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Beyond Manic Mercantilism
The first years of the post—Cold War era produced a kind of euphoria that security threats were behind us, a new world order was upon us, and the United States could return to the land where "the business of America is business." While this view allowed a greater emphasis on international economics in U.S. foreign policy than was possible during the Cold War, it also produced a period that might be labeled "manic mercantilism." Promoting U.S. exports took on disproportionate importance among international objectives.
But after a brief moment in the sun, "commercial diplomacy" is in trouble. Trade purists say it distorts the market mechanism and impedes free trade. Budget deficit hawks charge that it's corporate welfare and a waste of taxpayer money. Political partisans claim that the Clinton administration used export promotion programs to
strong–arm campaign donors and reward corporate supporters. Finally, during the last several months, economic upheaval in Asia has seriously weakened buying power in export markets that were at the heart of commercial diplomacy efforts and made aggressive export promotion in those markets politically inappropriate, insensitive, and unlikely to be effective.
But criticism and momentary political economic phenomena threaten to lead policymakers to throw out the baby with the bathwater. It is true that a thoughtful, systematic effort to end this sort of government intervention in the marketplace would be sound economics, because any attempt to tilt the commercial playing field is bad policy. But the recent and accelerating decline of commercial diplomacy is not the result of careful policy planning. Like the circumstances that gave birth to it as a policy priority of the Clinton administration, commercial diplomacy is threatened because of extraneous factors, such as politics and personalities.
Nevertheless, commercial diplomacy should be viewed as something considerably more than the manic mercantilism that made it famous. Understanding this larger role starts with recognition that, among the levers at the disposal of the makers of U.S. foreign policy, many are economic or commercial in nature. At the same time, the two other primary levers—political suasion and military force—have undergone substantial change. In the wake of the Cold War, U.S. political influence as "leader of the Free World" has ebbed. American military technology has made the costs of warfare unacceptable except in extreme circumstances. Consequently, the need to inventory, understand, and successfully wield economic carrots and sticks has grown substantially.
This paper explores the circumstances behind the rapid rise and equally sudden decline of commercial diplomacy as a priority of the Clinton administration. It looks at both the publicly stated and concrete economic reasons behind that rise, the special circumstances that gave the effort momentum, the policy principles that shaped the Commerce Department's leadership of the administration's commercial diplomacy programs, and the situations in which Commerce and the administration delivered on their promises and those in which they indulged in fairly typical, generally necessary, exercises in hyping "programs" and "policies." The paper lays out the reasons commercial diplomacy is in trouble, who really benefited from the programs, and the particular importance of commercial diplomacy in Asia and of Asia to U.S. commercial diplomacy efforts. Finally, it discusses what institutional changes are needed to maximize the effectiveness and efficiency of ongoing U.S. commercial diplomacy efforts, what conundrums policymakers will face, and what overarching policies should influence the development of tomorrow's commercial diplomacy. What is Commercial Diplomacy? Origins of the Initiative
Before considering the administration's commercial diplomacy initiative, we offer a word about the origins of the term "commercial diplomacy." It was proposed as an umbrella for the policies undertaken by the Commerce Department prior to one of the late secretary of commerce Ron Brown's international trade missions. The objective of introducing such a term was to place trade missions squarely at the center of U.S. international policy and not at its periphery. The terminology was meant to suggest that in addition to political/diplomatic and military levers, governments had economic/commercial levers that were becoming increasingly important to the pursuit of U.S. national interests around the world. This digression into etymology is meant to emphasize that at the time the term did not have the purely mercantile meaning it has taken on for some since—or the negative connotation ("sellout of values") that it has taken on for some, such as those in the human rights community, in the years since it was introduced.
Lastly, for the record, one of the reasons the term was "commercial" rather than "economic" diplomacy was that the Commerce Department had discovered that whenever the word "commercial" was used in regard to an initiative, "high–policy" agencies such as State, Treasury, or even the Office of the United States Trade Representative wanted to have nothing to do with it, thus allowing Commerce to go about its business unburdened by the usual internecine rivalries.
In the name of commercial diplomacy, the Clinton administration undertook a program in support of U.S. business interests that even its critics acknowledge was unprecedented and often effective. Commercial opportunities worth over $1.5 trillion and perhaps as much as $2 trillion were targeted in the world's emerging markets, with $1 trillion established as a target for U.S. exports in the next several years. Ten particular emerging markets became the focus of a special program designed to reorient U.S. trade promotion efforts to account for the unprecedented growth of the largest emerging markets—markets that would within a decade surpass those of our traditional trading partners as the largest served by U.S. exporters. Over 100 U.S. government—supported trade missions, trade shows, and other events per year were scheduled for China alone. New bilateral consultative bodies were established with South Africa, Brazil, Argentina, India, the Association of Southeast Asian Nations (ASEAN), and Turkey, and existing bodies were expanded with other key emerging markets. Special programs were created to support new trade deals, such as the North American Free Trade Agreement (NAFTA), and other U.S. government initiatives, such as making the information superhighway global. Export controls were often dramatically liberalized and in many cases lifted. New financing programs were born with the specific objective of countering the aggressive efforts of our competitors. Intelligence agencies were
drawn into the commercial fray, providing analysis and other forms of assistance for these efforts. Speeches were delivered. Acronyms were coined. For a couple of years, commercial diplomacy became a policy growth stock in the wonk marketplace.
Targets of Commercial Diplomacy
Commercial diplomacy differs in important ways from other means of influence at the disposal of the United States. Military force has a universal character that enables its deployment against any entity at any time. It can be defended against and counteracted; outcomes are dictated by the resources and wit of the opposing nation. This is not true for economic or political diplomacy. Both require that the United States have demonstrable leverage in an area important to the target country or countries. In the wake of the Cold War, as noted, the scope of U.S. political leverage has diminished. U.S. economic leverage has been similarly diminished, although for different reasons. The rise of the global marketplace has helped and hurt the United States in this respect. As the world's largest market, most would–be global players seek access to U.S. consumers. As the world's richest nation, most would–be global players seek access to U.S. finance. Since many U.S. firms are industry or technology leaders, many counterparts from overseas seek relationships with them. Each of these realities is a source of leverage. On the other hand, the rise of new markets of great size and promise, and the growth of international competitors to U.S. firms in almost every significant sector, has reduced U.S. leverage in substantial ways. In 1946, over 50 percent of the world's trade passed through the United States. Today it is less than 15 percent. Immediately after World War II, if a nation sought the latest consumer products or technology, the United States was often the dominant supplier. That is no longer the case. Furthermore, Pax Americana came with an implicit price tag to nations that accepted the U.S. security umbrella. If a country depended on the United States for security protection, it dealt with the United States on trade and commercial matters. Now the lesser "need" to deal with the United States hurts efforts to fashion international consensus or gain ground in bilateral trade discussions. Nonetheless, virtually every country in the world has reasons for dealing with the United States on a commercial basis or some need for U.S. support to achieve its own commercial goals internationally. Consequently, a wide array of potential targets are available for U.S. commercial diplomacy. Several of these can be listed, but the categories of nations that follow are intended to be illustrative rather than comprehensive:
Trading Partners. With these, the United States has the levers of opening and closing markets, building investment, merger, and joint–venture linkages or dismantling them, exchanging technolo–gies, adopting like standards or not, and so forth.
"Hardball" Competitors. With these countries, the United States can fund countermeasures to their initiatives (e.g., official export credit support) and undertake international initiatives to "level the playing field."
Enemies and Rogues. Against these countries, the United States can institute the most extreme sort of economic and commercial measures, such as sanctions, embargoes, and harsh unilateral and multilateral legal measures.
Victims, the Needy, Special Situations. With these nations, the United States can offer or withhold assistance and investment or promotion activities designed to encourage U.S. companies to enter transitional, post–crisis, and peacekeeping environments. Targets can fall into more than one of these groups simultaneously. However, membership in only one is enough to make the economic diplomacy effective to some degree. Yet the definition of the term, a list of the accomplishments produced in its name, or an overview of its targets does not offer the context needed to fully understand the phenomenon or the substance of this policy boomlet. To fully understand that context, it is necessary to take several steps back and examine how politics set some of the wheels in motion that led to those programs. Specifically, the politics of 1992 helped pave the way for the introduction of many of the policies and programs that are now defined under the umbrella of commercial diplomacy. Subsequently, the success of many of those programs gave them a prominence that placed them squarely in the cross–hairs during the political seasons of 1994 and 1996, when commercial diplomacy began to come under attack.
