April 28, 2017

Diplomacy and the Economy. Does Estonian Diplomacy Support its Foreign Economy?

REUTERS/Toby Melville/File Photo
Detail of a European map is seen on the face of a euro coin in London, Britain, January 31, 2016.
Detail of a European map is seen on the face of a euro coin in London, Britain, January 31, 2016.

We could actually talk about a single economy.

When discussing broad topics, there is always the issue of whether one’s views are subjective; it is very hard, if not impossible, to give a single and completely true opinion. The following is an expression of personal views.
I would like to start by changing the question. Estonia has no foreign economy. There is one economy, and it is so closely linked to the rest of the world because of globalisation that we take the foreign element for granted and do not even notice it. Estonia’s ratio of exports (in goods and services) to GDP is eight to ten—twice the European average. The European average also shows that one job in seven (i.e. every third or fourth Estonian job) is export-related. So that we can sell goods and services abroad, we must import some things because we cannot produce everything ourselves. This, in turn, creates more jobs. We consider it normal that we consume imported goods and have to sell abroad most of the goods and services produced here to be successful; we have become more integrated into the global economy than several other countries. Due to this and given future trends, it would be wise of us not to draw an artificial line between the domestic and foreign economy. Let us put it this way: when did you last check the label of a product to see where it was made? In the case of food products, the “Prefer Estonian Products” (Eelista eestimaist) label is commendable, but almost everything else we consume is imported. This is about big numbers—each month, we export goods worth a billion euros, and exports of services will soon be worth nearly half a billion euros.
Since the beginning of time, inter-state relations have facilitated economic links in addition to helping maintain a political relationship. Historically, this has been mostly related to trade, but today trans-border relations are much more varied. Facilitating and attracting investment, tourism, technological exchange and trade in services, and participation in trans-border supply chains, are part of the picture now. In institutional terms, international organisations, professional associations, local government units (cooperation between cities), and links between voluntary sectors and institutions of higher education are part of the economy. Both these lists are, naturally, very selective, and forms of cooperation are actually much more varied. If we view Estonian diplomacy as the network of embassies and permanent representations to international organisations that negotiate traditional relations with other states, it can be argued that all our foreign missions participate in promoting better economic relationships. But activities that bring economic benefit are more visible for some overseas missions than for others.
As a small and open state, Estonia has foreign trade relations with 170 countries. In 2016, we exported goods to 175 countries and imported from 135. If these numbers show nothing else, they confirm that we have integrated into the world economy quite well and that global value chains function well even in the case of really small economies like Estonia’s. At the same time, do not let the big numbers and broad geographical distribution mislead you: we are not big enough to have global interests and—although we are influenced by international trends and may perhaps recognise them more intuitively as a small society than large economies more focused on the domestic market—our economic interests are still mainly focused on our vicinity. We are very closely connected to the Nordic and Baltic countries, our eastern neighbour, the EU, and other European countries that are not members of the EU. More distant markets are less important as direct partners, although global economic forces such as the US and China are in the top ten. We also have companies whose foreign trade links are largely realised in what seem at first glance to be exotic countries. There is a principle according to which doubling the distance reduces the number of economic relationships by half, and trends over the past 25 years prove it to be true. The majority of our direct economic interests lie within a 1,500-km radius.
Estonia currently has 46 missions abroad and all of them have the obligation to promote Estonia’s economic interests in their work. There are basically two types of diplomatic activity that support economic ties: multilateral and bilateral. If we start from the distant and broad aspect, it may seem at first that the UN and IMF have nothing to do with the foreign economy, but this is not the case. International organisations develop the global rules, standards and generally accepted provisions that shape our daily lives as citizens and influence our economy and the functioning of all companies far more than we realise.
As a small country and economy, Estonia supports a rules-based world order (as opposed to power politics) and it is extremely important to us that the order correspond to international law. Agreeing multilateral rules is, unfortunately, a really slow process; decisions are often made based on consensus and this is why we may not like how slowly things proceed, because we are used to reacting much more quickly. However, there is no alternative to what Estonian diplomats, officials and politicians do on a daily basis in developing rules in international organisations. Only in this way can we stand up for our interests, keep abreast of issues and influence processes that may impact our society in the decades to come.
Organisations that deal with economic issues include the UN (in both New York and Geneva), the OECD, the World Trade Organisation, the IMF and the World Bank. The World Intellectual Property Organization (WIPO) and the International Labour Organization (ILO) are equally important. Estonia is a member of numerous international organisations with a global set of members, and the Estonian economy is supported by their activity and the work of our diplomats there and the participation of Estonian officials in working groups or conferences.
