3.-Economic Diplomacy As Impetus For Philippines

Economic Diplomacy as Impetus for Philippine Domestic Reforms:
Theory, Evidence, and Recommendations
Ryan Francis D. Gener
A dissertation presented to the Faculty of Arts in the University of Malta for the
degree of Master in Contemporary Diplomacy
September 2016
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I. DECLARATION
I hereby declare that this dissertation is my own original work.
Ryan Francis Gener

30 September 2016
Geneva, Switzerland
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II. ACKNOWLEDGMENTS
I would like to thank Ambassador Kishan S. Rana, my thesis adviser and

professor of economic diplomacy. I have also drawn from the works of GR
Berridge (also one of my professors), N Bayne, S Woolcock, B Hocking, MA East,
J Robertson, MJ Trebilcock, R Fabella, and others on economic diplomacy, foreign
policy-making, and the political economy of domestic policy and institutional
reforms. I acknowledge the work of scholars in the case studies, including the
insights provided by Dr. Zhao Hong. I also appreciate the valuable inputs of
Undersecretary Laura Del Rosario and Ambassador Esteban Conejos, Jr., and the
roles they and other officials played in furtherance of Philippine economic
diplomacy. I also thank the management, professors, staff, and my classmates
at the University of Malta and DiploFoundation, including Patrick Borg for
coordinating the course and this paper. I would also like to thank my wife,
Bridgit, my parents, and my sister for the love and inspiration.
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III. DEDICATION
To my grandparents, Dade Paeng and Lola Mimi, who both lived long and full
lives and passed on during the conceptualization and drafting of this paper.
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IV. ABSTRACT
This paper surveyed theories and practices on economic diplomacy, developing-
country foreign policymaking, and the political economy of reform. It then
provided a conceptual framework on the role of economic diplomacy as catalyst
or facilitator of domestic economic reforms. A sampling of political and economic
cases in some nations has shown that diplomacy has been utilized as impetus for
a state’s own internal reforms, and provides lessons that could be distilled and
contextualized for possible application in other states. The Philippine experience
provides further evidence of the use – albeit uneven – of economic diplomacy for
reforms. The paper then suggests ways by which the Philippines could utilize
economic diplomacy effectively in a conscious, active and systematic manner in
furtherance of its own domestic reform efforts.

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V. TABLE OF CONTENTS
1 INTRODUCTION .............................................................................................1
1.1 Background ................................................................................................................. 1
1.2 Research question ........................................................................................................ 2
1.3 Thesis statement ......................................................................................................... 2
1.4 Objectives ................................................................................................................... 2
1.5 Scope and Limitations................................................................................................... 2
1.6 Methodology and Framework ......................................................................................... 3
1.7 Review of Related Literature .......................................................................................... 7
1.7.1 Economic Diplomacy .................................................................................................. 7
1.7.1.1 Economic diplomacy in the 21st Century .................................................................... 7
1.7.1.2 The regulatory environment and the domestic context .............................................. 11
1.7.1.3 The role of Foreign Ministries ................................................................................. 12
1.7.1.4 Domestic constraints............................................................................................. 14
1.7.1.5 Context of globalization ......................................................................................... 15
1.7.1.6 Economic diplomacy in developing countries ............................................................ 15
1.7.1.7 Unique characteristics of each state ........................................................................ 16
1.7.2 Foreign policymaking in developing countries .............................................................. 16
1.7.2.1 Typologies of foreign policymaking ......................................................................... 16
1.7.2.2 Factors affecting foreign policy-making in developing nations ..................................... 18
1.7.3 Domestic Economic Reform ...................................................................................... 19
1.7.3.1 Economic reform – definition and characteristics ...................................................... 19
1.7.3.2 Stages, factors and risks of reform ......................................................................... 21
1.7.3.3 The political economy of reform ............................................................................. 22
1.7.3.4 Dealing with losers: political economy of the transition towards reforms ...................... 24
2 CONCEPTUAL FRAMEWORK ..........................................................................29
2.1 Next step in the evolution of economic diplomacy .......................................................... 29
2.1.1 Expanding the terms of reference .............................................................................. 30
2.1.2 Evolution of economic diplomacy ............................................................................... 31
2.2 Definition of economic reform ...................................................................................... 31
2.3 Developing-country foreign policymaking for domestic reform ......................................... 32
2.4 Diplomacy in policy transition strategies ....................................................................... 36
2.5 Economic diplomacy as catalyst for reforms .................................................................. 39
2.5.1 Enlarging the international-domestic interface ............................................................ 39
2.5.2 International cooperation for domestic coherence ........................................................ 40
2.5.3 A dynamic relationship ............................................................................................. 41
2.5.4 The mountaineering analogy ..................................................................................... 43
2.5.5 The diplomat as ‘Swiss-knife’ catalyst ........................................................................ 45
2.5.5.2 The advantages .................................................................................................... 47
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2.5.5.3 The disadvantages ................................................................................................ 48

2.5.6 The actors involved ................................................................................................. 49
2.5.7 Re-orientation of mindset and culture ........................................................................ 50
2.5.8 Spectrum of multi-level approaches ........................................................................... 52
2.5.9 Explicit articulation .................................................................................................. 52
3 LESSONS FROM CASES .................................................................................54
3.1 Political realm ............................................................................................................ 54
3.1.1 US civil rights legislation .......................................................................................... 54
3.2 Economic realm ......................................................................................................... 55
3.2.1 Viet Nam’s Doi Moi .................................................................................................. 55
3.2.2 India and TRIPS ...................................................................................................... 56
3.2.3 China’s WTO Accession ............................................................................................ 57
3.2.4 Services trade agreements ....................................................................................... 62
3.3 Distilling lessons from cases ........................................................................................ 70
4 THE PHILIPPINE CASE .................................................................................73
4.1 The Philippine economy at a glance .............................................................................. 73
4.2 Economic diplomacy for development and competitiveness.............................................. 75
4.2.1 The rationale for Philippine economic diplomacy .......................................................... 75
4.3 Locking in unilateral liberalization................................................................................. 77
4.3.1 WTO membership .................................................................................................... 77
4.3.2 JPEPA .................................................................................................................... 79
4.4 Inducing reforms through trade agreements .................................................................. 84
4.4.1 Domestic reforms through WTO participation .............................................................. 84
4.4.1.1 TFA ..................................................................................................................... 85
4.4.1.2 Rice waiver .......................................................................................................... 86
4.4.1.3 Agriculture negotiations......................................................................................... 88
4.4.1.4 The Distilled Spirits case and the Sin Tax Law .......................................................... 88
4.4.2 Interest in the Trans-Pacific Partnership and EFTA ....................................................... 91
4.5 Sectoral policy reforms ............................................................................................... 92
4.5.1 Privatization of a water distribution utility ................................................................... 92
4.5.2 Competition in telecoms ........................................................................................... 93
4.5.3 Open skies policy .................................................................................................... 94
4.6 Soft approaches ......................................................................................................... 96
4.6.1 Policy dialogue, peer review, and capacity building ...................................................... 96
4.6.2 Competitiveness and out-of-the-box opening up ....................................................... 100
5 RECOMMENDATIONS ..................................................................................106
5.1 Lessons and remaining challenges .............................................................................. 106
5.2 Role of economic diplomacy in addressing outstanding challenges .................................. 108
6 CONCLUSION .............................................................................................113
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VI. LIST OF ABBREVIATIONS AND ACRONYMS
Abbreviation Description
APEC Asia Pacific Economic Cooperation
ASEAN Association of Southeast Asian Nations
BPO Business Process Outsourcing
CAB Civil Aeronautics Board
CBPR Cross-Border Privacy Rules
CEO Chief Executive Officer
DA Department of Agriculture
DFA Department of Foreign Affairs
DPPI Data Privacy Pathfinder Initiative
DTI Department of Trade and Industry
EPA Economic Partnership Agreement
EU European Union
FDI Foreign Direct Investment
FSP Foreign Service Post
FTA Free Trade Agreement
FTAA Free Trade Area of the Americas
G-33 Group of 33 (Friends of Special Products)
GATT General Agreement on Tariffs and Trade
ICT Information and Communications Technology
IFI International Financial Institution
IMF International Monetary Fund
JPEPA Japan Philippines Economic Partnership Agreement
MFA Ministry of Foreign Affairs
MOFCOM Ministry of Commerce
MOFTEC Ministry of Foreign Trade and Economic Cooperation
MWSS Manila Waterworks and Sewerage System
NCC National Competitiveness Council
NEDA National Economic and Development Authority
OFW Overseas Filipino Workers
OIER Office of International Economic Relations
OUIER Office of the Undersecretary for International Economic Relations
PIDS Philippine Institute for Development Studies
PTA Preferential Trade Arrangement
TFA Trade Facilitation Agreement
TPP Trans-Pacific Partnership

TRIMs WTO Agreement on Trade-Related Investment Measures (TRIMS).
TRIPS WTO Agreement on Trade-Related Aspects of Intellectual Property Rights
UNCTAD United Nations Conference on Trade and Development
UNDP United Nations Development Programme
US United States
USAID United States Agency for International Development
WTO World Trade Organization
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VII. LIST OF TABLES, FIGURES AND ILLUSTRATIONS
Number Title/Description
1 Research Framework
2 Outline of Economic Diplomacy in Developing Countries
3 Outline of Domestic Economic Reforms
4 A Conceptual Framework on the Political Economy of Reform
5 Intersection of Technically Sound and Politically Possible Reform
6 Conceptual framework and processes involved
7 Diplomacy at interface of external and domestic environments
8 Enlarging the interface through diplomacy
9 International Cooperation and Domestic Coherence
10 Three-dimensional graph of the reform contribution of diplomacy and
other factors
11 Climbing Mount Everest
12 Swiss knife
13 Lessons from Cases
14 The Philippine Experience
15 Vicious cycles plaguing the Philippines
16 Development Agenda
17 Recommendations
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1 INTRODUCTION
1.1 Background
In the Philippines, there has been no explicit policy pronouncement, nor devoted
research, on the role of economic diplomacy in facilitating internal reforms. There
is, however, substantial evidence showing that reforms have taken place;
international engagement has likely contributed to these reforms.
This paper will explore the role played by a state’s (particularly the Philippines’)
economic diplomacy, whether intentionally or unwittingly, in furtherance of
reforms within its own backyard. Globalization has affected domestic institutions
and laws, and has resulted in a debate on whether it constrains or enables their
well functioning. While economic diplomacy has traditionally focused on
projecting national interest externally (e.g., promoting exports and employing
economic tools for political security ends) and attracting inward investments,
economic diplomacy has the potential to be utilized to facilitate a state’s own
domestic reform efforts. History suggests that economic diplomacy has actually
been useful as impetus for internal reform, through commitments to international
treaties, dispute settlement, free trade agreements, overseas development
assistance, policy dialogues, peer reviews, and capacity building. It is unclear,
however, whether they have simply been results driven by external forces, by-
products of a state’s diplomatic efforts aimed at traditional objectives, or
intended outcomes from deliberate and systematic approaches taken by a state’s
own foreign policy actors.

