EU Economic Diplomacy Strategy

DIRECTORATE-GENERAL FOR EXTERNAL POLICIES POLICY DEPARTMENT IN-DEPTH ANALYSIS EU economic diplomacy strategy Author: Florence BOUYALA IMBERT ABSTRACT The post-World War II order is undergoing profound changes with globalisation and the emergence of new economic powers. The economy has gradually taken over as the main driver of political influence and global now transcend the old national or regional divides. As the EU was emerging as a global economic player, the economic and financial crisis made the need to tap into foreign markets all the greater. The creation of the European External Action Service (EEAS), incorporating the EU delegations, and the new EU competence for direct foreign investment under the Treaty of Lisbon have given the Union the tools to assume an independent identity in economic diplomacy. As a result, the EU’s business-promotion policy evolved into a much more sophisticated economic diplomacy strategy, handled in a more structured manner by the Commission and the EEAS. The European Parliament must now be involved, beyond its legislative and scrutiny roles, in devising this new strategy. Not only could the EP add to the debate but it can also help the Commission and the EEAS with its long-established tradition of parliamentary diplomacy. DG EXPO/B/PolDep/Note/2017_66 EN March 2017 - PE 570.483 © European Union, 2017 Policy Department, Directorate-General for External Policies This paper is an initiative of the Policy Department, DG EXPO English-language manuscript was completed on 3 March 2017. Translated into FR/ DE/ IT. Printed in Belgium. Author: Florence BOUYALA IMBERT Editorial Assistant: Jan MUYLDERMANS Feedback of all kind is welcome. Please write to the author: [email protected]. To obtain copies, please send a request to: [email protected] This paper will be published on the European Parliament's online database, 'Think tank'. The content of this document is the sole responsibility of the author and any opinions expressed therein do not necessarily represent the official position of the European Parliament. It is addressed to the Members and staff of the EP for their parliamentary work. Reproduction and translation for non-commercial purposes are authorised, provided the source is acknowledged and the European Parliament is given prior notice and sent a copy. EU economic diplomacy strategy Table of contents 1 Definition and general background 4 1.1 The concept 4 1.2 The rise of economic issues in diplomacy 4 1.3 Changes in the international economic order 4 1.4 From commercial to economic diplomacy 5 1.5 Member State level 7 1.6 Private sector level 8 2 EU economic diplomacy: from business support to an emerging strategy 9 2.1 2009 - 2014: the Barroso II Commission 9 2.1.1 General context 9 2.1.2 Missions for Growth 10 2.2 2014 - 2017: the Juncker Commission 10 2.2.1 General context 10 2.2.2 The EIB as an essential partner 11 3 The state of play 12 3.1 Gathering information / pilot tests 13 3.2 The Guidelines 13 3.3 The Commission Communication 14 4 The role of the European Parliament 14 4.1 Scrutiny of EIB financing 14 4.2 Monitoring DG GROW instruments 15 4.3 Commission Vice President Katainen’s address to the EP on 8 June 2016 15 5 The way forward: a bigger role for the EP 16 5.1 The EP can enrich the current debate 16 5.2 Bringing EP diplomacy to bear 16 3 Policy Department, Directorate-General for External Policies 1 Definition and general background 1.1 The concept In the absence of a standard definition, it is generally agreed that economic Economic diplomacy has diplomacy1 can be defined in a number of different ways. The first many definitions, all of attempt to define the concept dates back to the beginning of the 21st which include: facilitating Century2 but most of the work has been carried out since 2009. There are at access to foreign markets; least three strands, each one wider in scope, that are common to all attracting foreign direct investment; influencing definitions of economic diplomacy: 1) facilitating access to foreign international rules. markets for national businesses; 2) attracting foreign direct investment (FDI) to a national territory; and 3) influencing international rules to serve the national interest. The term economic diplomacy implies the use abroad, by a state, of a wide spectrum of economic tools to secure its national interest; the involvement of a range of actors (civil society, public and private sector), and an array of issues such as security, natural resources like water, climate, energy, trade, growth, migration, investment, development, influence and negotiation3. The goal can be as narrow as boosting economic growth or as broad as developing geo-political influence and a diplomatic network. Economic rewards and Definitions also include the notions of rewards and sanctions. Economic sanctions are a good example of economic instruments have clearly become a major tool of political diplomacy and instruments used for foreign influence, as illustrated by the economic sanctions imposed on political ends. Cuba, Iran and Russia. 