The Real Economics Behind Commercial Diplomacy
In the Sally Bedell Smith biography of the late U.S. Ambassador to France Pamela Harriman, a pivotal meeting is described in which then Democratic National Committee Chairman Ronald H. Brown announced that the Democratic Party would now target and make itself home to the leaders of the business community. No reason is given for this shift in views by a key operative in the presidential campaigns of Jesse Jackson and Edward Kennedy, candidates not known for their pro–business views. But even modest scrutiny suggests Brown's shift in attitude is as much linked to the fact that corporations represent the single best source of the six–figure soft–money donations on which national political campaigns must depend as it is to any shift in party or personal ideologies. Indeed, thanks to the burgeoning costs of major campaigns and the fact that the only large group that can write the big checks is business, it was inevitable business would become the darling of both political parties and a greater force in politics than at any other time in our recent past. Viewed in terms of its economic policy consequences alone, this is not necessarily a bad thing. The shift of the Democratic Party to centrist, more pro–business views represents at its core pragmatic politics. The Democratic Leadership Council, once led by Governor Bill Clinton, represented a break with the failed Roosevelt–era policies of former Democratic presidential candidates George McGovern and Walter Mondale. This rupture was due both to the failure of their antiquated views and to the inexorable, unignorable aging of the single largest demographic group in the American populace, the baby boomers. As these voters aged, it was inevitable that they would grow more conservative and more concerned with preserving and building their own wealth. (This is as close to a law of nature as can affect politics.) Ronald Reagan capitalized on this trend, and his successes focused the attention of his opponents. Business meanwhile was willing to write checks to both parties, knowing that either would be beholden should it win. The cost of underwriting one sure loser was far outweighed by also underwriting a sure winner. And if the loser was still influential on the Hill or elsewhere, all the better. Later corporations would also discover that for some very logical reasons, Democrats make better advocates for business in several respects. This was later a key to the development and success of the programs and policies that came to be known as "commercial diplomacy." At its core, this Democratic "advantage" was linked to the party's view that government can and should play an activist role in American lives. This in turn led Democrats to eschew the laissez–faire approach of Reagan disciples and naturally assume there is a role for government in the marketplace. In international markets in which the competition often materializes as public–private partnerships with foreign governments offering financing, advocacy, technical assistance, and other forms of less savory arm–twisting, American firms were at a disadvantage unless their government did the same or used equally effective tactics. Of course, the new, symbiotic relationship developing between the political leaders within the administration and the business community went hand–in–hand with the general wisdom that elections are about pocketbooks and the oft–quoted Clinton administration "maxim" that it was "the economy, stupid." Economic growth was an administration priority from the get–go, and there was also a going–in assumption, perhaps related to the relative youth of many of the leaders within the administration, that a key to that growth would be global competitiveness. The important influence of intellectual work by incoming Secretary of Labor Robert Reich, incoming Council of Economic Advisers Chair Laura Tyson, incoming Treasury Undersecretary Larry Summers, incoming Commerce Undersecretary Jeff Garten, and others should not be discounted here. This was probably the first administration in history built around such a core of economic globalists. And they were led by a number of individuals who had important track records of accomplishment or interest in this area as well: National Economic Council (NEC) Chairman Robert Rubin, Treasury Secretary Lloyd Bentsen, and, significantly, Vice President Albert Gore, Jr. While this group did not share every view, the international focus and the focus on economic growth created the atmosphere in which commercial diplomacy could become a major thrust for the administration, for Brown, and for the trade promotion agencies individually and severally.
The Alignment of the Stars
Another reason that the policies that commercial diplomacy comprises gained traction within the Clinton administration had to do with three facts about the organization of the administration. First, during the initial year of the Clinton presidency, there was considerable disorganization, and it was possible to "lob ideas into the center from almost anywhere" (in the words of one very senior official) and "have them stick." There was a void and an earnest desire to fill it. The next key reason was the organization and introduction of the NEC as a central policymaking organ within the White House. This agency was important because it coordinated economic policymakers within the government and because it elevated these issues within the White House. But it was also important to secondary agencies such as Commerce because it gave them "a seat at the table." Furthermore, in addition to Rubin, the deputy at the NEC in charge of international issues, Bowman Cutter, was that rare combination of experienced businessman and government official who was seeking creative ways to stimulate U.S. growth through seizing the opportunities presented by the global marketplace. His support and sponsorship of many of Commerce's ideas and his introduction of many ideas of his own within the policymaking process were absolutely essential to giving these ideas any chance of being more than the invisible output of a second–class agency. The third organizational quirk was a vestigial mandate from Capitol Hill that Commerce chair a committee to coordinate the trade promotion activities of the complex amalgam of 19 agencies of the U.S. government that have trade promotion programs or responsibilities of one sort or another. This committee, the Trade Promotion Coordinating Committee (TPCC), was seen as a unique opportunity to give otherwise secondary issues the importance of a real interagency process. Commerce Secretary Brown saw the group as a chance to preside over an interagency effort that could be meaningful and to provide some of the status he sought for the department, which he needed if he was to play a meaningful role in the administration.
The Foundations of Commercial Diplomacy in the Clinton Administration
The role the Commerce Department played in championing commercial diplomacy during the first Clinton administration had two primary components. Only one was substantive in the practical sense that it led to the actual support of real deals or had a meaningful impact on policy decisions. The other, which was also important given the state of U.S. commercial diplomacy prior to the administration, was promoting the promotion. This effort was critical to the effectiveness of these programs, but it also produced a haze of hype that distorted and obscured some aspects of those same programs. The Export–Import Bank of the United States (Ex–Im Bank), the Overseas Private Investment Corporation (OPIC), the Trade Development Agency (TDA), the Commerce Department, and 14 other agencies have played some trade promotion role for years. They have made important contributions to U.S. economic well–being. But there was no organizing principle bringing these agencies together. There was no sense that their mission was a national priority. There was no vocabulary of commercial diplomacy that resonated with business, policymakers, and the American public. The job for the Commerce Department was to develop the organizing principles that would shape the TPCC mission and then to make the mission a national priority by selling it to the public. The role of Commerce's International Trade Administration (ITA) was key to that effort. ITA kept Commerce focused, keeping it from getting involved in the turf battles that inevitably undermined ITA (and other similarly secondary agencies) in the past. It created a vocabulary with which to sell the core programs. It helped establish priorities for the development of those programs. And it, above all, gave the policies involved intellectual grounding, credibility, and a place within the broader foreign policy frameworks shaping administration policies.With the new administration still developing its foreign policy "vision," ITA's ideas enjoyed disproportionate visibility. This was particularly important given the traditional uphill struggle involved with placing backwater agencies at the center of administration policies. Two policy concepts were central to Commerce's commercial diplomacy initiatives. The first was an emphasis on what were called Big Emerging Markets (BEMs). This program propounded several important ideas. It provided the aforementioned focus—just ten markets would receive the bulk of the attention from the Commerce Department and affiliated agencies. This was essential given the limited resources with which those agencies were working. Furthermore, it shifted attention away from traditional trading partners. This was desirable because, from a policy standpoint, ITA analysis had determined that governmental intervention would be of more value in emerging markets than in mature ones. This is because in emerging markets local governments were still actively involved in major commercial decisions, such as those regarding the large infrastructure projects, that represented the big commercial prizes in those nations. In addition, in these markets the competition facing American businesses was often arrayed in public–private teams in which foreign export financing, aid, and other leverage would be key to winning or losing a deal. By intervening with local governments, by providing programs to counteract those of our competitors, the U.S. government could, from time to time, make a difference in the outcome of some of the big deals in these rapidly growing markets. At the same time, U.S. government intervention was decidedly less meaningful on the commercial front in traditional/developed markets. Staying away from those markets had the added virtue inside the Washington Beltway of reducing the likelihood of internal conflicts with other agencies for whom those markets were more "prized" in terms of their high–policy status for security or diplomatic reasons. Next, focusing on the BEMs was moving into what was both terra incognita for U.S. policymakers and an area that was widely regarded as being of increasing importance. (The United States will export more to these markets by the early years of the next century than to Europe and