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1.2 Research question
How can the Philippines utilize economic diplomacy in furtherance of domestic
reform efforts?
1.3 Thesis statement
Economic diplomacy can be utilized effectively in a conscious, active and
systematic manner in furtherance of a state’s own domestic reform efforts, with
particular application to the Philippine context.
1.4 Objectives
1. Gather existing theories on the role of economic diplomacy in
undertaking domestic reforms. If necessary, create a new theory or
elaborate upon existing ones.
2. Collate good or best practices of diplomatic institutions and other foreign
policy actors.
3. Document and assess, based on the theories and good practices, the
policies and approaches taken by the Philippines in utilizing economic
diplomacy as an impetus for domestic reforms.
4. Suggest methods and approaches to better utilize Philippine economic
diplomacy as a tool for domestic reform.
1.5 Scope and Limitations
This paper will cover existing research and thinking on economic diplomacy,
including relevant aspects of foreign policymaking in developing countries, and

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the political economy of domestic reforms. The linkage between economic
diplomacy and domestic reforms would then be explored and applied to the
Philippine context.
The paper will be a non-exhaustive discussion on existing theories and cases,
based on the availability of information. It will focus on diplomacy from the
perspective of state agents and practitioners, particularly the Foreign Ministry
and attached agencies performing official diplomatic functions. The role of other
government agencies and non-state actors – whether internal or external –
would be discussed only insofar as they may coordinate with or complement
economic diplomats in pursuit of economic reform.
Apart from numerous documented cases, there is scarce systematic research on
the role of economic diplomacy in domestic reform efforts. Economic diplomacy
is normally framed in the articulation of a state’s interests abroad, and reform
efforts in the context of external constraints or domestic political dynamics. The
role of the Foreign Ministry and other diplomatic actors in facilitating or enabling
these reforms would have to be conceptualized.
1.6 Methodology and Framework
This is essentially a qualitative study broken down into the following
components: survey and comparison of relevant theories and cases; distillation
of procedural and substantive elements making up the conceptual framework;
description of the current state of Philippine economic diplomacy; and application
of identified good-practice elements to Philippine reform setting.

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The paper could be summed up through the following simple equation (which will
be elaborated upon in the Chapter 2):
R = ƒ(D,G)
where
D = Economic diplomacy
G = All other factors that affect or generate reforms
R = Domestic economic reforms
This paper would not attempt to measure ƒ, or the coefficient measuring the
correlation or causation between the independent variable D and the dependent
variable R. It would have the more basic goal of an initial conceptual articulation
of the role played by D in arriving at R, based on a selected sample of
documented cases or experiences.
The diagram (Figure 1) illustrates the research framework:

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Figure 1. Research Framework
The review of related literature will discuss many of the current thinking in
economic diplomacy and domestic economic reform.
However, the linkage between the two areas, including the methods and
processes involved, appears to be a novel research concern. The paper would
take theoretical elements from both areas that are relevant to crafting a working
conceptual framework on how diplomacy affects internal reforms.
To support this framework, certain cases demonstrating methods or processes
involved would be narrated. These cases would be culled from existing literature
or gathered through interviews.

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The paper would then look at the Philippine approach, and see whether the
lessons and elements from best-practice cases could be applied to the Philippine
context.
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1.7 Review of Related Literature
Figure 2. Outline of Economic Diplomacy in Developing Countries
1.7.1 Economic Diplomacy
The first section of the literature review focuses on economic diplomacy and
foreign policy-making in developing countries.
1.7.1.1 Economic diplomacy in the 21st Century
Diplomacy is a tool for conducting relations between and among states. It is ‘the
management of international relations by negotiation… by argument and

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pressure,’ to arrive at agreement, as an alternative or supplement to force, law,
propaganda and economic sanctions (Berridge, 2015a, no page).
Berridge (2015a) deems negotiations as the most vital function of diplomacy,
with its potential to resolve or manage imminent concerns, including economic
recessions and financial crises. Diplomacy also has ‘second order functions,’
including information gathering, lobbying, building goodwill, and provision of
policy advice.
While a professionalized Foreign Service mainly conducts diplomacy, increasingly
it is conducted by capital officials and through various other channels (Berridge,
2015a).
Economic diplomacy, as a specific branch of practice, is in its broadest sense ‘any
diplomatic activity concerned with the advancement of the state's economic
interests but also diplomacy - sometimes known as 'economic statecraft' – that
employs economic resources in pursuit of a particular foreign policy objective’
(Berridge, 2015b and 2015c). It includes both ‘narrow’ economic diplomacy
dealing with economic policy and reporting, as well as ‘commercial diplomacy’
promoting trade and attracting investments, technology and aid sourcing,
tourism, country branding, diaspora management, and economic treaties
(Berridge, 2015b and Rana, 2015b). Economic diplomacy involves official and
non-state actors, and ‘the biggest challenge in economic diplomacy is to achieve
both harmonization of national policy, and coordination of promotional activity’
(Rana, 2015b).
‘Diplomacy starts with trade’ (Berridge, 2015b). According to Berridge (2015b),
in the late Middle Ages, representatives of merchants with the authority and
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ability to sort out problems associated with cargo vessels were needed for cross-
border trade to flourish. The private consul, who served as spokesman for the
merchants, was born; ‘thus was established the habit of permanent
representation in a foreign land for the purpose of dealing with local officials, and
it was from this that the modern embassy slowly evolved’ (Berridge, 2015b).
‘Diplomacy ends with trade and investment’ (Berridge, 2015b). Berridge
elaborated that in the late nineteenth to the early twentieth centuries, European
states controlled vast amounts of territory in Africa and Asia, and were motivated
to search for raw materials and markets. Ambassadors and their diplomatic staff
focused on major capital investment placement and diplomatic protection.
Commercial attachés were mainly tasked with the day-to-day promotion of
exports.
Later in the twentieth century, the importance of economic priorities, according
to Berridge, continued. ‘Developing countries’ emerged from the dissolution of
colonial empires, prioritizing economic development in foreign and domestic
policies (Berridge, 2015b). Transition economies that succeeded the USSR were
anxious to transform to market economies. Since the Second World War, ‘foreign
ministries have been under steadily increasing pressure to demonstrate that their
diplomats are giving high priority to economic diplomacy’ (Berridge, 2015b).
Today, economic diplomacy broadly covers ‘the advancement of a country’s
economic interests in foreign countries’ (Rana, 2015b):
Economic diplomacy is a multihued, plural activity that at its best involves

partnerships with many actors. For governments and embassies, the main
role is to facilitate, promote and provide services. Business enterprises are the
main direct beneficiaries. At the same time, exports, investments and
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technology acquisition generate employment, contribute to higher tax

revenues and help the country's socio-economic growth. Each country's
economic diplomacy is different, suiting its circumstances.
Economic diplomacy, according to Rana, covers dealings with multilateral
agencies (e.g., World Bank, International Monetary Fund (IMF), United Nations
Conference on Trade and Development (UNCTAD), UN Development Programme
(UNDP)), and other agencies, joint commissions, and bilateral and regional
groupings that handle economic activities – e.g., aid management, technology
sourcing, science and technology agreements, tourism promotion, and country
brand management.
Economic diplomacy also encompasses ‘commercial diplomacy’, which to Rana
includes trade, investments, and agreements involving these two, e.g., World
Trade Organization (WTO), free trade agreements (FTAs), and others.
The ‘full range of instruments’ includes the ‘whole spectrum of measures from
informal negotiation and voluntary cooperation, through soft types of regulation
(such as codes of conduct), to the creation and enforcement of binding rules’
(Bayne and Woolcock, 2011, p. 4). Multi-level engagement is pursued, according
to Bayne and Woolcock, through unilateralism (e.g. unilateral liberalization),
bilateralism, regionalism (EU and ASEAN), plurilateralism (G8 and G20), and
multilateralism (WTO).
Rana (2011 and 2015c) identified the stages of economic management: trade
promotion and investment attraction; networking and advocacy; image building,
and regulatory management and resource mobilization. Countries realize,
according to Rana, the importance of international economic arrangements and
rules (e.g. WTO, FTAs) and addressing investment regulatory concerns.

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1.7.1.2 The regulatory environment and the domestic context
Bayne and Woolcock (2011, p.3) noted that ‘the increase in economic
interdependence over the last 60 years has put an end to such tidy distinctions
between what is domestic and what is international policy. The advance of
globalization since 1990 obliges economic diplomacy to go deep into domestic
decision-making, so as to capture its international repercussions.’ According to
them, the stages in domestic decision-making for international negotiation are:
preparation, framing, agenda setting, negotiation, ratification, and enforcement.
Rana (2015c) insightfully states, ‘Sound domestic policy is the indispensable
foundation for good economic diplomacy.’ He notes that domestic policy ‘hinges
on the country’s ideology and its understanding of the nature of economic
relations’. After the Cold War, neo-liberal or capitalist policies – free market,
minimal state intervention, and entrepreneurship – have dominated. After the
global financial crisis of 2008, according to Rana, more have embraced a mixture
of free markets and careful regulation.
Rana (2015b) further observes that ‘policy choices hinge on complex domestic
and international calculations’, and cites Bayne and Woolcock (2008) for
identifying three dualities or tensions in economic diplomacy that determine how
economic issues are framed in countries – the tension between politics and
economics, between international and domestic pressures, and between
government and other actors.
In making external economic policy decisions, domestic actors bargain among
themselves, as ‘external and domestic policies mesh into one another’ (Rana,
2015c). The foreign ministry coordinates these actors in external policy-making,

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balances economic with other interests, reports on the views of foreign
governments, manages support from diplomatic missions, and assists domestic
firms in risk analysis (Rana, 2015c).
In discussing the political economy tensions of policy-making, Rana (2015c) used
the example of the decision to enter into a free-trade agreement. Beyond the
tension between economic and political imperatives, there is also a tension
between the ‘traditional view’ (i.e., exclusive reliance on the multilateral trading
system represented by the WTO) and the ‘novel idea’ (i.e., shifting in part to
bilateral FTAs). Furthermore, there is a tension between the ‘conservative view’
of protecting domestic producers in the national interest, and the more ‘dynamic
view’ that opens a country to new and fresh opportunities. On this last point,
Rana observes that those adversely affected by FTAs complain loudly to preserve
their interests, while sectors that benefit, including consumers, remain quiet.
1.7.1.3 The role of Foreign Ministries
Hocking (2007, p.7) identified the generic roles of Foreign Ministries: node in
communications system, policy advice function, memory bank, and policy
transfer function.
Hocking (2007, p.5) added that there was a range of views with regard to the
current and historical position of the Foreign Ministry in its international or
domestic environments, given the ‘complexity of the international system and
the varying roles which diplomacy and its agents are portrayed as discharging.’
Hocking (2007, p. 19) asserted however that such alleged evolution is
misplaced; despite significant changes in international and domestic
environments, ‘MFAs have always been challenged in terms of defining and

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protecting their roles in the management of international policy, which is simply
a manifestation of the fluidity of the environments in which they work.’
According to Hocking (2007, p. 18), an important characteristic of the Foreign
Ministry as an organization is its placement in the ‘interface between two
systems: the international diplomatic network and the national diplomatic
system.’ MFAs are challenged to adapt to both environments – described by
Hocking as ‘a bifurcated but linked environment’ – which may have conflicting
interests but may also provide resources to cope with change. Expounding on the
MFA’s location ‘at the boundary of two linked systems’ (p. 8), he noted that the
Foreign Ministry is an ‘inseparable component of the global diplomatic network,’
where most international interactions occur, and is ‘a major element in the
national diplomatic system – that is, the machinery through which governments
seek to pursue their international policy goals.’
Taking a page from the business sector, MFAs and their networks of diplomatic
posts have also highlighted the need to perform strategic and managerial roles.
The Thai Foreign Ministry had in 2002 adapted a business model called ‘CEO
scheme’ (Srivihok, 2007). The Ambassador is required to perform strategic and
managerial roles over and above the traditional core competencies of
representation and negotiation.
East (2005) acknowledged that policy-making by Foreign Ministries in developing
nations has a different historical and political context compared with developed
nations. Issues (e.g., turf wars, bureaucratic layers, anti-business culture) and
changes (e.g., greater involvement in economic issues, increasing coordination

