22nd February 2008 (International politics) – Since the cold war, in connection with development of globalisation and multinational corporations, in international relations next to political and military power also the economic power becomes more and more important.

All states (and recently in accordance with the principle of subsidiarity in EU also the regions) endeavour to secure their optimum economic development. Besides the systematic effort to cultivate the domestic economic environment, the governments try to strengthen it also through obtaining quality investments from abroad, through support of its own export or through support of tourism. In all cases the decisive is primarily the long-term politically –economic climate of that given country and competitiveness of its companies. Nevertheless the governments may significantly assist to its economic development and to its companies by means of specific instruments. The instruments, which they use for this purpose, are designated as an economic diplomacy. In principle it is pushing through the economic interests of the given state in international environment by means of governmental interventions.

For the state to be able to assist to the companies, it is necessary to institutionalize the exercising of the economic diplomacy within the scope of state administration. In the world we can find several different structures. In some states primarily the Ministry of Foreign Affairs is responsible for enforcement of economic interest (e.g. Sweden), in some other countries it is upon the Ministry of Industry or Trade (e.g. Slovenia). Quite frequently for the purposes of economic diplomacy the specialised agency is being created (e.g. Industrial Development Agency of Ireland or Office of the United States Trade Representative established in the USA in the sixties for business negotiations with WTO).

Coordination is the basis for success

In the Czech Republic economic diplomacy was for a long time an unknown term after the velvet revolution. The state was solving other, first of all political priorities, there was not much time left for economic diplomacy. First of all the structure was formed, which consisted in dividing of this agenda between the Ministry of Industry and Trade and the Ministry of Foreign Affairs. According to analysis compiled by an expert team of the Institute for Economic Studies of FSV UK this was one of the best possible solutions. Both ministries may bring their specific know-how into the deciding process and to take it into account at final decision making. And thus the politics considering both the foreign-political as well as economic interests of the state may be exercised. Nevertheless this approach cannot be applied without a close cooperation of both ministries or a clear strategy at the highest governmental level. If neither of those works, then this arrangement may be designated, on the contrary, as one of the worst possible variants. It is necessary to admit, that in the past in case of the Czech Republic rather the second mentioned principle was applied, when both the ministries were not sometimes able to arrive to an agreement, even there did not exist either any obvious and understandable strategy on the highest level. The armament exports into the problematic countries may be an example, where it was really difficult to find so much necessary compromise.

In case the state decides to realise its own economic diplomacy, the selection of instruments, which may be used for this purpose, does not depend only on a free consideration of its representatives. In their application the states are limited first of all by their membership in international organisations like e.g. the European Union (e.g. the reasons for granting the public support, the limits for support of investments in the poor regions), OECD - Organisation for Economic Cooperation and Development (e.g. recommendation as regards granting of advantageous credits), WTO- World Trade Organisation (e.g. the rules for customs and quotas, limitation of the price dumping) or the International Labour Organisation (e.g. the conditions for employees). In spite of these limitations there exists a number of measures that may be used and which may be to the benefit for the companies of that given country.

As regards the individual forms of support, in principle there are these two basic forms: financial and non-financial. To the financial instruments there belong various loans, advantageous credits or insurance policies. The non-financial form is represented by agencies that assist to obtain investments, to support exports, promote culture or to encourage tourism. From the long-term research it arises that the private companies appreciate mostly the financial forms of support, the non-financial instruments, as regards importance, are as far as on the second place.

In the sphere of financial instruments, the situation in the Czech Republic, in an international context, may be designated as a quite standard one. As early as in 1992 the Export Guarantee and Insurance Corporation (EGAP) was established, the governmental credit insurance agency providing insurance to the Czech exporters, namely against political and commercial risks associated with exports (in the last year, the majority share in its subsidiary, Commercial Credit Insurance Agency of EGAP was sold to a strategic partner).

Moreover, since 1995 exports of Czech companies are being supported also by the state owned Czech Export Bank, this through granting and financing of export credits and further related services. In this way it enables the domestic exporters to obtain the long-term sources of financing at the rates and in volumes, which would be inaccessible for them on the financial market. Both institutions played an important role in supporting of exports, because the inland companies suffered a considerable under-capitalization for many years and they would hardly succeed in an international competition without the mentioned support.

The Czech, respectively the Czechoslovakian goods have an excellent image in many countries and therefore the present companies had the best prerequisite to continue successfully in this tradition. Nevertheless, increased risks of the foreign markets or the geopolitical situation was an obstacle for them, and without the respective insurance the expansion to those markets would be only hardly realistic. The Czech Republic provides also a large scale of non-financial supports. It even belongs to the countries having the mostly developed structure of agencies designated for support of economic diplomacy, in the sphere of investments, mutual trading, culture or tourism. For this purpose agencies like CzechInvest, CzechTrade, CzechCenters and CzechTourism are jointly operating.

A long inactivity in the area of investment incentives

If we focus to an issue of drawing attention of foreign investments, it could be said that the Czech Republic was inactive for a long time. Only after the prejudice against this form of economic diplomacy has been overcome, in the years 1996 to 1997 our country accepted an effective concept of investment incentives, which already existed in various forms at all of our neighbours at that time. The later the CR began, the more successful it turned to be consequently. Under leadership of CzechInvest, the Czech Republic succeeded to get to the top world’s places as regards inflow of the direct foreign investments per capita. These incentives were surely helpful, nevertheless this success could not materialize without a quality and at the same time relatively cheap labour force, a suitable geographic position, monetary stability and quality infrastructure.