Japan combined.) Furthermore, as those markets grow in importance, it was also clear that American commercial/economic levers will be especially important in shaping relationships with them. Finally, the BEMs effort enabled the Clinton administration to redefine U.S. relationships with these markets from the outset in terms of mutual interests rather than having those relationships defined by the diplomatic and security impediments that had been the principal concern during the past several decades. The second "pillar" of Commerce's commercial diplomacy efforts was "advocacy." This was the concept of actively marshaling the re–sources of the U.S. government in support of specific U.S. companies in their efforts to win international projects. It entailed coordinating the efforts of multiple agencies on behalf of companies and ultimately involved the establishment of an advocacy center located in the Commerce Department. This center was created to track major deals, collect requests for advocacy from companies, vet those requests to make sure they met advocacy guidelines (that there was U.S. content in any prospective deal, that the U.S. government would not be supporting one U.S. company against another, etc.), make requests of other agencies as part of the advocacy effort, follow through on those advocacy initiatives, get advocacy letters produced, support trade missions by identifying advocacy efforts to be conducted within them, and so forth. These two ideas formed the core around which commercial diplomacy programs were developed. A concerted effort was made to communicate concrete achievements, deals that got signed, and progress that was made in bilateral relationships so that the value of the program in a political sense was advanced. Because the programs in place won the support of the business community, were supportive of jobs, helped bilateral relationships, and so on, they won general support from those questioned by reporters about them and consequently were viewed as successful. Momentum built from deal to deal, trip to trip, and speech to speech, and a sense that Commerce was back on the map developed. Ultimately, this produced support for the agency on Capitol Hill at budget time, when it was really needed, and a greater sense of the importance of such programs within the policy community at large. Unfortunately, it also made the Commerce Department and its secretary a more attractive target for political opponents. In several cases, for example, in the Raytheon Company's efforts to win support for its Amazon surveillance project in Brazil, the advocacy program performed as advertised. It brought together various agencies in a room, worked with them and the company to do what was necessary to win a contract, responded to challenges with creativity and purpose, and ultimately helped win a billion–dollar victory for an American company and the American economy. In a number of other cases, such as Saudi Arabia's purchase of U.S. aircraft and telecom equipment, the Paiton power project in Indonesia, the Exxon–Natuna power project in Indonesia, and others, advocacy sometimes coupled with financing also helped produce results. The total dollar value of deals in which some advocacy was involved has been set at more than $50 billion. While this number is defensible, it is also guilty of the same kind of hype that distinguished, enabled, and burdened these programs. For, much of the time, the U.S. government's efforts in a project were only of limited value to helping swing a deal one way or another (business issues, pricing, quality, etc., were, of course, central). In those cases, the real value was primarily through financing (although sometimes communicating that a project was a priority to the United States helped). And the advocacy effort frankly was never as systematic as it was portrayed to be. In fact, the vast majority of deals tallied in the numbers featured in Commerce press releases were projects not that were associated with systematic efforts to identify important deals or respond to corporate requests, but rather that were linked to Commerce Department trade missions. Many if not most of these came to the attention of Commerce not through the advocacy center but through the outreach efforts of the department's business liaison office, which was seeking CEOs to participate in such missions. The liaison office would find a company that had pending projects in the targeted region, and then the company would hope to get a signing ceremony of some sort done for the mission (and often Commerce, seeking "deliverables," would encourage the company to find such projects).
How High the Hype?
Forms of hype, such as the type described above, can be—and were—useful. But to understand commercial diplomacy and to improve upon it, it is important to note where the hype stops and the reality begins. One element of the hype centers on the role of the Commerce Department. Commerce was seen as the center of our commercial diplomacy efforts. Commerce had the size to employ large numbers of people in policy and program development functions. It had the prominence as a cabinet agency to make its case more forcefully within and outside the government. And it had and used well the role of being the coordinator of all trade promotion efforts through the TPCC. But except to the extent that it motivated change and provided policy leadership and coordination, it alone was unable to play a meaningful role in winning the deals that were won. As most business leaders will assert, American trade finance agencies were perhaps even more important in this regard because financing is really the primary make–or–break component of a deal in which governments can play a meaningful role. Consequently, Ex–Im Bank, OPIC, and the Trade Development Agency were where "the rubber really met the road" in U.S. international commercial efforts. Moreover, Commerce had very little in the way of budget resources. Of ITA's $165 million of annual budget, the vast majority (in the neighborhood of 90 percent) went to salaries and fixed costs. There was virtually no program money save for a few grant programs that had been put in place by certain senators and representatives to offer support within industry sectors of special importance to them. What is more, ITA covered the costs of most Commerce trade missions because the budget of the office of the secretary was so small and shrinking with each new congressional onslaught on the federal deficit. Given the preceding realities, ITA specifically and Commerce in general could not introduce new programs with any reasonable expectation they would be funded. So the agency had to be about people, ideas, information, and legwork of staff that was already in place—notably, overseas commercial officers who were the infantry of the advocacy effort, on the ground, in country. When money was needed, it had to be some other agency's money that Commerce would "spend" or suggest be spent. In other words, it took real teamwork among a wide variety of separate governmental agencies to produce an effective commercial diplomacy effort—something that was often not so easy to achieve.
Non–Export Promotion Aspects of Commercial Diplomacy
But export promotion is only one, fairly limited aspect of commercial diplomacy. International advocacy of U.S. interests using commercial and economic tools includes a range of other activities. While a brief paper cannot hope to cover all non–export promotion aspects of commercial diplomacy, it is possible to convey the breadth of options by highlighting techniques used in the recent past, which are currently being used or that are foreseeable in the near future. It is important to reemphasize the broad nature of the term "commercial diplomacy," defined to cover any action whereby the United States advances its interests internationally by expanding or reducing commercial interaction with another country or entity. The brief descriptions that follow touch upon the carrots and sticks currently available to U.S. policymakers. Wherever possible, specific examples of these techniques are offered.
Carrots
The carrots the United States can offer to induce another entity to act in a manner supportive of U.S. international interests include the following:
1. Granting or Improving Access to U.S. Markets. Providing greater access to the world's most attractive market is certainly a powerful diplomatic tool. The China most–favored–nation (MFN) debate is one example that illustrates how that access can be wielded in the broader context of U.S. foreign policy. The annual congressional debate over MFN has been an opportunity for the United States to send signals to China—although they have often been ignored—about U.S. concerns over China's human rights record, its foreign sales of arms, and so forth. Similarly, working with South Africa to restore post–apartheid trading privileges and ratifying the General Agreement on Trade and Tariffs (GATT) and NAFTA pacts exemplify how these tools have been used in a wide–ranging fashion. NAFTA, for example, was a means of bolstering the Mexican economy to help solidify economic and political reform in a country along the U.S. southern border. Other carrots can be quite industry–specific, such as offering landing slots at U.S. airports or negotiating zero tariffs on information technology goods.
2. Financing Trade and Investment. While many of our trade and investment finance programs are viewed domestically in terms of boosting U.S. exports, these programs are also a boon to foreign governments. Ex–Im Bank loans enable foreign buyers to purchase U.S. products at competitive interest rates. Moreover, the "tied–aid war chest" enables the United States to match concessionary financing offered by other governments, thus helping emerging nations to undertake major projects on very favorable terms. The war chest also provides leverage vis–...–vis other providers of concessionary financing, encouraging them to take below–market loans off the table. Because it is difficult for foreign governments—particularly those in the key emerging markets—to finance major projects with public funds, the project finance programs of both Ex–Im Bank and OPIC are extremely important. OPIC's political risk insurance programs remove impediments to U.S. investment in many emerging countries. The feasibility study programs of the Trade Development Authority are also much sought after by foreign governments in the planning stage of large projects. Although commercial diplomacy was not foremost in the mind of Congress when it authorized (and reauthorized) these programs, the leverage they offer U.S. foreign policymakers should not be underestimated. The introduction of one or more of these programs into such places as South Africa, Haiti, the Middle East, Bosnia, or Russia suggests various ways they can be used in conjunction with broader foreign policy initiatives. The debate about whether or not to extend such programs to places such as China or Vietnam illustrates their appeal as carrots in normalizing relations and coaxing those nations into the global economic system.