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with other agencies and non-state actors) facing the latter are not as relevant to
developing nations.
He accepted that Foreign Ministries are not the only actors in foreign affairs, but
that they are adapting to new issues and challenges. Evidence pointed to mixed
outcomes regarding the health and direction of Foreign Ministries in the twenty-
first century. They are not destined to be marginalized or made irrelevant by
external factors, as they become more professionalized, specialized and effective
in dealing with newer global issues and coordinating with other actors; ICT also
offers Foreign Ministries access to increasing and more efficient data and
information. On the other hand, challenges identified by East include limited
resources and capacity to act, calling for greater focus and prioritization to
leverage more out of available resources, effective coalition building and
multilateral approaches nationally, regionally and globally, and exploring
potential gains from privatization.
1.7.1.4 Domestic constraints
While diplomacy is utilized to make up for resource gaps particularly in
developing economies (such as in Korany’s (2005) account of Egpyt), it does not
substitute for domestic resource endowment scarcity or structural weaknesses
(Rana, 2015b). Rana adds that that ‘external policy does not resolve deficiencies
in home governance, or bad domestic policy actions.’ Trade depends on
competitiveness of products, an outcome of various domestic factors.
Rana (2015b) insightfully points out that ‘the tail cannot wag the dog.’ He thus
expounds:
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The policy that is implemented at home … provides the platform for building
the domestic manufacturing capacity, pushing its exports into new avenues,
and mobilising foreign participation in investments, tourism and the like, plus
marketing the country. No sophisticated set of image specialists can create or
project a country brand that is divorced from the ground reality. Without
sound economic policies at home, no amount of diplomatic skill can make a
real difference. Thus managing the external policy environment is subsidiary
to the nature and implementation of home policy, and its inherent
attractiveness to foreign partners.
1.7.1.5 Context of globalization
Greater interconnectedness, more opportunities, and a growing number of issues
of multilateral, regional and bilateral concern have been observed. At the same
time, there are increasing constraints on sovereignty, policy and regulatory
space brought about by globalization.
Harris (2005, p. 115) defined globalization as ‘increasing networks of connections
among societies due to lowered explicit or implicit barriers between states’. He
observed the difficulty of distinguishing foreign from domestic policy due to
globalization. Foreign policy is observed to be a response to both domestic and
external changes. Harris (2005, p. 124) adds that it is difficult to ‘distinguish
between change in general and change due to globalization in particular and also
to distinguish between constraints accepted voluntarily, as in membership of
international institutions, and those that are unavoidable’.
1.7.1.6 Economic diplomacy in developing countries
For 'developing countries', their label was sufficient to indicate the importance
most of them placed on economics in their foreign and domestic policies
(Berridge, 2015).
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Trade and investment are essential economic development tools. Developing
countries ‘discovered’ economic diplomacy in the 1970s; the first objective is
oftentimes trade promotion, supplemented by investment promotion, particularly
the mobilization of foreign direct investments (FDI) (Rana and Chatterjee, 2011,
pp.6-7).
1.7.1.7 Unique characteristics of each state
Scholars have also cautioned against generalizing the applicability of diplomacy
successes in certain cases to other states, given the multitude of factors and
characteristics that affect a particular economy. What might work in one state
may not work in another (see for instance Robertson, 2005).
1.7.2 Foreign policymaking in developing countries
Robertson (2005, p.5) observed the distinction between diplomacy and foreign
policy, noting that ‘diplomacy is generally accepted as a more expansive concept
than foreign policy, with the former, as discussed above, being a ‘process
whereby international actors conduct their business through a set of well defined
practices, such as representation, communication, and negotiation’.
1.7.2.1 Typologies of foreign policymaking
Robertson (p. 7) argued that ‘a wider range of concepts is needed if we are to
capture foreign policy-making structures and processes across the diverse
developing world.’ He categorizes foreign policy-making in six classes, depicting
distinct structures and processes ‘based on diverging interpretations of post-Cold
War international demands and the responses of states and societies to those
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demands’ (p. 6). These are: conventional diplomacy, new state capacity, capital-
driven, marginalization, regime or elite survival, and privatization.1
In ‘conventional diplomacy’, states promote national interest through traditional
ways (i.e., analysis, negotiation, advocacy) within clear rules of engagement and
by narrow elites, with the fundamentals intact. Domestic and foreign policy are
seen as ‘distinct practices with different organizing principles, pressures and
norms’ (p. 7). In ‘new state capacity’, states continue as actors of foreign policy
but employ new techniques and technologies beyond traditional means. In
‘capital-driven’ foreign policy-making, states are seen as the main actors in
international liberalization and capital accumulation, setting up the frameworks
to advance globalization. In ‘marginalization’, international institutions and major
powers are seen to largely dictate the foreign security and economic policy
decisions as well as many domestic policies of developing nations. In ‘regime or
elite survival’, states are predominantly operated for the benefit and survival of a
small elite, with foreign policy reflective of this broad approach. In ‘privatization’,
non-state domestic actors, e.g., business lobbyists or rebel groups, assume
direct foreign policy functions. Robertson argued that countries would clearly fall
within one of the foreign policy-making typologies or structures over a given
period of time.
Furthermore, he asserted that developing-country cases ‘cast significant doubt
on the conventional understanding that foreign policy and domestic policy are
separated. Domestic and foreign policy seem highly intertwined, except in some
cases of regime survival’ (p.22). Resource constraints, including lack of
organizational capacity, are a key factor in limiting foreign policy options. Despite
1
The typologies are explained further in Chapter 2.
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the resource limitations, many case studies demonstrate effective forms of
foreign policy management.
1.7.2.2 Factors affecting foreign policy-making in developing nations
East (2005) loosely categorized factors affecting foreign policy-making in the
South. Even though many of the case studies noted the erosion of the distinction
between internal and external factors, the major causal factors affecting foreign
policy fell into either category. There was a preponderance of focus on internal
factors, i.e., in most cases, poor economic performance drove policies to
generate additional external resources. In elaborating on the ‘regulatory state’
and ‘networked governance’, Jayasuriya (2005) sees the external force of
globalization as transforming the internal structure of a new form of regulatory
state. On the other hand, Friedman (2005) observes the core factors as being
internal, with the citizen at the forefront of domestic politics and social groups
that determine sovereignty and thus foreign relations. The personal
characteristics of the head of government and the inner circle elite are also
considered particularly influential in centralized foreign policy-making with no
competing loci to constrain them. Civil society and mass publics were seen to be
an increasingly important factor moving forward. East observed the diffusion of
power and control after the Cold War, enabling developing nations to work
effectively in regional settings. Vanaik (2005) highlights the viability of the
regional approach with shared characteristics, and Jayasuriya noted the regional
basis of networking and easier monitoring and enforcement in this smaller
configuration.
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Figure 3. Outline of Domestic Economic Reform
1.7.3 Domestic Economic Reform
The second part of the literature review delves into the theory and practice of
domestic economic reform.
1.7.3.1 Economic reform – definition and characteristics
Hsu (2016, p. 34) provided the following definition:
Economic reform is the large scale, intentional shift of an economy away from
areas in which there is weak comparative advantage to key areas where there
is strong comparative advantage.
This implies operation of an economy in an open, globalized trading system.
International trade theory relies on productivity and efficiency enabled by

- 20 –
relative comparative advantage, instead of absolute advantage, of economies for
mutual benefit. The theory of comparative advantage (Ricardo, 1817) asserts
that when two economies each specialize in producing a good in which each has
a comparative advantage, both economies gain from exporting the good each
produces to the other, even if one of them has an absolute advantage in both
goods.
Hsu illustrated the characteristics of economic reform (Hsu, 2016, p. 5-6):
A period of economic reform is a time of accelerated development: one that is

intentionally undertaken by policy makers, that is timely in its appearance,
and that places emphasis on loci of comparative advantage. Often it is
initiated as a response to economic repression or perceived economic
weakness. It is defined by a clear break, in one or more ways, from business
as usual, and may be led by a strong leader and/or group of economically
progressive individuals.
The economic reform process is also timely in its appearance, in the sense
that the policies that are implemented are viewed as necessary to further
economic development, and also in relation to the external environment. The
reform process may require more caution, for example, in an extremely
competitive global environment. The process may require more extensive
changes in the face of impending crisis.
Economic reform underscores a country’s comparative advantage, or

production at its lowest opportunity cost. Economic policies have been shown
to fail when they hinge upon a development process that is unnatural or
external to a nation. When a country’s comparative advantage is incorporated
into the reform program, economic development stands a better chance of
becoming self-sustaining.
Pavletic (2010, p.23) adopted the following definition from a political economy
perspective: ‘If we consider economic policy as an equilibrium outcome of the

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political process, a reform can be defined as a political adaptation or alteration
aiming to improve the existing status quo.’
1.7.3.2 Stages, factors and risks of reform
Hsu (2016), in rejecting ‘big bang’ reforms that lead to financial crisis or halted
progress, further classified the stages or tiers of reform, as development policies
evolve as an economy develops and more resources become available.
a. Tier One – basic reforms for human capital development, fiscal resources
and economic base, e.g., agricultural reform, improved tax system, basic
health and education system, and possibly light industry development
and some trade
b. Tier Two – enhanced reforms, e.g., light industry development, financial
system, more sophisticated trade, improved education system
c. Tier Three – advanced reforms, e.g., heavy industry or more technology-
infused manufacturing, services industry, more complex financial
system, more open trade
Sharma (2011, as cited in Hsu, 2016) identified factors that make reforms
sustainable, e.g., change in dominant view of international intellectuals,
providing illustrative country cases, change in executive orientations, sufficient
political will, heightening degree and perceived causes of crisis, improving
attitudes of donor agencies, and enhancing perceived outcomes of reforms. A
‘political-economic-psychological threshold’ should be passed for the Tier 1
reform process to be undertaken (Hsu, 2016, p. 34).

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1.7.3.3 The political economy of reform
Figure 4. A Conceptual Framework on the Political Economy of Reform (Source:

World Bank, 2008, p. 10)
The World Bank (2008) diagrammed a conceptual framework of the political
economy of policy reform from a donor perspective (Figure 4). This was broken
down into a diagnostic framework and an action framework. The diagnostic
framework consisted of the reform arena and the reform process interacting in
the reform context.
There appears to be emerging consensus that external actors have limited
influence given better understanding on the politics of reform and the context-
- 23 –
specific nature of the reasons and processes of change (The Asia Foundation,
2011).
The Asia Foundation (2011, p. xxviii) observed that 1) reform is an iterative,
non-linear and highly context-specific process; 2) technical analysis is insufficient
to achieve reform, and political feasibility is equally important; 3) political action
is also critical; 4) committed local leadership (development entrepreneurs) is the
principal reform driver; and 5) development agencies can play critical supportive
roles but need to move towards less rigid and more locally-owned projects.’
Given the complexity, diversity and unpredictability of reform, Faustino and
Fabella (2011a and 2011b) rejected one-size-fits-all approaches such as the
Washington Consensus. Apart from elites, they (p. 4) assert that local context
matters, citing Deng Xiaoping’s Socialism with a Chinese Character as ‘the most
stirring example of indigenization’, and laud the pursuit of policy reforms that are
locally contextualized and feasible.