1.2 The rise of economic issues in diplomacy The concept of economic diplomacy has gradually emerged over the past 50 years, as the economy has become the main driver of political Over the past 50 years, the influence. The post-second-world-war order, which started with the economy has become the Marshall Plan and the European economic project based on the European main driver of political influence. Steel and Coal Community, was clearly economic. Thus, the major world economies conducted their diplomacy with the focus on their economic, trade and private sector interests. This has possibly led to major reorganisations of their administrations. 1.3 Changes in the international economic order The global economic order has undergone great changes over the past 60 years. It was based essentially on the reconstruction effort after the 1 see work of Clingendael, ECDPM, EPSC, EPC, 2 Berridge and James (2003), Rana (2007) 3 in Gresea Echos 86, L’Europe (Néo) Mercantille, la diplomatie économique de l’UE dévoilée, June 2016 4 EU economic diplomacy strategy second world war. The international financial institutions (IFIs) and the General Agreement on Tariffs and Trade (GATT) - which became the World Trade Organization (WTO) in 1995 - were all set up by and for the industrialised countries, which were, at the time, the main powers. The The rise of the emerging rise of the developing countries upset the global economic balance of economies upset the post- World War II economic power, with China becoming a major player on the international economic balance of power. stage and eventually joining the WTO in 2001. China’s accession to the WTO led to profound changes in the global economic order whose impact is still being felt4. The global impact of China’s accession to the Globalisation has also played a major role in the development of WTO in 2001 is still being economic diplomacy. The world has become inter-connected; trade has felt. expanded hugely over the past 50 years, exchanges of goods, services and investments have greatly increased. The scale of trade is no longer merely local, national or even regional but worldwide. National issues have become global, such as peace, security, development, climate, access to water... The UK’s forthcoming withdrawal from the EU and a new transatlantic Brexit and the new US relationship with the US under the Trump administration are recent administration show how examples of how quickly situations can change. Even globalisation has swiftly things can change. recently been challenged and might have had its day. International power is shifting from traditional structures like the IFIs to informal fora such as the G20. WTO rules are giving way to bilateral agreements, a trend about which the European Parliament has constantly raised concern. Michele Chang, professor at the European Political and Administrative Studies Department of the College of Europe in Bruges, has warned that ‘The end of multilateralism poses a serious challenge to the EU, which does not take enough advantage from bilateral deals 5. The EU is the world’s largest economy and accounts for a quarter of the world's GDP. As the competition from other parts of the world is getting tougher, it must adapt to the global changes and needs to wield influence more effectively as a global player. 1.4 From commercial to economic diplomacy Economic diplomacy is often understood, in a narrow sense, as an Defined narrowly, economic instrument to promote enterprises, particularly Small and Medium diplomacy means Enterprises (SMEs) where the potential for job creation is greater than for supporting businesses multinationals, on foreign markets. In that sense, it could also be called abroad. ‘corporate diplomacy’ or ’commercial diplomacy’. Most developing countries supported the internationalisation of enterprises in the first decade of this century, when growth was more promising in emerging 4 The recent issue of granting China a market economy status (MES) is a good example of how its accession to the WTO is still affecting western economies. 5 In Michele Chang’s presentation at the EEAS seminar on Economic Diplomacy, on 23 November 2016 5 Policy Department, Directorate-General for External Policies countries and particularly in Brazil, India, Russia and China — the BRICs6. Big countries would use their diplomatic networks and power to promote business and investment abroad, or to attract foreign investment to their territory. Supporting business has also been a priority of the European The Commission has a long Commission for many years and it still is. Assessing that more than 90 % of tradition of business global growth is expected to occur outside the EU where only 13 % of support networks.

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