3. Transferring U.S. Technology. One thing that distinguishes U.S. companies from their foreign counterparts is a comparative willingness to share technology with partners in other markets. This is repeatedly cited as a reason American firms are sought after in deals around the world. It is also linked to a host of other U.S. corporate "best practices" that make doing business with U.S. firms an effective tool for communicating U.S. values and ideals. Programs such as Commerce Department trade missions and fairs effectively illustrate this fact. But it would be possible to be more aggressive on this front. One way is to eliminate barriers to the sale or transfer of U.S. technologies that pose no threat to our national security. Information technologies offer a variety of excellent examples as to how the United States can ease export barriers, enable technology transfer, and win favor abroad. By reforming export control standards that restrain U.S. companies from selling more powerful computers abroad, by revising limitations on encryption technologies, and by releasing individual satellites from export restrictions, the Clinton administration strengthened relations with nations around the world, notably China. The Global Information Infrastructure (GII) initiative likewise promotes U.S. industries in which technology transfers are especially important and attractive.
4. Providing Technical Assistance. The U.S.–Asia Environmental Partnership and the GII also offer examples of U.S. government programs that help countries develop specific industries through technical assistance from government and industry specialists. These technical assistance programs are often much sought after and take many forms. The National Oceanographic and Atmospheric Administration works with Bangladesh to help create early–warning systems for typhoons and flooding, and with Chile to help chart the hole in the ozone layer in the Southern Hemisphere. NASA works cooperatively with a number of foreign space agencies on satellite programs and played a helpful role in winning Brazilian support for the Raytheon Amazon surveillance project noted earlier. The Department of Transportation has a variety of programs that help foreign counterparts, as do the Department of Agriculture, the Department of Energy, and virtually every other U.S. government agency. In addition, through Department of Treasury leadership at the world's development banks, the United States plays a leadership role in funding technical assistance programs. Finally, bilateral and multilateral forums stimulate the creation of public–private technical assistance programs ranging from the Asian–Pacific Economic Cooperation's (APEC's) GII initiative to the sectoral working groups that are part of the Trans–Atlantic Business Dialogue (TABD).
5. Bilateral and Multilateral Cooperation and Institution–Building. Indeed, forums such as the TABD can effectively identify areas of cooperation in bilateral relationships that might otherwise be strained. The TABD, for example, has undertaken a project to harmonize U.S. and European Union (EU) standards in key industries (such as autos). Getting businesses to agree first on terms that are mutually acceptable not only creates goodwill, it effectively makes government–to–government negotiations a "rubber stamp" in which neither side can hide behind the reservations of domestic industry. Similarly, bilateral commercial committees such as the U.S.–China Joint Committee on Commerce and Trade; the U.S.–India Commercial Alliance; the various business development councils that have been established with South Africa, Argentina, Brazil, and Turkey; the bilateral commissions chaired by Vice President Gore, together with Russian Prime Minister Chernomyrdin, Egyptian President Mubarak, South African Deputy President Mbeki, and others create regular opportunities to identify and advance mutual interests. These committees and commissions institutionalize contact not only between the United States and key governments but also between leaders of business communities, and they enable the resolution of a wide range of divisive issues. A strong example of how a multilateral initiative has produced goodwill and tangible progress is the Hemispheric Trade and Commerce Forum, launched in conjunction with the series of Trade Ministerials initiated as part of the process leading to the Free Trade Area of the Americas (FTAA). These meetings have attracted literally thousands of business leaders to discuss specifically how they can advise and accelerate the process of hemispheric integration.
6. Creating the Sinews of International Markets: Deals Rather Than Treaties. This last point is significant enough to be discussed under a separate heading. More important to hemispheric integration than government–to–government trade agreements are business–to–business deals. Deals, not treaties, are what bind countries together, link companies, create capital flows, and enable infrastructure. Telecom and transportation projects rather than communiques are turning individual nations into regional markets. Initiatives like the Hemispheric Trade and Commerce Forum, the business adjuncts to APEC and the TABD, are most important when they promote real business. It can be fairly said that highly publicized signings on Commerce Department trade missions are part of the hype, and that U.S. export advocacy programs have a mercantilistic goal. But it also cannot be denied that real business linkages between U.S. and foreign partners overseas tangibly and meaningfully affect U.S. relations with those countries, their views of America, the degree of commonality, and in all likelihood the prospects for future such deals. In short, deals tie the world together, and the U.S. government can do many things to encourage that process while leaving the business to business leaders.
7. Promoting and "Endorsing" Markets. When the U.S. secretary of commerce leads a planeload of businessmen and businesswomen to a foreign destination, he or she increases attention on that destination and lends an imprimatur that the country is important to U.S. leaders. When the U.S. government undertakes a special initiative such as the Big Emerging Markets Program or smaller programs such as "Export Mexico" or "Destination ASEAN," it does the same thing. Indeed, more than one foreign government approached the United States after the creation of the Big Emerging Markets initiative with carefully prepared presentations, arguing that they too should be cited as BEMs. More than one of the BEMs used this status in its own promotion efforts. Noteworthy was the massive program by Poland featuring videos, posters, flyers, brochures, and other materials built around the theme that Poland was a BEM in the eyes of the U.S. government.
8. Developing Commercial Institutions. Many emerging nations are currently in the process of developing the institutions they need to compete effectively in the global environment. These include the development of an effective, transparent, fair system of commercial law, a functioning, effective system of taxation, and appropriate regulatory regimes for the environment, worker safety, product safety standards, and customs enforcement. In each of these areas, the recognized leadership of the United States has led to public, private, and public–private assistance efforts to help the foreign governments create the desired institutions. Examples include the U.S. Department of Commerce's Agency for International Development (AID)–funded Commercial Law program, which instituted projects from eastern Europe to China to help establish commercial codes, and customs harmonization and information exchange initiatives conducted by the Customs Service under the broader ambit of the FTAA process.
9. Economic Peacekeeping and Other Special Interventions. In special situations, commercial diplomacy is linked even more directly to traditional foreign policy initiatives. When a crisis occurs, and the president finds it is in the U.S. interest to intervene, he also increasingly finds that U.S. options are constrained. There is little political appetite for overseas military entanglements, and when these do take place, the objective is to get U.S. troops in and out as quickly as possible. This means that when America intervenes, the military goals are precise and the duration of military involvement is brief. Meanwhile, the political leverage that accrued to the United States as the leader of one Cold War camp has eroded. Hence, other stabilizing forces must be found. Principal among these are economic forces, especially the prospect of jobs and prosperity that can persuade a nation that a new peace or a new political order is in its interest. As aid budgets shrink, it becomes increasingly difficult to achieve an atmosphere of progress simply by writing a check. Consequently, the United States has repeatedly found itself turning to the techniques of commercial diplomacy, such as offering OPIC insurance against political risk to attract new investment, sending Commerce trade missions into affected regions, and creating special financing or information programs to draw the private sector into these regions. Washington has done this with varying degrees of success in high–priority situations such as Bosnia, the Middle East, Haiti, South Africa, Northern Ireland, Russia, and the Commonwealth of Independent States. The United States will almost certainly be called upon to do the same in the wake of a collapse of North Korea (and Korean reunification) and following the demise of the Castro regime in Cuba. While the private sector will not invest or trade simply to support U.S. government objectives or for humanitarian reasons, it will do so if special business opportunities are created and the attendant risks have been ameliorated.
Sticks
The United States can also wield several economic sticks to induce another nation or nonstate actor to support U.S. objectives. Many of the commercial diplomacy sticks at the disposal of policymakers are simply the converse of the carrots cited above.
1. Imposing Sanctions, Introducing Embargoes, Withdrawing Privileges. The severest actions available include embargoes and a wide range of sanctions of varying consequence to the nation or parties targeted. Sanctions can include the withdrawal of privileges previously granted, such as most–favored–nation trading status, benefits under the Generalized System of Preferences, and the like. Recent examples of these techniques abound, from the embargoes of South Africa, Iraq, and Haiti, to the sanctions imposed under the Helms–Burton law, to the sanctions included in the drug decertification of Colombia, to the tug–of–war over MFN status for China. Threats of these actions are also used regularly with varying degrees of success. (For example, threatened sanctions are linked to the violation of nonproliferation agreements.) How–ever, given the changed status of the United States in the post—Cold War era, unilateral sanctions are increasingly ineffective. They can actually backfire, isolating the United States, hurting its economic interests, and diminishing its influence on the targeted party.