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Figure 5. Intersection of Technically Sound and Politically Possible Reform

(Source: Faustino and Fabella, The Asia Foundation, 2011b, p. 258)
In advocating for reforms that are technically sound and politically feasible
(Figure 5), Faustino and Fabella (2011b) bat for more realistic approaches, e.g.,
building on the status quo, best fit, and governance that is good enough. They
call for reforms with a likelihood of getting adopted, which may not always
provide the greatest welfare benefit.
1.7.3.4 Dealing with losers: political economy of the transition towards
reforms
Trebilcock (2014) discussed how to effectuate policy reforms, as changes in
policy lead to certain classes or groups of losers. He (p. 153) focused ‘on the role
of compensation or other transition cost mitigation strategies in representative
democracies in forging an effective political coalition (or a reasonably broad
social consensus) in favor of generally socially beneficial reforms, where the
absence of attention to transition costs is likely to render the policy status quo
ante the default option, irrespective of its perversity.’
According to Trebilcock (pp. 1-2), changes in policy result in reallocation of social
benefits and costs. Overcoming the opposition and other roadblocks to reform is
thus an emerging significant political economy concern.
He identified explicit government compensation, grandfathering (i.e., permitting
prior private decisions in accordance with preceding regulations but inconsistent
with the reform measures), exceptions, phased or gradual implementation,

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postponed implementation, reciprocity, and safeguards as the primary mitigation
strategies.
As normative theories (i.e., efficiency theories, utilitarianism, social contract
theories, communitarianism, corrective justice, and libertarianism) fall way short
of explaining real-world behavior, Trebilcock discussed the positive theories of
the political process affecting mitigation transition strategies. The main vehicle is
Public Choice Theory, although alternative explanations of political behavior –
structural, institutional, psychological, and ideational – help better capture the
realities of transition mitigation.
Trebilcock (pp. 18-19) detailed the implications of Public Choice Theory.
Politicians tend to cater to highly mobilized or impassioned minority interests at
the expense of majorities. They may undertake logrolling, i.e., losers in one issue
(‘low intensity majority’) become winners in another issue (where they are the
high intensity or vocal minority). ‘To the extent that it is politically desirable to
mitigate transition costs, low-visibility, off-budget strategies such as
grandfathering or phased or delayed implementation are likely to be preferred,
and are generally likely to be biased in favor of concentrated and politically well-
organized interests. Conversely, the compensation or mitigation of isolated, or
temporarily attenuated losses is less likely to attract political support.’
According to Trebilcock (adopting Parsons’ (2007) classification), structural
explanations rely on policy option constraints that are taken by actors as
exogenous or unchangeable during their tenure. Institutional factors provide
standard operating procedures, norms, and identities. Due to initial steps in its
development having ‘self-reinforcing properties’, institutions are likely to acquire

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inertia over time, resulting in resistance to change (i.e., path dependence
theory). Psychological explanations stress the impact of ‘systematic biases,
misperceptions, instincts, or affects.’ Ideational arguments link policy changes to
relatively static core (popular and elite) beliefs and values.
As an example, Trebilcock (pp. 81- 95) discussed agricultural protectionism (a
‘long-standing policy in many developed countries’), particularly dairy supply
management in Canada. Public Choice theory, according to Trebilcock, posits a
disproportionately large impact on public policy by concentrated organized
interest groups, as reflected in Canada’s 13,000 milk producers benefiting from
significant price support, at the expense of milk-consuming families. However,
consumers are apathetic to the scheme due to lack of information and
transparency, and other interests groups who oppose such schemes for
increasing milk prices (e.g., processors, grocers, distributors, and restaurateurs)
have had little success lobbying. Politicians have thus catered to milk producers
‘in their best interest’. This means that ‘political benefits from policy change in
this area continue to be outweighed by the costs of antagonizing small but well-
organized farmers’ groups.’ Public sympathy, according to Trebilcock, also plays
an important part in preserving the protectionist regime. He observed that the
alleged need for domestic food production in times of emergencies, to the
misplaced necessity to address exposure to exceptional price volatilities, and
vague popular notions of communitarianism have all contributed to the status
quo.
Trebilcock suggested a two-pronged approach to meet the challenge of a very
strong political lobby. Firstly, the government must persuade the public that the
scheme is against public welfare (framing), and that the issue warrants political
- 27 –
attention (salience). Secondly, opposition would have to be addressed through a
policy mix of mitigation strategies. e.g. mobilizing groups opposing protectionism
(exporting farmers, other sectors), dissemination of information, and gradual
opening up (with compensation) of Canadian dairy market through credible FTA
commitments.
Lessons learned in similar cases from domestic or other jurisdictions may help
determine policy feasibility, including through analyses of the policy impact and
political acceptability, which contributes to shaping perceived feasibility
(Trebilcock).
Where the policy change is ‘more foundational’, values and principles would have
a greater relative impact on the decision-making process, i.e., changes must
resonate with core beliefs (Trebilcock, pp.27-28). As individuals are often willing
to make sacrifices in the interest of fairness, advocacy groups could be tasked to
convince the public that compensating vested interests would not be fair,
lessening opposition to reforms; conversely, compensation or mitigation could be
sold as the fair option in other cases.
On the role of political leadership, Trebilcock (pp.152-153) opined:
On this more nuanced view of the political process, political leaders with a
sensitivity to deep-seated cultural beliefs and historical development as well
as an understanding of the currents and cadences of political discourse and
debates are often able to craft policies that move a generally socially
beneficial reform agenda forward. Constructing coalitions of often unlikely
interest groups and appealing to broader unorganized cross sections of voters
by framing issues in a way that resonates with their basic normative values,
and hence constructing a reasonably broader social consensus in favor of
reform, may pave the way for policy change… Policy entrepreneurs have the
ability to shape what is politically possible through advocacy, framing of
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issues, the provision of new information, and the creation of new fora for
public consultation and debate that empower previously marginalized groups
of citizens or introduce new perspectives on policy reform options.
Trebilcock (pp.154-155) also stressed the value of incrementalism and
compromise in major policy reform processes, citing the century-and-a-half
process for the formal abolition of slavery in the developed world. He noted that
in various contexts, incrementalism – whether the policy means more state
intervention, or less – could help build and sustain political coalitions and broad
social consensus, while addressing the unexpected adverse impacts on losing
sectors. He added that ‘radical moves to privatize and marketize goods or
services previously provided by, or regulated by, the state may equally have
unintended consequences.’
Compromise, on the other hand, of ‘principles and interests among different
constituencies within and across political parties will often be necessary to
advance generally socially beneficial policy changes.’ Even though compromises
may contain contradictory or even incoherent elements from a normative
perspective, those that overall improve upon an unsatisfactory status quo should
be accepted as partial progress and not denigrated, according to Trebilcock.
Different country contexts would need to be addressed by ‘tailored, country-
specific set of transition cost mitigation strategies’ (Trebilcock, pp. 141-142).

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2 CONCEPTUAL FRAMEWORK
Figure 6. Conceptual framework and processes involved
2.1 Next step in the evolution of economic diplomacy
This section will attempt to articulate the hypothetical role of diplomacy in
facilitating reforms, and the methods or means of participation.
Chapter 1 introduced the conceptual linkage between economic diplomacy and
domestic reform:
R = ƒ(D,G)
where
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D = Economic Diplomacy
G = All other factors that affect or generate reforms
R = Domestic Economic Reforms
Expounding on this, the following sections build upon the core model of economic
diplomacy, foreign policymaking in developing nations, and various approaches
to the political economy of domestic reform.
2.1.1 Expanding the terms of reference
While the prevailing thought on economic diplomacy deals with the external
projection and promotion of economic state interests, with domestic conditions
viewed as an exogenous factor, eminent theorists and practitioners do not seem
to close the door on employing economic diplomacy in furtherance of domestic
reforms.
Diplomatic negotiations have resulted in numerous economic agreements that
sometimes oblige longer-term revisions to domestic legal regimes. Furthermore,
economic diplomacy as a reform catalyst is related to ‘second order functions’ of
diplomacy, e.g., policy advice through economic reporting. Narration of ‘best
practices’ could be considered and implemented by the home agencies as
feasible (Rana, 2015b). Moreover, if economic diplomacy were more broadly
defined as ‘any diplomatic activity concerned with the advancement of the state's
economic interests’ (Berridge), and domestic reforms were considered an aspect
of economic development and hence, national economic interest, then diplomatic
activity that deals with advancing economic reforms could hypothetically be
considered within the purview of economic diplomacy.

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2.1.2 Evolution of economic diplomacy
The same actors currently participating in economic diplomacy, e.g., MFA-led,
with the participation of other government and non-state (business, academe,
civil society) actors2, would also be relevant for domestic reform purposes.
If the current functions of economic diplomacy could be utilized to fit into the
domestic reform process, there would seem to be no need to radically alter
economic diplomacy. The initial step is recognizing the opportunity, given the
position of diplomats at the interface of international and domestic spheres. The
next step is continuing with existing functions, but fine-tuned, re-oriented and
expanded.
Economic diplomacy has also evolved through time. What started as
representation and reporting on market conditions developed to trade
promotions, and then to investment generation through enhanced
competitiveness, followed by rulemaking to enhance predictability. Domestic
economic reforms deal with improvement of internal rules and conditions, which
are necessary for successful external representation. Extending Rana’s view that
diplomatic representation is only as good as the product being sold, diplomacy
could potentially make that product better through provision of feedback and
other means, i.e., backward integration of functions in the supply chain.
2.2 Definition of economic reform
For purposes of this paper, economic reform is thus defined:
2
Rana (2011) discussed these actors in the Indian and other country examples.
- 32 –
Economic reform is the deliberate effort and process of change and

improvement in institutions, regulations and policies, involving political
adaptation or alteration, including through market mechanisms and a
shift to areas of strong comparative advantage, in order to increase
the rate of growth of total factor productivity and ultimately to achieve
socioeconomic development, within the particular context of each state
or economy in the global environment.
The definition does not preclude the application of non-market mechanisms,
which have been shown in particular contexts to be effective in achieving
increased productivity and development (see Chang, 2002 and Vanaik, 2005), at
least in the transitional term.
2.3 Developing-country foreign policymaking for domestic reform
The work of Robertson, East et al. provides clues on how economic diplomacy in
developing countries could operate in the pursuit of internal reforms.
Firstly, there is no one-size-fits-all approach to the use of economic diplomacy
for reform purposes. Developing countries have varying endowments and
constraints.
Secondly, foreign policy and domestic policy in developing countries appear to be
highly intertwined in a mutually reinforcing way.
Thirdly, Foreign Ministries in many developing nations remained central to
international economic engagement (e.g., APEC). Cox’s (1987) internationalized
state similarly observed the elevation of status of the Office of the President or
the Prime Minister and the MFA, among others. The MFA – in coordination with
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the head of government and other relevant agencies – could continue to serve in
its leadership and coordinative role, this time for domestic reform purposes.
Fourthly, even with resource constraints, there have been numerous success
stories of foreign policy management in the Third World. Economic diplomacy
could be utilized for internal reforms in developing nations, even with limited
capabilities. Besides, reforms, once realized, would likely result in enhanced
resources, in turn expanding economic diplomacy capabilities.
Fifthly, developing countries have acted reactively in the diplomatic realm.
Economic diplomacy can contribute to the attainment of an independent foreign
policy through the pursuit of domestic reforms. The MFA and their domestic
networks are more attuned to the realities on the ground, and could utilize
external resources effectively to pursue reforms.
The utility of economic diplomacy for internal reforms also fits into the narrative
of the foreign policymaking typologies identified by Robertson.
New state capacity observes the employment of new techniques and
technologies, the importance of strengthening institutions to adapt to
globalization (i.e., institutional and policy reforms), the use of various ministries
with technical expertise and their trans-governmental networks, the centrality of
the Foreign Ministry in coordinating sub-national and non-state actors, and the
emergence of virtual diplomacy (which could be used to communicate and frame
messages to distant actors).
Capital-driven foreign policymaking acknowledges the influence of external
actors in imposing state-led liberalization and capital accumulation, and the

- 34 –
investment intelligence gathering and negotiating functions of economic
ministries. Cerny’s (2005) competition state views foreign and domestic policies
as interrelated, with the state internationally promoting liberalization and
harmonized rules and domestically enforcing regulations and policies to attract
business. Jayasuriya’s (2005) regulatory state subjects domestic policy to
international economic harmonization. Instead of forced adoption of external
norms, economic diplomacy could pursue domestic reforms, providing domestic
context and reflecting what is politically viable.
Marginalization views domestic policies as largely dictated upon by major powers
and international institutions. Although this limits the effectiveness of economic
diplomacy in reforms, there would appear to be no better alternative; diplomats
are at the frontlines of external powers and organizations, and are in the best
position to negotiate for concessions or assistance. Developing countries could
similarly externally promote their successful approaches to internal reforms with
other countries.
In regime or elite survival, external forces are used to strengthen political
regimes or elites. Korany’s (2005) contrary view on foreign policy elites as driven
by worldviews and acting strategically instead of for private gain is similar to
Trebilcock’s (2014) psychological view that politicians can act out of fairness. In
this counter-view, diplomacy can appeal to the normative and strategic side of
politicians that potentially transcends their survival instincts. MFAs could also
serve as counterweights to anti-reform tactics of politicians.

