Erzhan Kazykhanov. Strengthening Economic Diplomacy – U.S. Experience

Erzhan KAZYKHANOV

Strengthening Economic Diplomacy – U.S. Experience

The February collegium of the Ministry of Foreign Affairs of the Republic of Kazakhstan focused on the theme of economic diplomacy. Meetings with the leadership of the Ministry, economic departments, national companies and fellow ambassadors provided opportunities to search for the best foreign experience in economic diplomacy and to reflect on the use of economic diplomacy in Kazakhstan.

I believe it will be worthwhile to share some observations on the successful implementation of economic diplomacy, the United States' approach to international economic relations and to compare Kazakhstan's diplomatic service to international trends in economic diplomacy.

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The need for promoting economic diplomacy, which Kazakhstan faces today, is not a new trend. With the Trump administration's economic focus, there has been a steady increase in the number of initiatives aimed at improving the economic diplomacy of the United States.

It is no coincidence that, in a circular dated Nov. 7, 2018, Secretary of State Mike Pompeo called on all diplomatic and consular agencies to be proactively involved in advancing the commercial interests of the U.S. both on a transactional level through the implementation of current projects and on the transformational level in order to promote U.S. businesses abroad.

Analysis by the State Department, the American Foreign Service Association's The Foreign Service Journal and American experts in the field highlight a number of important elements necessary for successful economic diplomacy.

First, international trade and economic relations as the main priority of foreign policy.

Economic (commercial) diplomacy is by no means a new phenomenon in the diplomatic world. Historical records show that countries have long sought to agree on equal conditions for trade and safe transit of their goods.

During the Cold War, economic diplomacy was primarily determined by the rivalry between the East and the West and ultimately was put on the back burner. The end of the Cold War and a renewal of globalisation once again allowed the economic component of international relations to grow in influence.

The financial crisis of 2007-2008, the volatility of markets and the multipolarity of the global economy left no doubt about the growing importance of coordinated international trade and economic activities and led to more inclusive mechanisms, such as the G20.

If you look at history, one of the main reasons for the creation of a diplomatic service in the U.S. was to support U.S. business abroad. In 1790, Secretary of State Thomas Jefferson wrote that his main task was to protect American trade in the Mediterranean.

Today, U.S. diplomacy is reverting to its roots when faced with the difficulties of ensuring sustainable economic growth and a steady decline in the U.S. share of the global economy.

Therefore, economic security has become equally important to national security in the eyes of President Trump. Based on this principle, the current U.S. administration has identified economic diplomacy as a priority for U.S. foreign policy. The task of diplomacy, as they see it in the United States, is to promote economic reform and sign major contracts.

Second, economic diplomacy requires the personal participation of leadership at all levels.

In the United States, the President, Vice President and cabinet members continually advance the interests of U.S. companies through trade missions and economic negotiations.

As they say in the United States, the “bread and butter" of effective economic diplomacy is high-level business support. This includes providing support through project and policy advocacy for domestic business abroad and at the political level in a host country. In order to assist, ambassadors should thoroughly understand the strategic aspects of their countries' economy, demonstrate personal leadership, be an effective diplomat and work proactively.

After identifying a potential contract, the next steps include developing an action plan, sending letters, making phone calls, organising ambassadors' meetings and visiting senior officials, members of the government, the Vice President and the President.

Special attention is paid to personal participation of ambassadors in economic meetings. This signals the importance of a specific project and its support at the state level.

Recently, I had the opportunity to work with Tyson Foods, the largest U.S. livestock processing company. Representatives of the company visited Kazakhstan to explore opportunities for opening a meat processing complex in the country. We attracted the interest of this transnational corporation only after a series of personal meetings – first with the suppliers of Tyson Foods and then with the management of the company, which required a number of visits to the headquarters and to the enterprises of Tyson Foods.

Third, a close partnership between the Foreign Ministry and the economic ministries.

In the United States, the Department of Commerce and the State Department are jointly involved in foreign economic policy. In 1939, U.S. President Franklin D. Roosevelt entrusted the State Department with the full responsibility for foreign economic and commercial diplomacy. The U.S. Diplomatic Services Act of 1980 transferred tasks in the field of foreign economic diplomacy to the Department of Commerce, which led to the creation of the Foreign Commercial Service within the framework of the office.

At the same time, experts recognise that this division had led to counterproductive rivalry between the State Department and the US Department of Commerce, both personal rivalry between diplomats and sales representatives and conceptual rivalry regarding the jurisdiction of specific projects.

Currently, the U.S. Foreign Commercial Service works closely with the State Department in 76 countries that represent 90 percent of the U.S. export markets. In the countries where the U.S. Department of Commerce does not have representatives, work is carried out by economic diplomats in coordination with the national network of Export Support Centres that are present in 106 U.S. cities.

