Introduction to Commercial Diplomacy

Commercial diplomacy involves the application of advocacy tools to government policies that affect international commerce. Since government policy is the province of government officials and international commerce is province of business managers, the dialogue between the two is at the heart of commercial diplomacy. Sound management of the relationship between government and business is crucial to good trade policy 

In recent years there has been a growing awareness that trade decisions also affect broader interests of society in areas such as health, the environment, and labor standards. This non-economic dimension of trade policy has grown progressively as the trade agenda has expanded from barriers at the border such as tariffs and quotas to domestic regulatory measures such as environmental and health measures. These broader interests of society are often represented by public interest groups, who have increasingly demanded a role in the trade policy decision making process in their own countries, as well as globally. Beyond government and business, commercial diplomacy therefore involves non-governmental organizations that represent the interests of citizens as workers, as consumers, and as supporters of social objectives such as a clean environment and a safe community. 

A study of commercial diplomacy must there focus on how these three groups in society can manage their relationships with each other as part of the trade policy decision-making process, and how commercial diplomats working for any government, business or public interest group can seek to influence the attitudes, objectives and actions of decision-makers in all three sectors, and thereby achieve desired policy outcomes. A key to effective management of the relationships involved is a basic understanding of the different roles, values, motivations and objectives of actors in each of the three sectors. Effective advocacy has to be based on a sound understanding of potential partners or opponents.  Achieving such an understanding is particularly challenging when it involves actors whose role and frame of reference is different than one’s own. 

There are considerable differences in how countries around the world organize their government, their economic enterprises, and civil society. These differences affect how much independence business and public interest groups have from the government, and conversely how much political influence either business or public interest groups can exert in trade policy decisions. Notwithstanding these differences, there are many similarities in the fundamental roles of business, government and public interest groups in most countries, regardless of their economic and political organization. This similarity arises from the distinct roles played by each of these three sectors, which defines their basic objectives, motivations and values. 

The Role of Government, Business and Interest Groups 

The key to understanding the challenge in managing the relationship between government and business on one hand, and between government and public interest groups on the other hand is a profound appreciation of the differences in the respective roles, objectives, motivations and values of actors in these three sectors. We will therefore focus initially on the unique mission of each, and how that affects their frame of reference. 

The role of business, i.e. the role of economic enterprises, is to efficiently organize production. In free enterprise economies, which in different degrees now encompass most of the world, competition among competing producers is expected to result in the most efficient production of the goods and services consumers wish to purchase. Within this framework, business managers have the responsibility to make decisions on the allocation of scarce resources to the production of goods and services. Free market economies are based on the basic economic principle that competition among enterprises seeking to maximize their own profits will lead to the most economically efficient use of society’s resources for producing the goods and services consumers wish to purchase. 

In making production decisions, managers are required to obey the laws and regulations of the cities, counties, states, provinces and countries in which they live. They may also choose to consider ethical aspects of their decisions, over and above the laws they are required to obey. They may do so for moral reasons, or because they believe that basic ethical values will shape the attitudes of employees, customers, the community and government towards the firm. For the same reason firms may choose to make financial contributions to charities or the arts in the communities in which they operate. 

If decisions made by business on economic grounds, i.e. if decisions based on the maximization of profit, result in socially undesirable consequences, it is the responsibility of government to establish laws and regulations that will encourage or mandate socially desirable actions and discourage or prohibit socially undesirable behavior by enterprises. It is thus the responsibility of government to identify public policy goals in areas such as the environment or human health which are impacted by decisions made by enterprises, and to pursue the achievement of such public policy goals through the promulgation and enforcement of appropriate laws and regulations. Similarly it is the responsibility of government to identify public goods such as education, police protection, defense or medical care for the elderly that society does not wish to allocate on the basis of an ability to pay, and to provide for the production and distribution of these public goods. 

Public interest groups help to crystallize public policy goals. They bring together private actors united by a common public policy goal. They give private actors the opportunity to exert a greater collective political influence on the public debate over a particular policy issue than they could achieve by acting individually. Public interest groups thus help to focus public policy issues for public debate and speak on behalf of members who share certain values or policy objectives.

Mission, Objectives, Motivations and Values  

An organization’s mission will inevitably influence the objectives, motivations and values of its staff and of its leaders. 

In the private market economies, the success of a business is measured in terms of its profits and/or its growth.  It follows that the performance of individual business managers is measured in terms of their contribution to profits and/or growth. Business managers will therefore tend to support policies that advance their ability to generate higher profits or growth. It is also inevitable that in such an environment, where success is equated with economic performance, economic criteria will tend to feature prominently in the value system of business managers. (In state run economies success is measured in terms of achievement of the production targets set by the state, and their mangers will tend to support policies that will facilitate and enhance their ability to achieve these targets.) 

In the government, success is measured in terms of the successful development, implementation or enforcement of a government policy or program, all of which requires the consent and cooperation of a large number of officials, legislators, and ultimately voters. In other words, the performance of government leaders is most often measured in terms of success in building a political consensus in support of desirable policy goals.  Government leaders will therefore tend to support policy actions that will help them to achieve this goal. It is inevitable that dedication to public policy goals and political skill will feature prominently in the value system of government leaders. 