2. Aggressively Enforcing Trade Laws and Laws with Economic Consequences. While all laws are to be enforced, it goes without saying that there are degrees of intensity with which enforcement takes place. The United States has the option of overlooking or downplaying transshipment violations involving military or dual–use products, other export control violations, or inadequate cooperation in the war on drugs. Indeed, the United States has done so in each area. For example, it is widely believed that the U.S. government possesses evidence of Category One violations of the missile control regulatory regime on the part of the Chinese government with respect to the transfer of missiles to Pakistan. However, the United States has repeatedly found reasons for avoiding enforcement action, because the sanctions entailed could actually be more costly than withdrawal of China's MFN status. Similarly, the United States may, from time to time, look the other way with regard to Mexico's problems with the drug trade while decertifying Colombia for similar infractions. The list of discretionary calls is long, and it covers almost every area of trade law and many regulatory spheres. Of course, the option to enforce stringently is also there, as the Colombians and others will attest. Consequently, such laws are double–edged swords, making them especially useful tools for U.S. policy officials.
3. Withdrawing Finance and Investment Programs. In the same vein, where the United States has the option to offer finance and investment programs, it also has the option of withdrawing them. The most famous recent example was the post–Tiananmen sanctions, which precluded OPIC and TDA from operating in China.
4. Withdrawing or Withholding Promotion or Other Programs. Promotion programs can be similarly withheld or curtailed. Under the BEMs initiative, the Commerce Department will participate in or sanction over 100 trade missions to China. Should these missions cease, there would be a strong message sent to China, with some economic consequence. In the same vein, while the BEMs program targets ASEAN, Vietnam has received measured support, and Myanmar will likely receive none for a long time to come. Although withholding such programs is often only a symbolic act, sometimes such symbols can be useful. Finally, countries can be excluded from multilateral trade initiatives where they might otherwise play a role—the exclusion of Cuba from the FTAA process is notable here.
5. Competing Aggressively. An unintended consequence of the "manic mercantilism" style of commercial diplomacy is that aggressive support of U.S. business alienates many U.S. allies who also happen to be strong competitors. Sometimes, this can be avoided because other elements of the relationships take precedence over commercial interests. At other times, however, other nations know that they are pursuing unduly aggressive actions on behalf of their companies. In these circumstances, the United States can always play the "800–pound–gorilla" card. As the world's largest and richest market, the United States can simply raise the ante until the others pay attention. The Ex–Im Bank's "tied–aid war chest" is one example of this approach, although modest. Aggressive Commerce Department advocacy of U.S. business, and the creation of a visible "war room," is another.
6. Aggressively Targeting Sensitive Foreign Competitive Practices. A natural extension of the approaches already discussed is to identify practices that are both undesirable and potentially embarrassing to foreign governments, and to systematically expose them as a way of stopping them. U.S. initiatives to curtail foreign bribery and corruption, and U.S. efforts to counteract tied aid prohibited by the Organization for Economic Cooperation and Development (OECD), both fall in this category. Carrying these initiatives forward multilaterally—through the OECD, the Organization of American States (OAS), the World Bank, APEC, and other such forums—offers an additional channel. Bilateral initiatives, in which the threat of exposure can be more powerful than exposure itself, offer another source of potential leverage.
7. Undertaking Intelligence and Counterintelligence Initiatives. The most sensitive of all areas falls in the domain of intelligence. Meeting the threat posed by foreign intelligence services, countering it, and even, from time to time, exposing it can be very powerful. It can also be very dangerous, given the nature and scope of our own activities.
8. Linking Commercial and Noncommercial Issues—Imposing Conditionality. While there has been some reaction, especially in the business community, against linkage between commerce and other foreign policy objectives—such as advancement of human rights—it must be acknowledged that not all such linkages are wrong. Indeed, using commercial leverage to achieve noncommercial gains is desirable when it is effective at reasonable costs. Furthermore, it is naive to think that such linkages can or should always be avoided. Rather, conditionality should be avoided when it is likely to be ineffective, be very costly, or have unintended consequences that outweigh the gains that might be achieved.
9. Initiating and Orchestrating Bilateral and Multilateral Opposition. As the world's leading economy and the sole remaining superpower, the United States still has more leverage in international disputes than any other country—even if it is less than before. Therefore, the United States always has the option of undertaking initiatives in multilateral forums, or in bilateral contexts with the implicit support of a group of allies that can pressure specified targets. This is completely in keeping with the long–practiced international gamesmanship of diplomacy. It is noted here only to acknowledge that such tactics have been effective commercially whether they pertained to the adoption of international health and safety standards, allowing China to enter the World Trade Organization (WTO), or forcing change in European positions on agriculture during the Uruguay Round.
The Decline?
The beginning of the decline of concerted American efforts to promote exports can be marked by the death of Commerce Secretary Ron Brown—the architect, advocate, and champion of modern U.S. commercial diplomacy. Brown's demise and the subsequent departure of key aides robbed the effort of its defenders just as criticism of the endeavor began to take shape. Allegations that Commerce Deputy Assistant Secretary John Huang used his position to raise funds for Democratic campaign coffers gave substance to growing questions about ever closer ties between a Commerce Department led by a former head of the Democratic Party and the business community. This political vulnerability gave congressional budget cutters the opening they needed to renew attacks on the Commerce budget and to cloak their charges with the rubric of rooting out corporate welfare. To the extent that Commerce and the finance agencies are diminished through such political infighting, to the extent that the people in key positions are not or cannot be effective advocates or promoters of U.S. business interests abroad, to the extent that it is politically dangerous for Commerce to lead missions or for business people to go on them, then one of the pillars of commercial diplomacy as it has been recently practiced—advocacy—will be seriously compromised. At the same time, the other pillar of the past four years, the BEMs initiative, is also crumbling. This is due in part to the inevitable turnover at the policymaking level in Commerce and other agencies and the desire of new leadership to make their name in a way that differentiates them from their predecessors. It is also due to the fact (noted earlier) that for a variety of reasons certain key big emerging markets such as Indonesia, Korea, China, and Mexico have become even more economically vulnerable and/or politically sensitive. Finally, the failure of those of us who were the architects of the Big Emerging Markets policy to effectively institutionalize it and of other agencies to embrace it in a more meaningful way has resulted in its inexorable waning. In addition, it should be noted that one of Commerce's great advantages within interagency and intra–Washington battles was that it was one of the few agencies with a constituency: the business community. An earlier section of this paper briefly discussed why the business community was targeted and cultivated. It should also be noted that changes in the wind could change the Commerce–business relationship substantially. Already the controversy surrounding soft money, former Commerce official Huang, Commerce missions, and the like have made it more difficult to attract business leaders to participate in those missions that do take place. Furthermore, as the congressional investigations of these episodes take their course, this situation will deteriorate further, and many of the commercial diplomacy programs of special importance during the last term also will be negatively impacted. (Who will be willing to undertake the next special commercial diplomacy initiative with regard to Indonesia?) It is also interesting to speculate as to the consequences should campaign finance reform actually restrict the donations of soft money (which it clearly should do to prevent the further perversion of the U.S. political system). Will the influence of the business community on public policy then diminish, perhaps significantly in relation to those traditional grassroots organizations (such as labor) that can more credibly argue that they can deliver votes? That said, it is unlikely Commerce will recede to the role played in past administrations, because the benefits that can accrue from effective commercial diplomacy have been demonstrated. As a consequence, something in the middle should be anticipated where Commerce plays an important coordinating role and the Commerce secretary remains the principal cabinet–level advocate for business, one whose practical success will depend in large part on the cooperation and support he or she gets from the key trade finance agencies, should they themselves survive the reauthorization battles they will face during the next several years.