In Kazakhstan, assigning the Ministry of Foreign Affairs with implementing state policy to attract investments and transferring the Investment Committee made it possible to solve problems of coordinating joint work in the field of investments. The U.S. experience can serve as an example of how to organise cooperation. By analogy to the United States' system, the export sector is under the jurisdiction of the Ministry of Foreign Affairs and the Ministry of National Economy of Kazakhstan.

In this regard, special attention should be paid to the State Department's innovative initiative to create the Business Facilitation Incentive Fund programme, which provides small grants to foreign agencies to finance creative initiatives in support of U.S. exporters in the host country.

Fourth, coordination of foreign economic activity of all ministries and departments.

Success requires well-coordinated efforts of the entire government, including all departments with international economic programmes. The work is not limited to just strengthening coordination between key actors that jointly implement foreign economic policy.

For example, in the U.S., the Department of Agriculture is responsible for supporting agricultural exports and foreign investments; the Department of Finance provides support to the banking sector, insurance and financial companies; products of the military-industrial complex are overseen by the Department of Defence; infrastructure and other capital-intensive projects are under the responsibility of USAID, the Export-Import Bank and the U.S. Trade and Development Agency and the Customs Service oversees customs issues.

The U.S. Overseas Private Investment Corporation (OPIC) was established in October 2018 by the U.S. International Development Finance Corporation (USIDFC). The main tasks of the new department were the creation of an effective mechanism for promoting U.S. foreign policy interests and mitigation of financial risks in the implementation of foreign projects. To this end, the USIDFC was provided with extensive funds for direct lending, loan guarantee, risk insurance and acquisition of a share in supported projects. Experts agree that the creation of the USIDFC is an attempt by Washington to counter Beijing's growing economic domination in Asia, Eastern Europe and Africa through the Belt and Road Initiative. Given that the Chinese side is not active in lending and supporting small and medium-sized businesses in developing countries, the new U.S. agency intends to fill this niche.

Annual SelectUSA summit

The SelectUSA programme coordinates the activities of federal investment attraction agencies in the United States. The programme was established in 2011 as part of the U.S. Department of Commerce and has similar functions to the Investment Committee and Kazakh Invest. This organisation holds the annual SelectUSA summit and leads the Federal Interdepartmental Investment Working Group — which includes all 15 federal departments, EximBank, the U.S. Small Business Administration, the Office of the Sales Representative and the Environmental Protection Agency. The SelectUSA programme also serves as an investment ombudsman.

Some of the organisation's responsibilities include customised promotion events, which allow SelectUSA to provide paid services to regional bodies, and supporting economic development by promoting their city or region as an attractive destination for foreign direct investment (FDI). Usually, the programme includes the organisation of a visit to a specific country, meetings with local business and government agencies, preparation of special seminars, forums and receptions and visits to promising companies.

Fifth, active interaction with local authorities.

Cooperation with regional and municipal authorities is critical for closing a deal, especially when attracting FDI. Issues related to the competence of regional authorities, such as local labour, infrastructure, benefits, preferences, etc., are important factors that determine investment decisions for foreign companies.

Sixth, economic diplomacy development for tackling issues of today's and tomorrow's agenda of the global economy.

As noted in the Support for American Jobs report published in 2016 by the American Academy of Diplomacy, economic diplomacy is largely based on the approaches of the 20th century and requires improvements in order to create new foreign economic programmes that meet contemporary challenges.

Modern companies do business differently than they did five or ten years ago. American business depends on the assistance of diplomacy not only in solving traditional tasks of global trade liberalisation and elimination of trade and investment barriers, but also increasingly on the ability to solve a new class of problems arising from the development of the global economy. This brings to the forefront the protection of commercial secrets and intellectual property rights, trade in services and electronic commerce, the commercialisation of space, etc.

In the case of our country, intellectual property rights protection is certainly the most important factor for the entry of high-tech companies into our market and the subject of special attention of the Trump administration. During the preparation of the visits of the First President, Nursultan Nazarbayev, to the United States and the U.S. Secretary of Commerce Wilbur Ross to Astana in 2018, we had the opportunity to see how persistently the U.S. government sought to protect the intellectual property rights of U.S. companies in Kazakhstan.

The systematic implementation of the Digital Kazakhstan state programme will allow for the growth of bilateral cooperation in the tech sector. It would also send the right signal to U.S. companies and support the activities of the newly-opened Consulate General of the Republic of Kazakhstan in San Francisco.

Seventh, a qualified staff. The importance of this factor cannot be overemphasized. It has long been debated whether diplomacy is a profession or an art. Famous American diplomat George Kennan compared diplomats with “gardeners" who carefully cultivate partnerships and opportunities and are always ready to eradicate arising problems. He is echoed by our contemporary, former Deputy Secretary of State William Burns, who in the May issue of Foreign Affairs said that diplomats constantly broadcast the world to their country and their country to the world, being a kind of early warning radar on potential problems and opportunities.