In public interest groups, success is measured in terms of success in focusing public attention on a public policy issue and/or success in achieving a political consensus in support of such a goal. An organization’s ability to accomplish these goals is a function of the number of its supporters/members and/or the size of the financial contribution made by its supporters/members. The performance of public interest advocates therefore is usually measured by the members and money they can attract, which in turn is a function of success in attracting attention to an issue or bringing about desired policy outcomes.  Like government officials, public interest advocates live in an environment that values public policy and social goals, and these ideals are likely to feature prominently in their value systems. 

Leaders in all institutional settings also have many things in common. They tend to value power, both as measured by the number of people or the amount of money under their stewardship and by the impact of their decisions on society. Bureaucratic turf is a fairly standard measure of status in organizations. 

The implication of the link between organizational mission and private motivations and values is that successful advocacy in commercial diplomacy depends on a sound understanding of the different missions, objectives, motivations and values of the different actors. In order to persuade a business leader on a course of action, one needs to emphasize how the desired action will enhance economic opportunities for the enterprise or industry (or minimize the economic losses that are likely to be incurred by the enterprise or industry.)  In order to persuade a government leader on a course of action, one needs to emphasize how the desired action will strengthen political support for a policy outcome favored by the leader involved.  In order to persuade a public interest advocate on a course of action, it is necessary to emphasize how the desired policy action will lead to increased public awareness and/or support for the desired cause. 

In summary, business, government and interest groups are necessary for the smooth functioning of society. Both private and public goods and services are necessary for society to function and achieve the well being of its members.  All three therefore often play a role in the trade policy decision-making process, and commercial diplomats must be able to understand the contrasting missions, objectives, motivations and values of leaders in government, business, and interest groups.

The Political Market Place 

By its very nature, policy actions by governments are the result of a political process, in which actors in all three spheres of society – business, government and public interest groups, seek to shape the outcome. There is no way other than politics by which the government can make decisions on policy goals and government programs. This is true regardless of the political philosophy and the political organization of a country. Even dictators need bureaucracies to administer the government, and all decisions within such bureaucracies involve politics. 

In any political process, all actors impacted by a government decision will seek to influence the outcome through persuasion and the exercise of political influence. Some have likened the process to a political market place, within which advocates for alternative public policy goals and public goods compete for political support among the relevant decision makers. Everyone who wants to influence the outcome of a policy decision or the procurement of a public good has to allocate political capital to that objective, and policy goals or public goods that receive the most political capital are adopted by the government. 

The advocacy tools used by commercial diplomats to advance a particular organization or country’s interests can be seen as the means for participating in the political market place for policies and programs. Effective management of the relationships among government, business and public interest groups is essential for commercial diplomacy in achieving success in the political market place in influencing government policies and programs.

Commercial Diplomacy and Managing Relationships 

Commercial diplomacy involves the application of the tools of diplomacy to policy issues that affect international trade and investment, or to policy conflicts created by international trade and investment. The tools of commercial diplomacy include operational documents such as briefing memos, advocacy letters, policy white papers, press releases and public testimony. It also includes consultations, negotiations, public speaking, and oral briefings. Commercial diplomacy requires analytical skills in economics, politics, law, public policy, and public relations. 

Commercial diplomacy targets all policy measures that affect the flow of goods, services, information, people and capital across national and regional borders.  Policy measures addressed by commercial diplomacy include not only measures at the border such tariffs, quotas and visas, but also internal regulatory measures in policy areas such as labor standards, environmental issues, health and safety matters and competition policy. Today’s international conflicts and issues are related to how different nations view each other’s use of subsidies, industrial policies, industry standards, intellectual property practices and laws and similar issues.  These regulatory issues are often deeply embedded in a country’s public policy goals in sectors such as telecommunications, transportation, pharmaceuticals and medical equipment. The modern day treatment of trade policy thus goes far beyond the landing dock for imported goods and well into the heart of he institutional, regulatory machinery of nations. 

In today’s rapidly converging world economy, commercial diplomacy is an activity that is essential to the smooth functioning of economic activity and the resolution of policy conflicts among nations. International trade is well over 40 percent of the world’s gross domestic product, and the sales of the foreign affiliates of corporations have exceeded that of world exports by 90 percent. In light of this high degree of economic interdependence, policy conflicts could prove highly disruptive. By the same token, achievement of desired public policy goals requires an increasing degree of cooperation on social issues such as the environment and health. 

Commercial diplomacy makes an important contribution to continued improvements in international trade, foreign direct investment, and solutions to international non-market conflicts. These improvements are contributing to the achievement of world economic development.

The Commercial Diplomat 

The commercial diplomat is a professional skilled in advancing the interests of an organization in international trade and investment-related policy issues, in developing agreements on international commercial issues, and in resolving policy conflicts among nations over commercial issues. Commercial diplomats can acts as representatives of business, government, or an interest group. Practitioners of many professions—lawyers, economists, political analysts, accountants—all deal with some commercial diplomacy activities, but not on an integrated basis. The commercial diplomat devotes his or her energies to the integration of all of these areas of knowledge to address policy issues that affect international commerce. Although commercial diplomacy activity has existed from the earliest time of trade, only in the last ten years has it been recognized that this field requires professionals who have received education and training specific to the field. Prior to this time, commercial diplomats learned their skills on the job. Today, however, professional training focused on the requirements of commercial diplomacy is finally being developed.  In fact, the policy process works best when all three sectors field representatives with good commercial diplomacy skills.