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In privatization, where the increasing role of non-state actors is highlighted,
economic diplomacy could tap into their expertise and influence as partners to
make the case for reforms.
East’s loose categorization of factors affecting foreign policymaking in the Third
World is also instructive.
While the lines distinguishing internal from external factors have blurred, a
preponderance of weaknesses of internal factors highlight the need for reforms.
Even when external forces dictate domestic policies, economic diplomacy could
play a role in negotiating for mitigation strategies to provide flexibilities and ease
the transition.
Individuals and elites, particularly the head of government and his inner circle,
play an influential role in centralized systems with weak democratic institutions.
The consent of the leader and other elites would be needed for reforms to take
place. Diplomacy could play a critical role, particularly as the political leader is
also the top diplomat, and the Foreign Service is generally considered elite.
Societal factors such as civil society and mass publics can play increasingly
important roles in both foreign policy and domestic reforms (e.g., Friedman’s
(2005) citizen-led domestic politics). They may have particular views on the
dominant economic philosophies, and also have their own international networks
proposing policies and standards. They could be useful sources of pressure and
expertise, but could also hamper reforms viewed contrary to their norms.
Regional factors can provide good practices, expertise, and pressure points.
Countries in the same region may have shared characteristics and networks that
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facilitate the adoption and enforcement of common norms. Economic diplomats
may facilitate internal reforms through engagement in regional forums.
2.4 Diplomacy in policy transition strategies
Economic diplomacy actors can link external resources with domestic actors,
facilitating targeted external assistance to facilitate reform adoption.
Furthermore, diplomats could provide inputs and analysis through the lens of
normative and positive theories articulated by Trebilcock. The theories could be
applied to gain insight into the views towards reforms, and to determine whether
mitigation strategies are needed.
For instance, instead of focusing only on the efficiency and welfare gains from
freer trade, diplomats would do well to specifically address psychological and
communitarian concerns, through data, analysis, sharing of good practices,
securing technical assistance, and appropriate framing of the message.
On utilizing ideational arguments (i.e., linking policy reforms to core beliefs and
values), diplomats could help identify interests, interactions of factors and issues,
and possible outcomes. They could also use their standing and networks, e.g.,
public information, use of more powerful actors (the Ambassador, or tapping
high-level foreign officials). Diplomats could also collate external lessons learned,
including the policy impact and political acceptability of certain reforms, to shape
the perceived feasibility of a policy change. The MFA can overcome re-framing of
issues via opponents’ forum shopping (complex policy concerns are handled by
various government agencies), given its role as neutral coordinating and
consolidating body, without particular constituencies.

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The President as top diplomat, presumably sensitive to the political process,
cultural beliefs and historical developments of a country, could provide the
necessary political will. He could leverage participation in economic summits to
enhance credibility and gather external and domestic support. The ambassador
could perform a similar function in his domain. They may rally support through
coalitions, and lead efforts towards viable compromises. Diplomats are notably
already adept at international negotiations.
In addition, although the political leader, his party, and the political ambassador
face the imperative of elections, the career ambassador is not as beholden to the
political process, and could act sustainably and creatively, contributing to
incremental approaches. Diplomats are also considered elites, and could use
their standing to counter other influential groups.
While the Office of the President and the MFA lie at international and domestic
environments, the latter is more geared towards external stimuli, while the
former is more attuned to internal concerns; thus, close coordination is essential.
On policy entrepreneurship, diplomats can provide perspectives on reform
options, through advocacy, framing, external information, or creating venues for
public participation.
For instance, diplomats can help lay the groundwork for FTA negotiations.
Possessing knowledge of domestic industries and commercial conditions of
partners, diplomats could help with feasibility studies and supporting arguments
and facts, i.e., improvement in terms of trade, potential for reciprocal
concessions, utilizing potential FTA commitments in overcoming domestic
opposition (commitment theory), and promoting peace and rule of law through
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dispute settlement and greater economic interdependence (foreign policy
theory). They could also highlight the importance of sequencing, e.g.,
privatization or regulatory reform before liberalization.
Negotiators may seek phased-in implementation, reciprocal concessions,
safeguards and exceptions, to address opposition. Diplomats could also bargain
for technical assistance, either as a built-in prerequisite for implementation (e.g.,
WTO Trade Facilitation Agreement), or as a supplemental deal.
Furthermore, diplomats can help frame FTAs as contributing to social welfare or
other core values, e.g., testifying during ratification, media exposure, public
forums, studies, etc. This includes trumpeting concessions secured to enhance
the agreement’s political viability. In addition, diplomats could also mobilize
export-oriented industries, consumers, and other pro-reform constituents – and
supportive external pressure. Diplomats could communicate how psychological,
pecuniary, and communitarian costs are addressed.
In pursuing institutional reforms, diplomats could help address concerns that
externally driven reform efforts ignore the local context and political economy of
domestic reform processes. Specifically, diplomats could contribute to the
‘institutional bypass strategy’ (Trebilcock 2014, p. 142), helping establish or
reform institutions more easily detachable from the institutional web. Diplomats
could help in gathering best practices, securing technical assistance, and
undertaking external evaluation or peer review.

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2.5 Economic diplomacy as catalyst for reforms
2.5.1 Enlarging the international-domestic interface
A simple model takes off from the meshing of external and domestic policies3,
and diplomats at the interface between international diplomatic networks and
national diplomatic system in a ‘bifurcated and linked environment’4. Diplomacy
is illustrated at the intersection of the external environment and the domestic
context (Figure 7).
Figure 7. Diplomacy at the interface of external and domestic environments
Diplomacy can also potentially enlarge this interface, through its numerous roles
and functions, enhancing the synergies of external and local pro-reform factors.
3
Roberston, (2005), Bayne and Woolcock (2011), and Roberston (205)
4
Hocking (2007)
- 40 –
Figure 8. Enlarging the interface through diplomacy
2.5.2 International cooperation for domestic coherence
The author (Gener, 2008) had suggested that in economies where power was
diffused, and checks and balances had the effect of impeding reform,
international cooperation could provide coherence to reform efforts. This involved
bringing together various government agencies and stakeholders in policy
dialogues, economic and technical cooperation, and benchmarking the relevant
practices. International engagement serves as an opportunity for domestic actors
to come up with a united front for outward and inward initiatives.

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Figure 9. International Cooperation and Domestic Coherence (Source: Gener,

2008)
2.5.3 A dynamic relationship
It is difficult to predict and measure the contribution of diplomacy to reform.
Reform itself is unpredictable, non-linear, iterative and context-specific (Faustino
and Fabella), with numerous factors and mixed outcomes. The relationship
between causal factors and reform is non-linear, and not always positive.
Diplomacy itself is a ‘pluri-directional, multifaceted, volatile, and intensive
undertaking’ (Rana, 2015a). It is difficult to isolate the impact of diplomacy from
other factors, as they are oftentimes linked. For instance, the President is both
Chief Executive and top diplomat; he may make decisions in the simultaneous
exercise of domestic and external functions.
Nonetheless, it might be useful to provide a simplistic three-dimensional graph to
illustrate the equation earlier articulated (i.e., R = ƒ(D,G)).

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Figure 10. Three-dimensional graph of the reform contribution of diplomacy and

other factors
In the graph (Figure 10), diplomacy (D) and other factors that generate reforms
(G) are the independent variables, and reform (R) is the dependent variable.
When either or both D and G increase, R does not necessarily increase; in fact,
there may be instances where R decreases. When R does increase, the
magnitude of change is uneven. This graph roughly illustrates the uncertain
dynamics between causal factors – particularly diplomacy – and the desired
reform outcomes.
- 43 –
2.5.4 The mountaineering analogy
Viewing the reform process as analogous to mountain climbing more broadly
captures the elements of process, time, and internal-external interface.
Figure 11. Climbing Mount Everest (Source: Haware, 2013)
Consider a country as a hiker attempting to reach a mountain summit (i.e., the
reform objective). The hike up the mountain involves undulations and possible
detours (see Figure 11). It may involve days and phases, depending on the
mountaineer’s pace. Preparation may include learning from successful climbers,
intensive training, and meticulous planning and packing. It could also involve
help from climbers and porters during the ascent.
The mountaineer is faced with internal and external resources and constraints.
Local factors include her preparation, experience, climbing skills, endurance,
perseverance, her own tools and supplies, and the ability to use them. External
- 44 –
influences include weather, terrain, interaction with climbers, and wilderness
threats. Depending on the confluence of factors, the hiker may reach the
summit, or give up without attaining his objective. Even with more experienced
companions, the hiker is in the best position to evaluate her own capabilities,
constraints, and interaction with external forces.
Her tools help bridge her internal characteristics with external opportunities and
challenges. These tools include her backpack, harnesses and ropes, cooking and
bonfire equipment, and a multi-function pocket or Swiss knife. It is better to
own rather than borrow the tools, to tailor them to her preferences and needs.
The Swiss knife can be used in a variety of ways, and its use depends on the skill
and creativity of the mountaineer. It is handy, always ready to be deployed, and
often used. It is durable for use in subsequent climbs, and flexible for other
undertakings. It is a helpful tool, but could cause injury or trouble when used
carelessly. It can be used to ward off obstacles on the trail, start a fire, cook and
eat food, and conduct first aid. Just as the Swiss knife can help the mountaineer
reach the peak, economic diplomacy can also help a country reach the reform
summit.
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2.5.5 The diplomat as ‘Swiss-knife’ catalyst
Figure 12. A Swiss knife (Source: Classic Swiss Knife Vector by Comco/Lily
(Creative Commons). Available at http://www.freevector.com/swiss-knife-vector)
The functions undertaken by the diplomat in conventional economic diplomacy
activities could be re-oriented towards reforms. For this purpose, the pro-reform
diplomat would be termed a ‘Swiss-knife catalyst’:
a. Messenger. ‘The tail cannot wag the dog’ (Rana). Through cables sent
back home, relay the reactions or views of host governments,
international organizations, and other external stakeholders to domestic
constraints.
b. Analyst. Provide analysis on the impact of domestic policies or
institutional set-up on foreign relations and international standing.
Provide inputs to judicial or Congressional hearings.