Benefits and Battles
There has been much discussion by the critics of the administration's policies that they really benefited only a handful of big businesses. The administration often responded that 85 percent of those who frequent commercial service offices in the United States are from small businesses or cited the several small businesses that benefited from the most recent trade missions. While both of these responses are true, they are also inadequate. First, although 85 percent of the visitors to commercial service offices in the United States are from small businesses, the majority who visit commercial service offices overseas are from big business. Next, though a handful of small businesses have signed deals on trade missions, the big benefit from these exercises in commercial diplomacy have been the small businesses that were suppliers to big businesses. An example are the 1,700 U.S. auto supply companies that manufacture the parts used in Big 3 vehicles and stand to sell more of their products when auto exports increase. Another are the thousands of suppliers whose work goes into each Boeing aircraft that is sold thanks to a trade mission. Because the real benefits the government can offer to business are in the area of financing and traditional export financing is primarily targeted at big businesses, big businesses are the ones current U.S. government programs can really help the most. They also generate the biggest projects/headlines. The fact that they feed into huge families of small businesses should be acknowledged and accepted even as efforts are made to do more for small businesses directly. This could be done by reinvigorating the Small Business Administration's (SBA) Small Business Export Finance program, which currently suffers not from a lack of available capital (quite the contrary) but from a lack of trained headquarters and field staff to market the program to qualified would–be borrowers (who need it because their local banks have gone out of the trade finance business). This program also has not been helped by internecine battles in which Ex–Im Bank—whose own such program, the Commercial Service, could actually provide the field staff the program needs—and SBA frequently slug it out at the local level in pursuit of clients. As suggested here, these interagency battles are a real problem despite the cheery rhetoric about coordination. The trade finance agencies clearly resented the attention being given to Commerce for wins that they made happen. They did not like having their leaders go to TPCC core group meetings chaired by a Commerce undersecretary. They did not like the idea of focusing on BEMs not of their choosing. Indeed, they often set different priorities. They each had their own lists for reasons of preference (Russia) and statutory limits placed on their operations (China, Vietnam, etc.). They did not work together in any meaningful way when called upon as a group to help stimulate private–sector participation in the reconstruction of Haiti, the Middle East, or Bosnia. This discord results in part because these agencies have different stated missions and different political constituencies on Capitol Hill. It is also due to their differing reads on what was important to the administration and what would fly with political godfathers each of the agency leaders would have. Conflicts went further. Beyond the obvious contradiction between Commerce's having established China as the most important of the BEMs and OPIC's and TDA's being prohibited from doing business there, there were even conflicts on policies toward individual projects within China. While the National Security Council and a supposedly independent Ex–Im Bank took the stand that it was not in the administration's interest to finance American participation in the Three Gorges dam project, Commerce Secretary Brown publicly took an opposing view. OPIC withdrew coverage for a project in Irian Jaya on environmental grounds in a move that many in Commerce and the business community felt was in conflict with the emphasis being placed on building commercial ties with Indonesia and set a precedent that would put the United States at a disadvantage with companies of competitor nations. Old hands might argue that at least these agencies were talking to each other regularly. But sometimes the conversations were not terribly civil. These tensions were colorfully illustrated when during a TPCC meeting called in January 1996 to repair the damage caused to the institution by internal tensions, Secretary Brown went around the room asking agency heads their views. Most were constructive, if somewhat tense. Ruth Harkin, then president of OPIC, however, said simply, "The TPCC sucks." While something of an overstatement, her view had its adherents and should be taken as a symptom of the failings of the current structure of the U.S. trade promotion apparatus.
The Merits of Consolidation . . . Beginning with Common Sense
It is absurd to have 19 different agencies working separately with limited budgets on what should be common goals. Coordination is fine, but it should also be seen as a halfway measure. For the sake of policy, effectiveness, and efficiency, all these arms of the government should be part of a single trade agency, as they are in virtually every other country in the world. It matters little whether you call this agency the Department of Trade or the Department of Commerce. What matters is that there is a cabinet secretary leading it and that it contains all trade functions coordinated by a policy formation operation at the top. A Department of Trade should include the United States Trade Representative's (USTR's) Office. Many argue that USTR operates well at its small size and with its independence, and that this should not be trifled with. First of all, USTR's small size should be a model for all other agencies and emulated in the Department of Trade. Second, there is no reason to assume that an agency operates more independently while located within the White House or focusing just on negotiations than it would were it located outside the White House and focusing on a wider range of trade–related questions. But another question must also be posed in response to these critics of possible consolidation of the trade functions: ". . . and independent of what?" Business interests? Labor interests? Political interests? Aren't all agencies of the U.S. government supposed to be serving U.S. interests? This is in fact the main reason that USTR should be part of this consolidated agency. It handles a functional area of trade policy implementation. It does not have sufficient analytical or research staff to serve basic policy development functions. The history of the agency also demonstrates that individuals who are primarily negotiators often confuse strategy and tactics, looking to negotiating gains rather than the full range of U.S. policy interests in our relations with any country or sector in particular. A well–conceived, consolidated agency should therefore have reporting to its secretary a policymaking apparatus that can set the agenda for the separate trade–negotiating, trade–promotion, trade–financing, and trade–enforcement (Bureau of Export Administration, Import Administration) units that would report to it. All the trade carrots and sticks of the U.S. government should be housed in the same institution, and their use should be coordinated as part of an overarching, strategic, balanced trade policy. How big should such an agency be? Not too big. ITA has 2,400 people and could probably easily operate with half that. The trade finance agencies have around 680 and could lose 150. USTR is 170. The final agency could be smaller than ITA is currently and dramatically more effective as internecine rivalries are stamped out, real coordination introduced, and budget dollars maximized (with more money going to programs than to salaries). Will this happen in our lifetimes? "Don't bet on it," say "old Washington hands" who have seen these ideas being batted around for years, notably back to the proposals of Senator William Roth (R—Del) in the early 1980s. But that doesn't undercut the fact that it is the right thing to do or that every once in a while the bureaucratic system is actually capable of doing the right thing. What will certainly happen is that budget cutters who have targeted OPIC and to a lesser degree Ex–Im Bank will continue to make their runs at these agencies, reducing budgets and, when grudgingly approving them, keeping authorization periods as short as possible. Their argument will be fueled by attacks on "corporate welfare." These attacks are grounded in the false logic that businesses are taking unfair advantage of the U.S. government and gaining an unfair advantage overseas, rather than in the reality that these programs only level the playing field and that without them many American workers would be prime candidates to experience a different type of welfare program. However, Rep. John Kasich (R—Ohio) has come close to nailing OPIC several times. Another run at OPIC is likely before the next presidential election. This, in turn, could produce renewed thought about consolidation of all the trade finance agencies (Ex–Im Bank, OPIC, and TDA) into one U.S. Trade and Investment Bank and might be a sensible interim step in the direction of the single, unified Trade Department the country deserves.
What About Commercial Diplomacy in Asia?
The discussion above focuses broadly on questions of commercial diplomacy. Given the origins of this paper within a Council on Foreign Relations study group focusing on "Commercial Diplomacy in Asia," commercial diplomacy, however defined and practiced, owes its development as much to the rise of Asia's emerging economies as it does to any other factor touched on above. When the list of Big Emerging Markets on which Commerce focused was developed, the biggest and most important were certainly in Asia. China led the list whether approached simply as the People's Republic or also incorporating Taiwan and Hong Kong, as in the Commerce Department's concept of the Chinese Economic Area. Next in sheer size came India; these two countries made up 40 percent of the world's population. However, in terms of near– to medium–term economic potential, the third Asian BEM, originally Indonesia and ultimately the aggregated market of the countries of ASEAN (Indonesia, Thailand, Malaysia, Singapore, the Philippines, and Vietnam at the time ASEAN was named to the list), seemed to the architects of the plan to represent what might be the greater of the prizes within the region. ASEAN is home to 500 million people and was projected to spend $1 trillion on infrastructure investment in the next ten years (as opposed to just over $500 billion in the Chinese Economic Area and perhaps $150 billion to $200 billion in India). South Korea was the fourth Asian BEM and the one that already ranks among America's top trading partners. The rapid rise of these markets during the decades preceding the BEMs effort, the size of the likely investment in infrastructure their growth will demand, U.S. leadership in key infrastructure industries (such as telecommunications, aerospace, automotive industries, construction and engineering, and power generation), and the fact that growth in these markets seemed likely to continue unabated all argued that it was time the United States devoted more attention to these countries. Of course, during times of crisis, China has always held our attention, as have South Korea, Southeast Asia, and the South Asian subcontinent. But now these were markets that demanded that the United States develop positive relationships if it was to maintain its economic leadership. At the same time, the need these emerging markets had for the U.S. marketplace gave the United States special leverage in helping to solve some of the problems that separate or have the potential of separating America from these prospective trading partners. Furthermore, in each of these markets, because major infrastructure projects were on the agenda and because local governments were—as noted earlier—going to be the principal decision makers about these projects, U.S. government advocacy could be especially decisive. In addition, these markets were being heavily