By AMADO M. MENDOZA, JR., Ph.D. with contributions from ROLANDO TALAMPAS

Economic diplomacy is a key instrument of any nation-state especially if its economy is relatively small in the global scale and in comparison to its foreign economic partners; and if it is relatively permeable, that is, if a significant share of its gross domestic product (GDP) is accounted for by foreign trade and capital flows. A state’s economic diplomacy will have to be primarily assessed through the following criteria: the ability to extract best value for the country’s products, services, and other tradeables through negotiations, trade agreements and other diplomatic means.

Using several case studies, negotiation outcomes are studied by employing a framework that incorporates market conditions, domestic politics, negotiators’ beliefs, and strategies, among others.

The Bell Trade Act (with its Parity Agreement) with the U.S. in the immediate post-war period was ‘sweetened’ by the $620 million Philippine Rehabilitation Act. In this sense, offensive value-claiming by the US (taking away value from the Philippines) was diluted by its mild value-integrating behavior. The Philippines had a very low resistance point vis-à-vis the Americans.

In the RP-Japan Treaty of Amity, Commerce and Navigation, even in the face of burgeoning economic ties, a vigorous debate on the merits of a treaty arose. Some negotiators argued that a treaty was not necessary since economic relations were thriving anyway. Others argued that Japan might source its raw materials elsewhere. A related agreement, the Peace Treaty with Japan, was more successful since it was pushed by the U.S. This treaty is an example of economic statecraft driven by security and other non-economic objectives.

In the negotiations of the Japan Philippine Economic Partnership Agreement, both parties claimed value in the trade and investment areas. However, Japan made further value-claims in other areas (national treatment and trade in toxic wastes), which became very contentious constitutional issues.

What complicated the JPEPA process was the relatively large slack between negotiators and ratifiers since the negotiation was dominated by the executive. This meant that there was a greater chance of non-ratification.

The last case under consideration is the civil aviation conflict between the Philippines and Taiwan in 1999-2000. The policy context was President Ramos’ policy of liberalizing domestic and international civil aviation and the institutional frameworks were bilateral air service agreements (with respect to passengers) and air transport agreements (cargo). The country however had to contend with historical baggage: the Philippine Air Lines (PAL) was previously designated as national flag carrier. However, this was done when PAL was still government-owned. PAL accused Taiwanese carriers of poaching and the Philippine civil aviation authorities cancelled the RP-Taiwan air service agreement to teach the Taiwanese a lesson. Negative consequences included the pull-out of key Taiwanese investors (e.g. Acer), reduced Taiwanese tourist traffic, and higher airfares and circuitous routes for returning Taiwan-based PH workers. In the end, PH value-claiming backfired and PH-Taiwan ASA was restored.
Given all the cases, the key lesson is to build domestic politics into the negotiation plans. We need to ensure domestic support when making offensive claims. We must master the tension between secrecy during the negotiations and transparency during ratification. We need to tighten slack between negotiators and principals to enhance chances of ratification.

The study was conducted using key informant interviews and by analyzing relevant documentary sources.