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c. Reporter. Report on external practices.
d. Facilitator. Work with intergovernmental organizations, host
governments, and other actors in providing contextualized policy
recommendations and exerting political pressure.
e. Negotiator. Utilize international commitments to lock in existing reforms
or provide impetus to undertake further reforms.
f. Advisor/counsel. Provide advice on available options, and push for
compliance with international commitments.
g. Visionary/Planner. Inject broader external insights into domestic reform
objectives through development agendas and strategic plans.
h. Coordinator/consolidator. Utilize the coordination function to harmonize
and facilitate efforts of state entities and stakeholders towards a
common comprehensive reform agenda comprised of various but
complementary initiatives.
i. Capacity-builder. Enhance the capacity of domestic institutions through
projects identified by agencies, in coordination with external technical
assistance facilities. Approach external sources to communicate these
needs and articulate how these align with their thrusts.
j. Promoter/lecturer. Talk about observations and available external
contributions with domestic stakeholders at lectures and forums.
k. Innovator/adapter. Contextualize success stories within the domestic
situation, as reform is not ‘one-size-fits-all’.

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l. Lobbyist. Lobby host governments other organizations for capacity-
building resources or attention that could put pressure domestically.
m. Implementer. Facilitate FTA implementation by easing the transition of
affected parties and ensure benefits are reaped, and lead efforts to
ensure compliance with commitments and rulings.
Diplomats need not perform these myriad functions at all times. Just like the
Swiss knife, the diplomat could perform one or some of the roles as the need
arises.
2.5.5.2 The advantages
Diplomats have standing and credibility in their own states. The Foreign Service
is comprised of the ‘elite in talent quality’ (Rana, 2015a). People listen when
they communicate messages. Diplomats could be an influential counterweight
against shady but powerful elements in the public arena.
Even with numerous actors now involved, the MFA remains the focal point in
diplomatic efforts. Diplomats also have networks that no other government
agents have. Externally, they cultivate relations with the host government,
businessmen, the press, diplomatic corps, overseas communities, and other
stakeholders. Domestically, they coordinate with other executive agencies, local
governments, legislative and judicial branches, industries, press corps, and other
entities.
As reform processes could outlast electoral cycles, diplomats could provide
continuity to efforts. In conducive conditions (including pro-reform political
leadership), diplomats could engage full-throttle in hard and soft approaches.

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Otherwise, diplomats could help initiatives survive with softer initiatives, until the
tide turns.
2.5.5.3 The disadvantages
The drawbacks are also rife. Diplomats too immersed externally may be out of
touch with domestic realities. They may have a tendency to take experiences in
other countries out of context. They may be affected by, or be beholden to,
foreign interests.
Trigona (2007, p. 98-99) termed external influences coloring a diplomat’s
perspective as ‘foreign filters’. Serving too long in a foreign post may result in a
diplomat ‘tainted by some of the customs and even by the ways of thinking of
that country’s diplomats (and politicians) with whom he is dealing regularly.’
Similarly , when assigned to a multilateral organization, ‘the persuasive nature of
the plethora of international norms advocated by international secretariats and
experts at international organizations can so convince and ‘turn’ our diplomat
that he himself would start advocating them with Headquarters and indeed with
the politicians back home instead of (or more than) advancing his own country’s
interests at the International Organization.’
Trigona added, however, that the impact of ‘foreign filters’ varies and may not
necessarily be as obtrusive or evident.
Negative ‘local filters’ deal with the various loyalties apart from his own
government – e.g., to the diplomat’s staff, the diplomatic corps, overseas
community, sending state’s commercial interest, accrediting government, or its

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minister (Trigona, pp 101-102). A diplomat’s inherent local filters5 include
‘conscience, ethics, religion, family, tribe, commercial, and cultural sensitivities,’
which may lead to pursuing ‘self-satisfaction’ instead of the national interest.
The absence of any vested interests or ‘natural constituents on which it can draw
for support in times of trial’ (Hocking, 2007, p. 13) could be considered a
weakness.
Also, diplomats may also seek to appease Congress and lobby groups supporting
legislators, particularly when career advancement needs congressional
confirmation.
Furthermore, diplomats tend to be generalists, and view economic diplomacy as
one of many functions preoccupying them. It may be difficult to re-orient or train
them in undertaking domestic reforms, suggesting that younger generations of
diplomats may be more receptive. Being generalists, they may also suffer from a
lack of credibility; they make mistakes as trade negotiators owing to a lack of in-
depth knowledge of issues, and have a ‘huge need to take advisers from
industry, think tanks and NGOs’ (Rana6).
2.5.6 The actors involved
The involvement of the political leader is crucial. Heads of government meet
regularly in summits to address pressing cross-border economic concerns. They
have also been central to foreign policymaking in many developing nations. They
are also important in transition mitigation strategies that call for broad support,
5
Bayne and Woolcock (2011) noted that ideational factors help explain policy outcomes, as
the world views or norms (e.g., liberal tendencies) of economic agents or interests could affect
negotiations.
6
Inputs provided through email (28 August 2016).
- 50 –
and proper framing and communication of messages. Top-down guidance and
push for economic reforms have been observed in many cases.
Foreign, economic, and other ministers would also be important in carrying out
the instructions from the President. They are also critical in providing sound
advice to the President, and in persuading, and coordinating with, other offices in
collective decision-making processes.
The MFA and its network of Ambassadors would be key to managing external
influences, promoting reform efforts, and bringing home the appropriate
resources and pressure to facilitate internal changes. Home-based personnel
would need to be attuned to the views and needs of various publics, and
coordinate with diplomatic posts to determine how best to address them. Apart
from the MFA, the international relations divisions of economic ministries would
also be needed for reform-oriented initiatives.
Multiple state and non-state actors, external and internal, now involved in
diplomatic efforts could also be tapped, provided they are supportive of reform
efforts that are properly contextualized for domestic nuances. They would have
to be calibrated given their respective agendas, to nudge them towards desired
objectives. Stakeholders opposing the proposed changes would have to be
managed, including through appropriate transition mitigation strategies.
2.5.7 Re-orientation of mindset and culture
Diplomacy usually entails trumpeting achievements or reaching out to others to
offer assistance. Rarely are weaknesses in governance or markets openly
admitted, and for good reason. Despite the derogations to sovereignty resulting
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from international economic engagement, economic diplomacy should continue
to assert a state’s authority over its internal affairs. This paper does not suggest
criticizing a diplomat’s own apparatus. Even as economic diplomacy continues
with its core functions of external promotion and projection of economic
interests, it is proposed that diplomats take advantage of opportunities likely to
be available, given its position in international-domestic arenas, to contribute to
internal reform efforts. This involves a ‘work in progress’ mindset, a culture of
humility that learns from others, and the wisdom and determination to apply
external resources to the domestic setting. As reforms are likely to be gradual
and long-term, this would also require strategic thinking (as with Thailand’s CEO
Ambassadors) and patience, realizing that these efforts would ultimately redound
to economic development.
Furthermore, MFAs are no strangers to internal reform efforts driven by external
forces. Assimilation would be impossible without the cooperation of influential
quarters in developing countries, including the Foreign Service. External
influences serve as impetus for domestic reforms, which are particularly
necessary when there are major internal roadblocks, such as interest groups,
structural flaws or cultural inertia. While criticisms have arisen with the wholesale
and uniform imposition of many Western values, many elements are useful for
reform and development efforts. Diplomats of developing countries should be
able to help in filtering and adopting changes that are practically useful, in a
gradual and contextualized way without disrupting their core values and social
fabric.
- 52 –
2.5.8 Spectrum of multi-level approaches
The existing channels of diplomatic representation – bilateral, regional,
plurilateral and multilateral (Bayne and Woolcock) – could be utilized in
furtherance of domestic reforms.
Soft methods include policy dialogues, research trips, immersion programs,
training, aid projects, and other capacity building initiatives. Hard approaches
include multilateral treaties, other free trade commitments, bilateral agreements
(e.g., harmonization, standards, rule-making), and dispute settlement. For
instance, APEC is known for softer approaches, allowing it to tackle cutting-edge
concerns in a non-binding, cooperative and frank manner, while the ASEAN
Economic Community engages in both hard and soft methods in pursuit of
regional economic integration.
2.5.9 Explicit articulation
Explicit policy declarations, particularly those contained in long-term agendas
(e.g., development plans, MFA strategic plans, legislative acts or ministry orders)
have their advantages and drawbacks.
Formal mandates involve political support and devoted resources; they also
serve as rallying points for pro-reform groups. Explicit pronouncements also
prevent reform efforts from being misconstrued as undermining sovereignty or
putting the state in bad light. They also allow diplomats to prepare and creatively
frame reform needs (which is the flip side of ‘domestic weaknesses’) effectively
to address possible sensitivities.

- 53 –
However, explicit mandates also attract greater attention from opposing sectors,
which could likewise provide resources to counter this function. At times, under-
the-radar efforts with the quiet backing of the political leader may accelerate
outcomes.
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3 LESSONS FROM CASES
Figure 13. Lessons from cases
3.1 Political realm
While Harris (2005) noted that it was common for developing nations to utilize
foreign policy initiatives for domestic political ends, one US case is relevant to
this study.
3.1.1 US civil rights legislation
In the US, Dudziak (2005, p. 203) documented the important role foreign
relations played in civil rights legislation reform in 1964:

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(A) key Kennedy Administration witness before the Committee was Secretary
of State Dean Rusk whose focus was neither commerce nor morality, but
foreign affairs. The nation had a crucial stake in civil rights reform, Rusk
argued, because race discrimination hampered U.S. relations with other
nations during the crucial period of the Cold War. There was widespread
international media coverage of brutal resistance to the civil rights movement,
undermining U.S. prestige around the world, with hampered U.S. Cold War
leadership. Rusk urged Congress to pass the civil rights bill to safeguard the
nation’s standing in the world, and he suggested that foreign relations
concerns supported a broad reading of Congressional power. In essence,
national security required a recalibration of federalism.
3.2 Economic realm
3.2.1 Viet Nam’s Doi Moi
Szalontai (2008) documented Viet Nam’s approach to economic reform:
Another manifestation of new thinking was Vietnam’s growing interest in the