and systematically targeted by our main commercial competitors: the EU and Japan. As the Clinton administration began its first term, these competitors were pulling out all the stops: leading major commercial missions to the region; offering long–term financing at concessionary rates on the major infrastructure projects; and offering rich aid packages, technical assistance programs, political incentives, and other inducements. The much–publicized trade missions to the region by German Chancellor Helmut Kohl and British Prime Minister John Major are just the most prominent examples of the high–visibility tactics employed. However, other highly effective maneuvers were less visible. On the financing side, Japan implicitly tied aid programs. Tokyo until recently has had an aid budget that is comparable to that of the World Bank, and it has been estimated that while all that aid is supposedly "untied" (with no restrictions on its use) and within OECD guidelines, fully 70 percent of it ends up back in the hands of Japanese contractors and companies. Is this a coincidence? Furthermore, the sheer amounts of aid offered are bound to be persuasive. Japan provides over $2 billion per year in aid to Indonesia. The United States offers less than $90 million. In addition, a Commerce study of foreign competitive practices in Asia showed a willingness on the part of foreign governments to explicitly link aid to promises of market share in many Asian markets. Also, many Japanese companies were gaining an advantage over U.S. firms because of Tokyo's relatively lax views toward bribery and other business practices. Consequently, when U.S. businesses spoke about an uneven playing field, they were talking above all else about Asia. The BEMs program targeted these major markets for scores of trade missions every year, including regular high–level missions. There were special education programs for U.S. businesspeople about these markets (domestic seminars, the Destination ASEAN program, etc.), the establishment of U.S. commercial centers (in Jakarta and Shanghai), and the establishment or expansion of bilateral government–to–government entities designed to institutionalize dialogue (the U.S.–China Joint Commission for Commerce and Trade, the U.S.–India Commercial Alliance, a similar ASEAN group). And there were more aggressive efforts on the part of our trade finance agencies in each of these countries in which they were permitted to operate and a greater focus of those finance agencies on products, such as project finance, which were especially important in the Asian/emerging markets environment. Ex–Im Bank went to great lengths in China to actually train Chinese officials in making their programs more acceptable to project finance. Furthermore, after having been badly burned in a first effort to match foreign "tied" aid (when the U.S. matching bid on the Shanghai Metro project was offered the day the project was awarded to the Germans), the Ex–Im Bank tied–aid war chest was tapped a number of times to effectively counter foreign offers of concessionary financing. Advocacy efforts also targeted these markets from Washington through on–the–ground advocacy of local embassies and commercial missions. Very effective ambassadors such as Stapleton Roy in China, Frank Wisner in India, Bob Barry (and later Stapleton Roy) in Indonesia, and John Wolf in Malaysia were particularly aggressive. Indeed, wherever ambassadors actively made the support of U.S. business a top priority, brought their commercial and economic teams more closely together, showed a particular willingness to work with the advocacy support of Commerce and the other TPCC agencies, and promoted a real open–door policy at their embassies welcoming in U.S. businesses rather than hiding behind layers of marine guards and embassy walls, they made perhaps the decisive difference among all U.S. advocacy efforts. In addition, commercial issues were closely linked to a broad range of our other policy concerns with these countries. The linkage between MFN renewal for China and human rights in that country was perhaps the most prominent among these. But there were many others, including the continuing consequences of Tiananmen sanctions prohibiting OPIC and TDA operation in China; environmental opposition to the Three Gorges dam; the desire to continue to promote "marketization" and general reform within China; human rights, labor rights, and environmental concerns in Indonesia and other ASEAN nations; promoting reform and battling resurgent economic nationalism in India; combating proliferation of weapons of mass destruction while promoting U.S. technological advantages in key industries; addressing the planned development of North Korean nuclear capacity; restarting relations with Vietnam; attempting to isolate Myanmar; attempting to maintain a strong, stabilizing U.S. presence in Asia even as Washington withdrew military forces from the region; balancing relations and interests between China and Taiwan, and between China and Hong Kong; promoting the viability of the one country, two systems approach in the wake of Hong Kong's return to China; and so on. In each of these areas, the broader concept of commercial diplomacy as articulated earlier could have, should have, and often did come into play. Sometimes it was very conscious and planned. Sometimes the connections were realized after the fact or not taken full advantage of. But nowhere does the need to add commercial levers to those in the political/diplomatic and military areas present itself more clearly than in Asia. President Clinton recognized the importance of these issues in his historic decision to make his first foreign trip to Asia, to offer to host the first APEC leaders meeting in Seattle, in his decision to attend the next such meeting in Indonesia, in the administration's unstinting efforts to find a strategic framework for the U.S.–China relationship, and to achieve a proper balance within that relationship. (One key to successful commercial diplomacy is not to fall victim to the hype that has economics displacing security concerns at the center of our foreign policy. In the post—Cold War era, economics has ascended in importance, but it will never supplant the central concern—America's basic security—nor should it supplant or in any way undermine those requirements of leadership that ensure that security.) Of course, the recent economic crisis in Asia has thrown into turmoil many of the assumptions that led to these policies. It now seems likely that a number of the Asian markets that the BEMs program targeted will face several years of recession or worse before growth resumes. While the long–term potential of these markets remains unchanged, the implications of the Asian economic crisis for U.S. commercial diplomacy in the next several years are several:
Conundrums
As with any area of foreign policy, the practice of commercial diplomacy presents a wide array of challenges beyond devising, coordinating, and executing the policy—although those are often difficult tasks, given the number of concerned agencies within the U.S. government. Several of the most thorny additional challenges are briefly highlighted here, to fairly present the complexity of the matter.
Unilateral Action, Extraterritoriality, and Other Slippery Slopes
Hidden beneath the surface of the array of policy choices are conditions and techniques affecting the implementation of those choices in fundamental ways. When seeking to penalize another nation, the changed nature of the world market must be taken into consideration. The United States is no longer the sole or dominant supplier of many products and services. The United States no longer leads a bloc of nations that follow wherever its policies may go. Consequently, unilateral U.S. action is often much less effective than it might once have been. This does not mean that unilateral action should never be taken. Sometimes, even when no one follows, leaders must lead. Business firms may argue that, in these circumstances, the United States is sacrificing markets to others who are less scrupulous—a frequent complaint about U.S. sanctions against rogue states such as Libya, Iran, and Iraq. But principle and morality play an important role in maintaining global leadership, and the world's largest economy can still make life less comfortable for its adversaries. Nonetheless, the United States must understand the changed circumstances and restrain its actions accordingly. There is also no use in engaging in inflated expectations of the likely consequences of unilateral sanctions. These should be applied sparingly and only when benefits are likely to accrue. At the same time, the United States must recognize that, in the new environment for commercial diplomacy, just as in traditional diplomatic and military matters, a premium is placed on successful multilateral initiatives. If the United States could motivate all its G–8 partners to act together in threatening commercial sanctions for human rights violations, it would make progress rather than shooting itself in the foot. The same holds true for nuclear nonproliferation, labor rights, the environment, corruption, and other areas in which the temptation to link commercial and noncommercial issues is greatest. The United States is not very good at building multilateral coalitions. It is accustomed to the privileges of being the biggest kid on the block. But the coalition skills practiced on Capitol Hill from time to time must now be brought to international forums. A corollary is the importance of multinational institutions. The United States will not be an effective multilateral leader if it supports institutions only when they suit it. Empowering these institutions—whether they be commercial organizations such as the WTO or security forums such as parts of the United Nations—requires a willingness to cede some degree of sovereignty. This investment of political capital is even more important than the investment of financial capital (which is also treated arbitrarily). The transfer of measured amounts of sovereignty is hard to sell within the United States. But it is as important to the future of international stability, akin to the ceding of some measure of states' rights to the Union during the formative years of U.S. history. Given U.S. history and U.S. leadership in shaping international institutions, Americans should understand these realities better than most. But the fact is, the United States often abuses these institutions, sometimes out of frustration, sometimes out of undistilled capitulation to domestic political pressures (the Helms–Burton law comes to mind).
Where Trade Policy ends and Commercial Policy Begins
Another conundrum posed by nonmercantile aspects of commercial policy is an inside–the–Washington–Beltway debate. It is the question "Where does trade policy end and commercial policy begin?" This is a polite way of asking "Isn't commercial policy what the Commerce Department and the Ex–Im Bank do, trade policy what USTR does, and international economic policy the province of Treasury, State, and the White House?" This is a question for policy wonks. At some high bureaucratic level, all international levers—economic, political, and military—ought to be considered together, presumably in or near the White House. At some lower level, the international economic policy levers ought to be considered together. And at some still lower bureaucratic level, trade–related levers ought to be considered by those agencies with the primary responsibility for their use. It is a ridiculous peculiarity of the U.S. government that 19 separate agencies have responsibility for trade promotion, and only in the United States do the functions of trade policy development, trade promotion, trade negotiation, trade law enforcement, and trade finance reside in so many unrelated, uncoordinated government departments. The point here is that commercial diplomacy as described in this essay is a policy discipline offering a set of options that are increasingly important to the United States, have been underestimated for a long time, and should be thoughtfully added to the U.S. international policy mix. If this recognition leads to a rationalization of the U.S. government structure, so much the better.