Our membership of and activity in the European Union also counts as multilateral cooperation, although it mainly has a regional focus. On 1 July 2017, Estonia will take over the presidency of the EU (from Malta) for six months, for the first time in history, and will be responsible for listening to and coordinating all the member states’ joint interests. There are 250 work streams in the EU and, while we could deprioritise fields that were less important to us in the past, we know we need to manage all of them for half a year. It is certain that most of the working groups will influence the Estonian economy. Someone once said that more than two-thirds of the legislative activity of an EU member state’s parliament is linked to trans-European provisions in some way. The majority of the daily activities of Estonian officials are closely related to the EU. To a bystander this may seem like a lot of bureaucracy but, on the other hand, if we take the example of states larger than Estonia we can see that standing alone is not the best option from the perspective of national interests, especially for a small state. The Brexit process that has just begun will provide much food for thought in this respect.
In terms of diplomatic human resources, most of our diplomats work on a multilateral level every day; the largest Estonian mission abroad is the its permanent representation to the EU in Brussels.
Development cooperation is also linked to our economic interests. As we help other countries poorer than us as much as we can, we also gain experience of the traditions, circumstances and behaviour of developing societies, which, in turn, helps us to forge mutually beneficial business relationships.
It depends on how one looks at it. If we view the foreign economy as an Estonian company’s attempt to sell its products and services outside the domestic market or to get additional funding from a foreign bank or investor, then for the bystander diplomatic activity seems to boil down to bilateral activity and the simple question: does Estonia have an embassy (or at least a consulate) in a particular country and, if so, what is it doing to advance Estonia’s economic interests? There are embassies and consulates in Estonia’s neighbouring states. These deal mainly with the concerns of individuals, but even the issue of visas directly influences the flow of tourists to Estonia and, hence, our service exports—tourist spending is 100% foreign economy. Over time, we have also established foreign missions in more distant countries—in North America, Africa and Australasia.
Let us return to the geography of foreign trade. Estonia will never have embassies and diplomats in all its partner states, but we already have representation (sometimes non-resident) in nearly all the countries that are of economic importance to us. All of this means that we have contacts at the highest political level in target countries, and follow developments and trends that can be useful for the Estonian economy. In addition, and in cooperation with partners such as the Estonian Chamber of Commerce and Industry, we regularly organise business missions in line with Estonian economic interests to many countries of key importance to our companies where we do not have a permanent diplomatic presence.
It is clear that the role of diplomacy has changed as much as our environment in the past few decades, as part of an increasingly globalising world in which our economy is mainly based on private capital and the flow of information is ever-increasing. Businesses mainly depend on their own resources and do not need state help in making business contacts. This has caused diplomacy to change as well. It is impossible for us to know everyone in and everything about the countries where we have representatives, but we do have a competitive edge over other information channels because Estonian diplomats live and work in those places for an extended period (usually three or four years); they perceive the local environment, culture and economy as Estonians, and can make recommendations on that basis. Moreover, diplomats are officials who stand up for their state’s interests by law and calling. All Estonian embassies and representations map and represent Estonian economic interests, as they should. Practice shows that, the further away a state and culture is from us, the more difficult it is for the average Estonian company to succeed there. More often than not, companies contact the embassy only when confusing business issues need to be clarified. Diplomats collect and analyse economic information and make contacts, and build and maintain Estonia’s reputation every day.
I invite Estonian companies to communicate proactively with embassies and the Ministry of Foreign Affairs. Both businesses and diplomats operate with limited resources, so efficiency is important, and doing one’s homework is crucial in the context of exports, when a company plans to enter foreign markets. However, it is often underestimated—the submerged part of the iceberg—and preparation frequently does not receive the necessary attention. To succeed, it is crucial that our companies send employees to markets of interest for extended periods, so that they can get acquainted with the local environment, introduce themselves and make contacts, as diplomats may be unfamiliar with the particular field of a company’s interest.
In summary:
– Considering the size of our country and its economy, and our location and history, Estonia has integrated quite well into the global economy.
– Resources in both the private and public sector are limited, and to move forward we need to use our opportunities more efficiently and cooperate more.
– Estonian diplomacy supports our economy, both as a bridgehead in other cultures and markets and by participating in international negotiations and decision-making that have a major influence on our economic environment.

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