Chinese reform program. In July 1986, the Vietnamese Foreign Ministry asked
the Cuban chargé d’affaires to forward a request to the Chinese embassy.
Namely, Hanoi wanted to send thirty middle-ranking cadres to China for a
research trip aimed at studying China’s new economic mechanism, such as
the effective utilization of foreign aid and foreign capital investments.
…
On 15-21 November 1987, a Vietnamese economic delegation headed by
Deputy Premier Vo Van Kiet visited Indonesia. The main objective of their trip
was to study the post-1965 development of the Indonesian economy, with
special respect to the methods which enabled Jakarta to achieve self-
sufficiency in rice and harmonize national interests with the interests of
foreign investors. They visited the Chamber of Industry and Commerce, an oil
field, a rice research center, an aircraft assembly plant, and a chemical
fertilizer factory. To the great delight of the delegation, President Suharto
explained them in detail how Indonesia had managed to solve its various
economic problems. Both sides expressed their interest in enhancing
economic cooperation between the two countries… If Hanoi passed a favorable
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FDI law, they would be willing to establish joint ventures in Vietnam for oil
drilling and other operations, the Indonesian businessmen said.
The Vietnamese delegation drew many important lessons from Indonesia’s

development experiences… (T)he development of the domestic economy
should be based on an “open doors” economic policy, i.e., favorable conditions
should be provided for foreign direct investment. As is well known, the
architects of doi moi indeed pursued such a policy in the post-1988 period.
Kiet’s visit was also important in a diplomatic sense… Thus the VCP leaders
were not compelled to launch their economic reform program in an
overwhelmingly hostile international environment. On the contrary, economic
reform and Vietnamese-Indonesian cooperation were likely to reinforce each
other.
…
Without the decisive improvement of Hanoi’s external relations in 1987-1988,
it would have been hardly possible to cut defense spending, curb inflation and
attract foreign direct investment. Noteworthily, doi moi was preceded by
various reform experiments, but these earlier measures proved largely
superficial, unsuccessful, or counter productive, not the least because they,
having been introduced in a hostile external environment, were not combined
with foreign investments and a reduction of military expenditures.
3.2.2 India and TRIPS
Sagar (2015), at that time a domestic copyright bureaucrat tapped to become an
Indian trade negotiator, documented his role in formulating offensive interests
for negotiations and in amending domestic legislation to comply with the WTO
Agreement on Trade-Related Aspects of Intellectual Property Rights (TRIPS).
Sagar noted newer forms of protected intellectual property were beneficial to
India. These included: protecting computer programs as literary works (a robust
Indian industry); rental rights; and performers’ rights (important in India given
that the musical work in South Asia is not distinct from the performance).
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Even with an influential ideological sector in India favoring a relaxed copyright
regime, India had a strong interest in copyright protection given its vibrant film,
music, software, and print media industries. To counter public opinion in favor of
small ‘video parlors’ and the lack of attention by enforcement agencies on pirated
videocassettes, Sagar made the case for rental rights with film, music and
software distribution firms, and got their support.
The enacted provisions in the Copyright Act were more ambitious than the
obligations in the TRIPS. Sagar recalled (pp. 343-347):
The first thing to do, once the TRIPS Agreement was signed, was to push
through the necessary amendments to the Copyright Act. This proved
surprisingly easy – our Minister, the late Arjun Singh, was a literate and
cultivated person who had no difficulty understanding the questions involved
and, once he had been briefed, actively pushed the process. This turned into
an exercise to review the whole Act, and we ended up modifying about a
quarter of the text, not only to meet the requirements of the TRIPS
Agreement but to address numerous other issues.
3.2.3 China’s WTO Accession
Harris (2005, p. 115) observed China’s change from central planning to a
market-based economy, and the ‘Weberian shift from charismatic towards legal
and rational governmental processes.’ Chinese reforms, he insightfully argued,
‘have illustrated that it is not easy to distinguish the responses of foreign policy
structures and processes to domestically initiated shifts from the responses to
external changes.’
In the 1980s and 1990s, China carried out a series of internal reforms to
enhance productivity efficiency and competitiveness. It was then widely deemed
timely to integrate deeper into the world economy, including accession to the
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WTO, seen as ‘marking an irreversible and decisive turning point for the country’
(Vanaik, p. 75).
Harris noted that there was an extended debate that was crucial to the elites on
the compatibility of comparative advantage to Marxist thought, and the mutual
benefit of trade was gradually accepted. This response to interdependence
involved a change in domestic institutions and more openness to external
influences, including meeting requirements of international institutions, in order
to attain the objective of modernization (Harris).
China also saw that the reciprocal non-discriminatory treatment by other WTO
members of Chinese goods and services provided protection for its own economy
(Harris).
In the first phase of accession compliance, China Law Transformation, central
and local government offices were established, with a central coordination office
in MOFCOM (Yang, 2016). They evaluated thousands of pages of laws and
regulations against WTO rules, leading to the amendment of the Foreign Trade
Law (automatic right of firms to trade) and foreign investment laws (abolition of
local content and export performance requirements), and new regulations
providing market access.
Yang (2016) recalled that from the 1990s, intensive training for central and local
government officials was conducted, and thousands of books were circulated.
Research institutes, as well as courses in major law schools, were established.
There was intensive training on WTO law; by 2013, China had developed
expertise to participate in WTO disputes (Yang, 2015).

- 59 –
Yang (2016) enumerated rules and regulations that were modified or repealed
due to adverse WTO dispute rulings, including: the Copyright Law, the first time
China amended its law based upon an international ruling by an international
organization; regulations on the importation of ‘sensitive cultural products’,
overcoming political excuses for non-compliance; and elimination of export
quantitative restrictions and tariffs of rare earths and other raw materials,
despite ‘security’ concerns.
Yang however admitted that the WTO has thus far grown from a ‘baby’ to a
‘teenager’ in China. In 2014, China’s compliance check had continued (Yang,
2016).
Dr. Zhao Hong7 was ideally positioned given her dual role as international trade
negotiator for MOFTEC and MOFCOM and as domestic legislator in China from the
1990s. On one hand, she was part of the negotiating team for China’s accession
to the WTO, the Doha Round (including the Trade Facilitation Agreement), the
expansion of the Information Technology Agreement, as well as bilateral trade
and investment agreements. On the other hand, she was involved in most of
Chinese trade and economic legislation, including China’s first Contract Law, and
served as an expert in the amendment of the Foreign Trade Law of 1994, the
first Government Procurement Law, and the first Anti-Monopoly Law.
In discussing her role in assisting with China’s integration to the WTO, she noted
that efforts to establish rule of law focused on a legal system that was
compatible with a market economy. She described the commercial and legal
7
Information taken from her curriculum vitae, an interview regarding her nomination to the
WTO Appellate Body, and her replies to questions sent to the author through email on 14 August
2016.
- 60 –
policies undertaken as ‘masterpieces’, being the subject of comparative studies
of legal systems, and of a huge effort to comply with WTO obligations.
Top-level guidance and efforts began in the late 1970s and early 1980s. In 1985,
China started negotiating for WTO (then still known as the GATT) accession; the
process was only completed in 2000. In the first fifteen years, there was outside
pressure for reform, particularly on legislation. There was an assessment made
on the compliance with the market economy principle. The legislature had an
open door policy, embracing the market system and rule of law as ‘twins’. The
accession process involved evaluation and compliance, a huge process that
involved 19,000 pieces of laws and regulations. The central government alone
involved 2,000 pieces of legislation. The legislative process involved amendment,
repeal and crafting of new laws.
For instance, in 2004 the lifting of monopoly trading rights is considered a
milestone, which Dr. Zhao is very proud of. Liberalization, she noted, was
undertaken six months ahead of schedule.
Dr. Zhao also highlighted the importance of being serious about public awareness
on the rule of law. She also noted the importance of training programs through
international cooperation, including the Sino-German legal cooperation program.
The program involved co-training and comparative study on German and Chinese
contract law.
Dr. Zhao viewed economic diplomacy (e.g., negotiating accession to the WTO) as
important in China’s domestic reform efforts:
The economic diplomacy can play a key promoting role in pushing forward its
domestic reforms. China’s accession to WTO is just such an example. The
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accession protocol provides numerous commitments for economic reforms and

the requirement of domestic legislation reforms. Fulfilling commitment was a
kind of outside force to push forward the economic reforms in China. It set up
schedules and timetable for economic reforms in trade, investment and
related areas. Thus it could be an impetus for domestic reforms.
She adds that economic diplomatic actors at all levels are needed. However, she
asserts that the highest level, which provides political will, is very significant.
Officials and experts of Ministries ‘are sometimes also very important as they will
lead the process of implementation of commitment.’
She adds that the diplomatic process may include all the steps taken leading to
the final reforms. ‘Negotiations, consultations and co-ordinations and domestic
legislative and regulatory process may also be involved if such reform will take
the form of legislative or regulatory action.’
She observes that domestic resources, as well as expertise from international
organization and foreign countries, may all be indispensable for the effective use
of economic diplomacy in facilitating domestic reforms. She notes that financial
support at home and abroad sometimes plays complementary roles.
She views the acceptability by domestic constituents as key to the feasibility of
reform efforts, hence the importance of transparency and participation:
When the economic diplomacy is of an effort that will be accepted by the

domestic stakeholders it will be possible for the result to be implemented.
Balance of the negotiation results and transparency and participation by
domestic stake holders in the process of economic diplomacy will be a
precondition of and will facilitate such an acceptance.
- 62 –
On a related point, she is of the view that the economic diplomacy efforts should
be explicit and ‘outspoken’, and ‘and transparency at least at later stage will be
important element for its acceptance by domestic stake holders.’
Dr. Zhao adds that pro-reform external and internal forces will generally
welcome economic diplomacy efforts. Domestic Industry would usually be
sensitive to market opening and liberalizing reforms. The public in general
somehow may be influenced by conservative and nationalist ideas.
She views China’s WTO accession negotiations, participation in the WTO dispute
settlement mechanism, and implementation of WTO Dispute Settlement Body
rulings as good examples of effective use of economic diplomacy in facilitating
domestic reforms.
Overall, Harris (pp. 129-130) noted that ‘international influences come into China
from a large variety of sources, but particularly through China’s reform and
opening up.’ The dominance of reformers in government has been mostly
maintained, with the view that the international system is non-hostile and should
be approached with flexibility and cooperation. ‘The domestic requirements of
the reform programme – the need for a peaceful and stable international
environment – have been a major influence on China’s foreign policy.’
3.2.4 Services trade agreements
Other economies have also utilized FTAs in undertaking or consolidating reforms,
particularly in trade in services, which are impacted significantly by behind-the-
border regulations.
- 63 –
According to Marchetti and Roy (2008, p.7), ‘the experience of a number of
governments over the past decades suggests that trade negotiations – whether
bilateral or multilateral – can help encourage or consolidate reforms in that
sector.’ ‘[S]ome developing countries view PTAs8 with developed partners as a
catalyst for the reform of certain key industries’ (p.11).
In the telecommunications sector, for example, Tuthill and Sherman (2008,
pp.151-152) observed:
The willingness of governments to submit their telecoms reforms to trade

obligations has been impressive. In the mid-1990s only a handful of
governments had introduced competition. Today over 100 WTO members
have WTO commitments that allow new entrants to compete in some or all
segments of the industry. This reveals an appreciation of trade undertakings
in the sector as a two-way, win-win situation. On the one hand, service
providers are able to count on legal guarantees and predictability. On the
other hand, governments have been able to lock in hard-won reforms and
gain enhanced credibility with sought-after investors. The results have been
dramatic increases in access to communications services by businesses and
citizens.
Tuthill and Sherman also observed countries continued to unilaterally liberalize
after the WTO telecommunications negotiations were concluded in 1997. With
services negotiations under the Doha Round pending, countries have used FTAs
‘to lock in those reforms in the first available trade negotiation, which happened
to be bilateral’ (Marchetti and Roy, p. 8).
Marchetti and Roy observed that many had undertaken ambitious unilateral
liberalization since the 1980s, although the pace varied. They noted that
countries have adopted different approaches to negotiations, even at similar
8
Preferential trade agreements, or bilateral and regional FTAs
- 64 –
levels of development. India and Thailand are said to be relatively more cautious,
‘probably hampered by slower and more hesitant and uncompleted services
reforms’ (p. 13).
They (p. 14) added that ‘while few countries see trade negotiations – either
bilateral or multilateral – as the main driver of further reforms, negotiations with
a big trading partner such as the United States may imply the need to introduce
further liberalization even in the context of a generally open environment.’
The role of political leaders and coordination was also stressed (p.14):
In other cases, the decision-making process appears more cumbersome, due

to political structures or the influence of sectoral vested interests. In all cases,
however, the case studies show that successful negotiations require political
commitment at the highest level, and intense coordinating efforts not only
with the private sector (e.g. the various ‘cuarto adjunto’ or ‘room next door’
processes described in the chapters) but also within the government, with
other ministries and agencies in charge of policy in different services sectors.
Use by larger trading partners of specific ‘templates’ (Marchetti and Roy, p. 15)
lessens the length of negotiations as trading partners are forced to proceed
directly to substantive discussions. Smaller countries negotiating with the US and
EU, for example, appear to have little flexibility.
Chile has sustainably viewed trade negotiations as ‘a necessary complement to
domestic reforms, with a view to opening markets for Chilean exports, including
services exports’ (Sáez, 2008, pp. 673-78, and Marchetti and Roy, p. 15).
Foreign policy considerations also factored in. Chile’s strategy involved
sequencing, with unilateral reforms first followed by aggressive negotiations and
locking-in reforms. The government faced opposition from private sector
associations, ‘cultural industries’, and orthodox economists who saw unilateral

