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U.S. Commercial Diplomacy

Council on Foreign Relations

May 1998


Forward

Gary C. Hufbauer, Director of Studies,
Council on Foreign Relations

Council on Foreign Relations

May 1998

Commercial diplomacy is pursued by all major international economic powers. The focus has been most intense on the emerging—if now temporarily debilitated—economies of Asia. Not surprisingly, the commercial diplomacy programs of the two biggest competitors, the United States and Japan, have developed and operated under very different conditions.

In 1996, the Council on Foreign Relations assembled an independent Study Group on American Commercial Diplomacy in Asia, chaired by Jeffrey Garten of the Yale School of Management and Robert Zoellick of the Federal National Mortgage Association, to assess the future of commercial diplomacy in the United States and abroad. The Study Group Report, written by project director James Shinn and to be published later in 1998, will summarize the findings of the group with a special focus on East Asia. The four essays published here contributed to the Report.

The first two papers argue that U.S. commercial diplomacy is often a necessary evil—either to correct market imperfections or to counter the activities of other governments. Raymond Albright examines the nature and roles of the various U.S. agencies that undertake commercial diplomacy, in particular the Export–Import Bank and the Overseas Private Investment Corporation. He contends that these agencies often succeed in offsetting the export promotion efforts of U.S. competitors and assuming reasonable risks that are shunned by private markets.

Robbin Johnson focuses on a particularly complex sector for U.S. commercial policy, agriculture. He provides a historical overview of U.S. farm policy, and suggests that "freedom to farm" legislation will shape the global food market for years to come. He concludes that market–based domestic farm policies, improved market access, and meaningful supply assurances will emerge as key ingredients both for U.S. export prospects and for feeding a wealthier but more populous world.

The second pair of papers provides an interesting look into the politics and economics driving distinct commercial diplomacy programs. In the third essay, David Rothkopf tracks the ascent and decline of commercial diplomacy as a priority of the Clinton administration. He outlines the various forces that have shaped the fate of U.S. commercial diplomacy, and offers recommendations for salvaging what remains of a once–formidable initiative.

Christopher Johnstone explores the outwardly successful, but inwardly troubled, commercial diplomacy of Japan. He argues that, although Japan's commercial policies in Asia seem impressive, in fact their effectiveness is curtailed by bureaucratic infighting. These tensions will of course be exacerbated by the 1997–98 financial crisis. And this financial crisis will make exporting to East Asia even more difficult. Given that many fundamental features of the regional economies are solid, both the United States and Japan will be reluctant to lose market share. By examining the history of commercial diplomacy, these papers provide insight into the determination of the U.S. and Japanese governments to maintain their footholds in the Asian marketplace.

While the Clinton administration has largely abandoned its first–term attempts at "semi–managed" trade, the arguments for a measured degree of commercial diplomacy remain strong. Significant barriers to entry still exist in many markets. The recent financial crisis in East Asia—the region targeted by the commercial diplomacy efforts of the United States, Europe, and Japan—will make exporting to that region even more difficult. In a perfect world, commercial diplomacy instruments would not be necessary. These papers underscore the complexities of a foreign economic policy that embraces the long–term goal of global free trade but employs short term measures to ensure equal access for U.S. exporters.