As a field of study, international political economy seeks to understand the politics of international trade, finance, and monetary relations. Trade diplomacy, as one aspect of trade politics, relates to the process of trade negotiation between states and the influence of domestic and international actors on that process. According to Nicholas Bayne and Stephen Woolcock, trade diplomacy is concerned with process and “the negotiation of trade agreements in bilateral, regional, or multilateral contexts.” The study of trade diplomacy thus primarily focuses on how the processes of international trade negotiation affect trade relations.
Scholars of international political economy who study trade diplomacy generally adopt a state-centered approach to highlight domestic politics and the strategies states pursue in negotiating trade. In his text International Political Economy: Interests and Institutions in the Global Economy, Thomas Oatley advances the utility of a state-centered approach by describing how national policy makers develop trade and finance policies both in response to and independently from the narrow, self-interested concerns of domestic groups. Trade diplomacy therefore involves the interests of autonomous states, state-society relations, and interstate relations. Trade diplomacy also includes state relations with regional and international trade bodies.
The tools of trade diplomacy lean heavily on the assumption of mutual cooperation between states, but can also include certain coercive measures. Informal negotiations, policy coordination, trade coalitions, and formal agreements dominate trade diplomacy, yet disputes can produce trade discord and the use of formal sanctions and trade embargos. The asymmetry of economic and political power between larger trading states and smaller ones lends the former much greater latitude to use such tools for their advantage over the latter. However, coercive measures involving trade policy are not always effective in producing the desired outcomes of larger trading states; these raise ethical questions about innocent victims who suffer under trade sanctions.
The basic strategies of trade diplomacy center on the real and perceived merits of bilateral, regional, and multilateral diplomacy. Most states generally engage in all three strategies in search of trade advantage in a competitive environment of global trade. Bilateral trade diplomacy affords greater opportunity for trading partners to achieve mutual agreement but can be costly in terms of time, effort, and diplomatic resources, especially for smaller trading states. Regional and multilateral trade arrangements rationalize the diplomatic process of trade negotiation but demand greater compromise among multiple partners, increase pressure from affected domestic interests, and result in difficult and lengthy negotiations. When they are institutionalized, regional and multilateral trade associations can facilitate more efficient trade diplomacy. Written into many regional and multilateral agreements, for example, are standardized principles and rules such as nondiscrimination between members, reciprocity in negotiations, and safeguard provisions to protect national interests.
Since the early post–World War II (1939–1945) period and the creation of the Bretton Woods system of global economic management, most states have sought participation in multilateral trade management as a means to rationalize trade diplomacy. Trade management initiatives such as the General Agreement on Tariffs and Trade (GATT) and the United Nations Conference on Trade and Development originated as forums to forge international agreement, but evolved over time into robust institutions with missions, rules, and agendas of their own. Expanding democracy and economic globalization have since led to a proliferation of political actors involved in trade diplomacy. Policy makers and state representatives wield the authority to formalize negotiations and sign agreements, but interest groups, multinational corporations, and nongovernment organizations (NGOs) increasingly influence the positions of state diplomats in trade negotiations.
The 1995 creation of the World Trade Organization (WTO), formed from GATT, represents the most ambitious attempt to rationalize multilateral trade diplomacy. Its 153 members agree to abide by standardized rules of trade and the decisions of supranational dispute-settlement bodies when those rules are violated. Since its creation, many states, interest groups, and NGOs have come to view the WTO as a formidable independent actor because of its power to shape international trade and define the limits of state sovereignty. Calls for greater transparency in trade diplomacy have followed. Recent frustration with the WTO system, the entrenched positions of state coalitions, and the failure of the Doha Development Agenda have produced increased disillusionment with multilateralism. A trend of increasing bilateral and regional trade diplomacy now characterizes trade diplomacy, with over 250 regional trade agreements existing alongside an ever-expanding number of bilateral trade agreements.
- Bayne, Nicholas, and Stephen Woolcock, eds. The New Economic Diplomacy: Decision-Making and Negotiation in International Economic Relations, 2nd ed. Aldershot, UK: Ashgate, 2007.
- Cohn,Theodore H. Global Political Economy:Theory and Practice, 3rd ed. New York: Pearson Longman, 2005.
- De Lombaede, Philippe, ed. Multilateralism, Regionalism, and Bilateralism in Trade and Investment: 2006 World Report on Regional Integration. New York: Springer, 2007.
- Oatley,Thomas. International Political Economy: Interests and Institutions in the Global Economy, 2nd ed. New York: Pearson Longman, 2006.
- Pugel,Thomas A. International Economics, 13th ed. Boston: McGraw-Hill, 2007.
- Stiglitz, Joseph, and Andrew Charlton. Fair Trade for All: How Trade Can Promote Development. Oxford: Oxford University Press, 2005.
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