Asking for the Order: As the United States has become more sophisticated in assessing the commercial diplomacy of other nations, it has come to note surprising differences in values. Most other countries feel that government has a much bigger role to play in winning deals for their companies—be it in financing, advocacy, or using political muscle. Many permit activities that are illegal or unacceptable in the United States. These differences require some thought. For example, while many nations seek commercial concessions in exchange for noncommercial actions—support for entrance to the EU, support against terrorism, support in a military sense, aid flows—the United States seldom acts so explicitly. In both Kuwait and Korea, to name but two of many cases, countries that would not exist were it not for U.S. military intervention repeatedly close the United States out of deals or entire markets in ways that are inconsistent with international trade law or standards. Are U.S. firms being taken advantage of? What kind of message does acquiescence send to other competitors and trading partners? What would be the economic consequences if the United States were seen to take action more protective of its self–interests? It may well be that the political or moral consequences would require the United States to be less heavy–handed than some of its friends. It may also be that equivalent actions would threaten important alliances or make future diplomatic initiatives more difficult. It may also be that the United States is missing opportunities that virtually every other nation in the world would take. Whatever these answers, these questions deserve asking.
Is Economic Intelligence Worth the Risk?
Foreign governments are directing their intelligence services against U.S. economic assets, spying on U.S. companies. In addition, foreign governments and companies are regularly engaging in a wide variety of competitive practices from bribery to intimidation that are undetectable, except with the assistance of U.S. intelligence re–sources. Indeed, in the case of foreign use of tied aid, since it is prohibited and since the United States as a matter of policy can respond only via the tied–aid war chest when it is identified, the intelligence community has served from time to time as the first "loan officer"—its imprimatur is needed before the financing wheels can begin to turn. At the same time, the use of intelligence assets carries great risks, whether those assets are used to address commercial or military threats. A debate has raged over whether those risks warrant continued involvement of the intelligence community in commercial matters—heightened during the past two years as a consequence of press assertions that the CIA spied on Japanese trade negotiators and on French business firms competing with a U.S. company for the Amazon Surveillance project in Brazil. Given the diplomatic fallout from such allegations, the use of intelligence reveals yet another dimension to the pursuit of effective commercial diplomacy. The answer lies in a careful weighing of risks, resources, and rewards. However, that process is still in its early stages, and, to date, there may have been as many stumbles as successes.
Allies or Competitors? Realities of a Zero–Sum World
A fundamental question of commercial diplomacy is whether any nation can correctly be characterized as a "competitor." Economists such as Paul Krugman argue compellingly that the talk of competition is usually misguided and demagogic. Nations do not compete with one another in a meaningful economic sense; instead, they compete with their own individual past, seeking to improve living standards by better education, higher savings, sensible regulations, fiscal prudence, and low inflation. In this view, the world market is an expanding pie, each country's share of the pie will ultimately be determined by its own attributes, and a deal lost here will be offset by a deal gained there. Unfortunately, while offering much to the debate about the values of mercantilism, these observers miss one critical fact. While the world market may not be a zero–sum game, every deal is. And if your town has one big employer and it loses that deal, your town suffers. And if that firm loses because a foreign government intervened on behalf of one of its companies, and the U.S. government sat idly by, a legitimate question can be raised about what the appropriate role of government should have been. From time to time, such issues force the United States to cast allies in the role of competitors. Such pressures pose the danger of undermining alliances. Nevertheless, when a security threat arises, allies will still depend on the United States more than vice versa. Consequently, no matter how intense commercial disputes may be, they will surely seem secondary in the face of a serious security problem and will fade into the background. Unfortunately for this sanguine view, day–to–day commercial problems arise not with regard to major threats where security imperatives are clear but in managing midlevel problems like Bosnia, where the glue of big threats does not hold and the friction of commercial competition wears away. Herein lies the principal balancing challenge of commercial diplomacy.
Conclusion: The Need for Balance
Commercial diplomacy is a useful tool of American foreign policy. Export promotion efforts can be helpful, but they must be placed in context—seen for both unintended and intended consequences; seen for how they succeed and where they fall short; seen for how they utilize resources and how they deplete them; and seen for how they interact with other aspects of diplomacy. With such understanding American policymakers can wield with sophistication and understanding those elements of power that accrue as a consequence of being the world's undisputed economic leader.
In Praise of Sunset Mercantilism
Even the most jingoistic members of the "Buy American" chorus must acknowledge that every thoughtful analyst and economic theorist believes that government intervention in the marketplace through the basic techniques of commercial diplomacy (financing, technical assistance, high–level advocacy, etc.) is distorting. Further–more, even the best–intentioned government intervention is likely to be sometimes misguided or badly executed or both. In addition, active international advocacy for U.S. business interests implies that government officials actually understand what U.S. business interests are. At the beginning of the decade, Robert Reich posed the question "Who is us?" We are still a long way from answering it. The interests of multinational corporations very often are not congruent with—or are at odds with—U.S. national interests. Indeed, not only is it problematic from a policy perspective to pick winners, it is increasingly difficult to tell who is even on America's side. The composition of the team changes with every new foreign investment in the United States and every closure of an American plant to shift production overseas. For example, should the U.S. government spend its limited export promotion resources to promote the overseas sales of the telecommunications products of an American firm based in France? Or should it promote the exports of products made by a Swedish firm based in New Jersey? What matters—nationality or the location of production? Faced with such conundrums, in the best of all possible worlds, commercial diplomacy programs should eventually be discontinued. Unfortunately, America's primary competitors show no signs of letting up. Indeed, they spend more than the United States does in these pursuits and afford their companies much greater latitude of action. They also are willing to undertake actions on behalf of their companies that the United States would never do in terms of trading political favors/actions for market share. Consequently, were Americans to "do the right thing" and withdraw from the commercial diplomacy game, U.S. companies would be at an enormous disadvantage. Moreover, by remaining weak or contemplating unilaterally withdrawing programs or reducing them, the United States creates greater opportunities for its competitors to succeed and greater incentives for them to continue their programs. In addition, the United States should not and politically could not remove certain of the constraints placed on American companies, such as the Foreign Corrupt Practices Act. In addition to the above, the evidence of the past several years is that concerted efforts at supporting U.S. businesses overseas, particularly through the types of programs described in this paper, have greatly discomfited America's competitors. The decision to create a tied–aid war chest to match the (OECD–prohibited) tied–aid efforts of foreign competitors or the decision to challenge certain of their competitive practices, including bribery and inappropriate use of political leverage and intimidation, not only got their attention but actually got them back to the negotiating table to eliminate some of these problems. example, should the U.S. government Consequently, there can be only one sound export promotion policy for the U.S. government: sunset mercantilism. We must aggressively support U.S. businesses for as long as it takes to get competitors to agree to take these programs off the table and keep them off. We should spend more now so we can spend less in the future. We should let the world know that the biggest guy on the block is going to make it painful for them to continue their policies, but that we are ready at any time to talk seriously about changing them. We should maintain and build on the efforts described in this paper so that ultimately we can eliminate many of them. At the same time, we must find effective multilateral means of combating corruption and ensuring transparency in procurement processes worldwide. This will certainly involve cooperation and enforcement by our multilateral development banks but also requires that we cut into the problem from the "supply side" of the bribery transaction—getting our closest allies to realize that bribery is an unnecessary cost for them and an unfair "tax" on those nations that can afford it the least. (The Clinton administration, through the World Bank, the OECD, the OAS, and APEC, has begun to make some modest progress in this regard.) Such an approach will not, of course, mean the end of commercial diplomacy. Access to America's markets, U.S. trade policies, U.S. support for multilateral development efforts, domestic policies that help shape the development of U.S. industry, decisions to impose or eliminate sanctions or introduce or withdraw aid programs—all give the United States economic/commercial levers that will be extremely important in the execution of broader foreign policy. As such, they will remain the core elements of commercial diplomacy as it should be practiced, once governments are finally off a field that should ideally be left to the world's businesses.
Commercial Quids for Political or Military Quos?
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