Today, more than 200 employees of the State Department's Economic Bureau, about 1,500 economic diplomats and a significant number of local staff at foreign institutions, as well as the U.S. Department of Commerce Foreign Commercial Service, work on the frontlines of United States economic diplomacy. Candidates must pass a written exam of more than 100 questions and have a college degree in economics and trade. Future diplomats go through a serious test to evaluate their ability to analyse situations, solve a particular hypothetical commercial problem and represent the interests of the United States.

The most pertinent recommendations for Kazakhstan by U.S. experts in this field include the following:

- filling economic positions with candidates who have an education in international economic relations;

- hiring people with solid experience in export-oriented fields and joint ventures;

- filling openings at economic departments of foreign institutions with local staff to expand the number of economic employees within the available budget funds. The State Department has long considered local employees as valuable members of its teams in overseas agencies, providing continuity and an invaluable source of expertise on the economy, language and culture of the host country for temporary U.S. staff;

- developing a coordination mechanism for human resource management aimed at improving the processes of hiring, creating, maintaining and developing strong teams for the implementation of economic diplomacy;

- introducing educational programmes and trainings for economic diplomats and a formal mechanism for their coordination with business. This is useful for creating partnerships with private companies to ensure government support in the sectors of foreign economic activity that are most relevant to the national economy. For example, Kazakhstan requires such a mechanism in the sphere of high technologies, agro-industrial complex, professional services, etc.;

- establishing a permanent consultative mechanism with the private sector in order to jointly develop the necessary foreign economic programmes and then evaluate their effectiveness.

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High-performing commercial diplomacy and the ongoing development of economic relations with the United States undoubtedly contributed to an unprecedented level of trade and economic cooperation.

Therefore, by the end of 2018, direct U.S. investments into Kazakhstan set a new absolute record of $5.34 billion. For the first time since 2014, this figure exceeded $4 billion, which not only demonstrates Kazakhstan's regional leadership in attracting U.S. FDI, but also exceeds U.S. investments in developed countries like Turkey ($4.3 billion), Finland ($3.3 billion) and Portugal ($2 billion).

The trade turnover, which increased by 37 percent last year to $2.3 billion, also demonstrates positive dynamics. At the same time, Kazakhstan's exports showed a rapid growth by 2.5 times and for the first time approached $1 billion. According to U.S. data, Kazakh exports amounted to almost $1.4 billion.

The majority of our exports to the U.S. include raw materials such as hydrocarbons, products of inorganic chemistry, uranium, grain and soybeans. At the same time, the U.S. is not on our list of the promising markets of export interest indicated in the National Export Strategy for 2018-2022. Nevertheless, the U.S. market has high potential for Kazakh exports, distinguished by size, versatility and high purchasing power. Therefore, it is very important to continue the 25-year participation of Kazakhstan in the U.S. Generalised System of Preferences (GSP) programme, which provides opportunities for duty-free importation into the U.S. market of more than 4,000 items.

Under the GSP programme in 2017, Kazakhstan exported $145 million worth of goods to the U.S., saving millions of dollars in customs duties. This successful practice can be significantly expanded with little effort by informing all Kazakh exporters and potential companies about the GSP programme through the Atameken National Chamber of Entrepreneurs and other channels. On March 4, President Trump announced his intention to stop granting India and Turkey the status of developing countries, which prevents them from benefiting from the GSP programme. Thus, there is a good opportunity to fill this niche.

In general, the package of measures to assist in the promotion of exports can be expanded by including international co-financing practices, participation of exporting companies in major international exhibitions, trade missions, official visits, assistance in opening offices abroad (for now, the U.S. is represented only in KazAtomProm) and active development of the umbrella brand Made in Kazakhstan.

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In conclusion, I would like to note that successful economic diplomacy is impossible without a constant exchange between embassies.

There is an objective need for sharing knowledge. Not everything can be reflected in the format of official correspondence. We would benefit from sharing our experiences in economic diplomacy with one another and work with investors both on the pages of The Diplomatic Herald and in more interactive formats.

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ABOUT THE AUTHOR. Erzhan Kazykhanov – Ambassador Extraordinary and Plenipotentiary of the Republic of Kazakhstan to the United States of America.

Prior to that, he held the position of Assistant to the President of Kazakhstan since 2012 and Minister of Foreign Affairs since 2011.

He earned his bachelor's degree in Oriental studies from Saint Petersburg State University in Russia in 1987. He also holds a Ph.D. in history from Al-Farabi Kazakh National University.

Ambassador Kazykhanov is the author of numerous articles on Kazakhstan's foreign policy issues, multilateral diplomacy and the role of the United Nations.

Created at : 13.06.2019, 11:50, Updated at : 13.06.2019, 11:50