United Nations Observer Mission in Georgia EUBAM European Union Border Assistance Mission to WB6 Western Balkans Six (Albania, Bosnia and Herzegovina, Moldova and Ukraine Croatia, the Former Yugoslav Republic of Macedonia, FDI Foreign direct investment Montenegro, and Serbia) WTO World Trade Organization 6 Economic Diplomacy and Connectivity Introduction Economic connectivity refers to ‘any form Economic connectivity is a major driver of informal economic relationship among of economic development. It can enhance states or regional groupings, including opportunities for the economic participation of trade, business activities, financial private sector companies, including small and relationships, human mobility, and medium-sized enterprises (SMEs), business state-sponsored economic relations.’3 associations, and individuals. Economic This includes, inter alia, economic connections connectivity has also been demonstrated to related to ‘trade, FDI, migration, information be particularly effective at the local level as and communication technologies (ICT), witnessed by several initiatives promoted in the air transport and portfolio financial flows.’4 past decades by the United Nations and the Economic connectivity has the potential to European Union based on the so-called City- increase opportunities for improved economic to-City (C2C) approach.8 relations between (and within) states, and as such is very different from the notion Economic connectivity is multidimensional of economic integration. The latter refers and most beneficial when it ties countries to mutual agreements between countries and regions together across multiple in a specific geographic region to reduce channels. As evidenced in a recent or remove barriers to the free movement World Bank paper, ‘[t]he growth impact of of people, goods, capital, or services (ie, multidimensional connectivity is higher than the reduction of customs duties and free trade impact of each of the individual network indices, agreements) or to co-ordinate their fiscal, suggesting that overall connectivity is more trade and monetary policies. important than each of the individual channels separately.’9 From a policy perspective, the Economic connectivity is a significant implication is that promoting multidimensional between countries, economic connectivity feature of current globalised societies, connectivity is more impactful for overall growth increases not only economic development characterised by an increasing multiplicity and development, while closing down one potential but also interdependence and of both political and economic interactions. channel of connectivity may have a negative thus vulnerability. Managing vulnerability At the same time, economic connectivity impact beyond just this channel.10 by developing and implementing a common itself is nothing new but has been a
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