In this connection it is necessary to point out that the investment incentives in the initial form have already fulfilled their role and now it is necessary to consider the change of their structure and further cultivate our economic environment as the most important “incentive” for attracting of investors. It is important to remind that the role of CzechInvest in the area of direct foreign investments is the minimum already and this organisation more intensively focuses to support of business activities in CR and to withdrawal of funds from the structural funds of European Union.

Similarly as CzechInvest in case of foreign investments, the CzechTrade agency contributed to renewal and boom of the Czech exports. At present, exports are an important driving force of domestic economy. Not only CzechTrade but also the consulates of CR abroad, respectively their commercial-economic sections, contribute to easier performance of exports and play an unsubstitutable role in economic diplomacy. 69 out of 90 consulates of the Czech Republic have their own commercial-economic section, while in 25 places the companies may find also the foreign representative of CzechTrade. This structure is supplemented by other specific authorities like e.g. the Czech economic-cultural office in Tai-wan, with which the Czech Republic has not any diplomatic contacts.

Of the commercial- economic sections, the exporters or other interested persons in export expect first of all quality information on activities in the given locality and on innovations and trends these markets follow. Important is also their continuous evaluation of mutual economic relations or assistance at solution of international-commercial disputes. At the key markets like Russia, India, China, Vietnam, but also Latin America or Arab countries, the efficient selective support and pro-export activities are highly appreciated from the part of companies. In connection with other diplomats the economic sections of consulates may also decisively assist the companies in establishing contacts in foreign countries, especially in those less developed and less democratic, where economy and policy are strongly interconnected. Such assistance is important not only for small and medium companies, but sometimes also for big corporations, which are in many aspects quite self-supporting in the ability to penetrate to foreign markets, when they are able to acquire the knowledge regarding legislative or taxation environments all by themselves.

An important, though simetimes neglected form of economic diplomacy is also the humanitary and development assistance. The main objective, of course, is assistance to the destination country and its inhabitants. This aid may nevertheless have a number of forms and it is not unethical to choose such a way of support, in which the domestic companies may also participate and this activity gives possibilities of further cooperation and makes the donor country visible.

The Czech Board for Trade and Investments, just being prepared, may in future contribute to further improvement of economic diplomacy in CR. This board according to the proposed status should markedly influence the economic diplomacy of the state besides others by preparation of plans and evaluation of activity of commercial-economic sections, defining priorities of commercial and export policy and by coordination of foreign visits of governmental representatives of CR with economic dimension. The Diplomatic academy and recently established Export academy may also play a positive role in this area, as these academies have an unique possibility to influence thinking of future representatives of CR abroad and to bring into it an economic dimension.

To merge agencies only if it is substantiated

Like in foreign countries, the need to rationalise the structure of agencies, which is relatively large in the Czech Republic, is frequently discussed also in our country. During these discussions the care should be taken that during rationalisation the ability of agencies to work on their agendas is not disturbed. Merging of foreign offices of agencies under one roof can be considered as a good idea, which may save a lot of expenses and improve their mutual communication. Nevertheless it is necessary to consider the cases, in which this merging cannot be realised due to the specifics of the given country. For example because the economic centre of the country, where CzechTrade should operate, in the given country is not in the same place as the cultural centre, designated for CzechCenters. As regards the concrete merging of agencies in CR, rather than in the case of CzechInvest and CzechTrade agencies, it seems to be more reasonable to consider merging of CzechCenters and CzechTourism. In spite of the fact that both agencies with respect to the foreign awareness as regards the Czech culture and contribution of tourism to GNP of the Czech Republic play an important role, it may be expected, that through their merging functioning of the whole system could become more effective, this without any disturbance of the specific function of agencies.

At the end it can be stated that in spite of a relatively long period of inactivity a visible progress occurred in the area of economic diplomacy in CR in the last years. The businessmen perceive and appreciate this improvement. Nevertheless, it does not mean that the present situation may be considered to be quite an optimum one. Still there exists a considerable space for improvement, this nearly at all levels. On the highest governmental level, it is necessary to control strategically the practical fulfilment of economic diplomacy and to coordinate the joint progress of the Ministry of Industry and Trade (MPO) and Ministry of Foreign Affairs (MZV). In this respect, it would be quite useful if the economic diplomacy at the Ministry of Foreign Affairs is assigned to a specialised deputy minister, which would deal with this issue only and need not, in the scope of his responsibilities, to cope with other agendas as it is today. It is also important to continue to work on a systematic evaluation of work efficiency of all participating ministries and agencies.

Very important is also active communication with the entrepreneurs, listening to the companies and businessmen and a consequent transfer of the revealed recommendations into practice. The last but not least aspect is the importance of human resources, on the quality of which the results of economic diplomacy expressively depend. Due to this reason it is important to remind all diplomats and relevant officials systematically that next to the political interests of the country all the time more and more important are economic ones, and it is therefore necessary to pursue them. Principles of economic diplomacy should be, in a sufficient scope, reflected in education at the diplomatic or export academy, after then a sufficient attention should be paid to them in everyday practice of ministries as well as at preparation of candidates before their travelling to diplomatic mission. We have still great reserves in these spheres, when compared with foreign countries.

For the state to be able to provide assistance to the companies, it is necessary that exercising of economic diplomacy is institutionalised in the scope of state administration. On the highest governmental level it is necessary to control strategically practical performance of economic diplomacy and to coordinate the joint progress of MPO and MZV.

About author: Radek Špicar

Petr Jonák – graduate of the Charles’s University and the University of Cambridge, former Deputy of Vicechairman of the Cabinet for Economy and present Director of Communication Department of ŠkodaAuto – graduate of Prague School of Economics, former reporter of ČTK in Brussels and economical editor of “Hospodářské noviny” daily paper .