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liberalization as the best policy option. On the other hand, there was broad
consensus for trade negotiations. Opposition figures previously involved in
military-backed reforms supported negotiations as a way to ‘lock in’ reforms;
subsequent governments also supported negotiations.
Chile also built up its institutional capability for negotiations. An inter-agency
committee chaired by the Foreign Ministry, with economic ministers and the
office of the president as members, was created in the early 1990s (Sáez). The
MFA has led trade negotiations since then. A public-private participation
committee was also set up, to provide information to business and other sectors;
the Economic Minister chaired it, with other agencies (including MFA)
represented. The consultative process was modeled after Mexico’s (i.e. cuarto
adjunto), where business representatives received information in a room close to
the negotiations, and were thus able to provide inputs real time. They became
active participants, acquired expertise, and became enthusiastic supporters of
trade negotiations. Despite being a developing country, Chile has also managed
to negotiate concessions from its trading partners for its services exports.
Colombia also negotiated with the US through ‘room next door’ (i.e., cuarto de al
lado) negotiations involving stakeholders (Singh, 2008, pp. 520-522). While
audiovisual services, finance and telecommunications were identified as sensitive
sectors, Colombia wanted to increase exports in health services and tourism, and
saw Bogota as a service delivery hub. Interestingly, in preparation for an
agreement involving other members of the Andean Community and to address
the US FTA template approach, Colombia brought in negotiators from Chile,
Mexico, and Costa Rica, and sought advice through a seminar from Singapore’s
negotiators. Colombia also coordinated with Peru and Ecuador, the other Andean
- 66 –
Community members, on their parallel negotiations with the US. Colombia also
learned from the experience with the aborted Free Trade of the Area of the
Americas (FTAA). Furthermore, Colombia conducted a mapping exercise on the
role of negotiators, order of priority interests, and coordination among ministries
and private actors.
The negotiations attracted much attention in the streets and actual talks, with
around 150 to 500 cuarto de al lado representatives, and hundreds of
representatives from Ecuador and Peru. Agriculture received the greatest
attention, where wheat and rice was deemed defensive interests, balanced with
cut flowers and sugar as demands. Farmer organizations and trade unions were
said to have organized protests even after the conclusion of talks (Singh).
While Colombia sought social safety nets for its underdeveloped financial sector,
the US thought Colombia wanted to subsidize firms and prohibit branches of
foreign firms. The agreement eventually included a four-year phase-in period. A
further understanding was undertaken to address Colombia’s concerns on the
supervision of financial services trade and establishment of foreign banks
(Singh).
Despite protests by television giants and producers of audiovisual services (who
were backed by Congress and the press), they actually had offensive interests in
the same sector and related cultural products, i.e., writers, music stars, and film
and telenovela industry (Singh). The services negotiator met them and convinced
them to calm down. The compromise contained flexibilities allowing tax, revenue
and domestic content provisions. The services negotiating team worked directly
with the minister of culture, bypassing ministry, regulatory and public enterprise
- 67 –
officials that proved to be a handicap. The minister facilitated an agreement
acceptable to producers and civil society group, including filmmaking funding and
domestic content for broadcasting.
Telecommunications was then dominated by an influential oligopoly with direct
access to the president, and city governments owned major financial stakes. The
regulator was captive to the interests of the incumbents. In the end the sector
was liberalized due to US pressure, with commitments to allow resale and the
strengthening of the regulator (Singh).
Bogota (one of the cities with a major stake in a telecoms firm) initially wasn’t
trumpeted as a cross-border service delivery hub (Singh). Its mayors were
opposed to the FTA, and trade union protests had the imprimatur of the mayor’s
office. However, Bogota services industries and chambers of commerce put
pressure on the mayor.
Partly due to the 1997 Asian financial crisis, Thailand has been reluctant to open
key sectors such as distribution and financial services (Bosworth and Trewin,
2008). Only ad hoc liberalization had taken place, motivated by the general
worsening of economic conditions. To enhance liberalization efforts, a more
convincing case for further unilateral liberalization, and the establishment of
internal institutional support mechanisms for more open trade, was called for.
In Costa Rica’s case, FTA negotiations with the US caused significant new
commitments to open up, particularly dismantling state-owned monopolies in the
telecommunications and insurance sectors (Robert and Stephenson, 2008).

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Mukherjee (2008) noted that distinctions in size, governance structure, and
political setup between Singapore and India have resulted in diverging
approaches to FTA negotiations, i.e., commitments due to pressure from the
trading partner, reciprocal concessions given, priority trade interests, extent of
unilateral liberalization, and ‘the willingness of the host country to use the trade
agreement as a means of implementing domestic reforms’ (p. 621).
While India appears open to trade commitments only after undergoing unilateral
liberalization, Singapore is more inclined to new commitments necessitating
reforms in a phased-in or gradual approach, to allow the domestic industry to
adjust. India views negotiations with major powers as more demanding and may
increase pressure for accelerated unilateral reforms (Murkherjee).
Indian sectors are deemed sensitive, according to Mukherjee, due to ‘incomplete
regulatory frameworks, political opposition to reforms, vested interests and the
protection of small and medium-sized suppliers’ (p.627). Government allies
against liberalizing insurance services, domestic legal consultancy firms and
Indian Bar Council (legal services), and small traders and trade unions (retail
trade) were among those identified as opposing market opening. Officials are
also not keen on phasing in commitments, as they would not be able to meet
future obligations due to the lack of domestic political continuity.
On the other hand, Singapore used its FTA with the US to spur domestic reforms
even in sensitive sectors (including legal services), but in a gradual way
(Murkherjee). The agreement also led to further liberalization of other
professional services, banking and insurance, telecommunications, and power
generation. Singapore had to enact its competition law and establish a

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competition commission. To address sensitive sectors, Singapore worked with
trading partners by expressing specific concerns as they arise, such as through
gradual liberalization. For instance, the US agreed to a Singapore’s temporary
ban on a major US bank to acquire local suppliers, according to Singapore’s
policy of fostering strong domestic banks, and to revisit and discuss the issue
periodically. This gave local banks time to strengthen themselves against
potential foreign competition (Murkerjee).
Mukherjee (p. 617) also added, ‘Pressure from the trading partner and the
reciprocal commitments that the other party is willing to undertake are also
important determinants of the depth of PTA commitments.’ She noted that India
was willing to undertake commitments in sensitive sectors on a preferential
bilateral basis, provided the trading partner gave reciprocal concessions in
sectors of export interest.
The US particularly is viewed as a tough negotiator, according to her, and FTAs
involving the US contain new market opportunities for its suppliers, i.e.,
commitments beyond unilateral liberalization.
India and Singapore faces different challenges in preparing for negotiations.
Singapore possesses political continuity, a small size, and top-down policy-
making approach, while India has a more cumbersome, inefficient, and
fragmented preparatory process (Murkherjee).

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3.3 Distilling lessons from cases
In various jurisdictions, diplomacy has, in its different forms and functions (e.g.,
messenger, analyst, reporter, negotiator, advisor, planner, coordinator, capacity-
builder, implementer), played a facilitative role in domestic reform efforts. While
some have occurred in the political realm, many of the cases surveyed involved
economic diplomacy.
Many countries utilize economic diplomacy to examine options and build capacity
through benchmarking and learning from others. Vietnamese officials’ high and
mid-level research trips to China and Indonesia, Colombia’s tapping of expertise
of other delegation’s negotiators, and Chinese officials’ training on the German
commercial legal system, are some examples.
Diplomacy has also been used effectively to make the case for domestic reforms
in the legislative process or through public opinion, using international relations
or agreements as pressure points, e.g., US civil rights legislation and India’s
copyright regime.
Economic diplomacy, particularly through participation in the WTO and in FTAs,
has been utilized to lock in unilateral reforms or undertake new reforms. India’s
copyright regime, China’s WTO accession, and Costa Rican and Singaporean FTAs
are examples of induced supplementary reforms. Indian and Chilean FTAs bind
applied or current regimes.
Dealing with stakeholders is important. In FTAs, their involvement in all stages –
preparations, negotiations, ratification and implementation – was useful in many

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cases, including through the ‘room next door’ approach and consultations back
home. Working with pro-reform ministries and stakeholders was also helpful.
The buy-in of high-level officials was needed in most, if not all, cases. The
involvement of officials engaged in both international affairs or negotiations, and
in domestic legislation, regulation, or implementation, was crucial in some cases,
e.g., China’s WTO accession, Indian copyright.
Framing, i.e., linking to norms, beliefs, and interests, is important in overcoming
opposition in most cases. The role of the MFA and other economic diplomats in
linking domestic concerns with national interests projected abroad was observed
in many of the cases.
It is also useful to articulate the pursuit of reforms through international
engagement in visions or development plans, e.g., China’s accession to the WTO.
Preparation is also crucial, e.g. mapping exercises to identify competencies and
areas needing reform.
Economic diplomacy involved both symbolic or abstract contributions (e.g.,
articulating and framing interests), as well as concrete and technical initiatives
(e.g., ‘room next door’ approach, training, and missions).
Building up institutional capacity is also important. Learning from past
experiences and from others is also essential (e.g., research missions, tapping
other negotiators).
Many of the cases involve international rulemaking as a complement to domestic
reform efforts. They utilize external commitments to facilitate locking-in of
reforms. Many of the international treaties are trade-related; from goods (tariff
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reductions at the border), they increasingly tackle services, intellectual property
and other behind-the-border concerns, which are affected more by the vibrancy
of domestic rules and regulations. Agreements with larger powers may involve
new reforms, while others bind unilateral policy changes.
Contextualization was also essential. The differences between Singapore and
India, for example, necessitated different approaches.
Transition mitigation strategies are also crucial:
a. Sequencing of reforms involves unilateral reforms prior to locking-in
through international commitments (‘removing the water’), or
strengthening the regulatory environment prior to opening up.
b. Phased-in liberalization.
c. Identifying offensive interests to counter opposition and achieve
reciprocity.
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4 THE PHILIPPINE CASE
Figure 14. The Philippine Experience
4.1 The Philippine economy at a glance
Industrialization has been an elusive development objective of the Philippines
since its independence in 1946, lagging behind its ASEAN neighbors behind a
protectionist, import-substitution regime (Austria and Medalla, 1996). In 1979,
the Philippines acceded to the General Agreement on Tariffs and Trade, viewing
trade liberalization as a means to expand trade (GATT, 1973). Despite a first

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wave of tariff adjustments in the 1980s, reforms remained superficial given
underlying economic weaknesses (Austria and Medalla, 1996).
The 1986 democratic ‘People Power’ revolution was a turning point. Subsequent
administrations embarked on unilateral liberalization, resulting in tariffs of only 3
to 10 percent and the lifting of import restrictions (Austria and Medalla, 1996),
and in improved overall competitiveness of domestic industries (Austria, 2001).
In 1995, the Philippines joined the World Trade Organization as a founding
member, locking in unilateral liberalization. In 2008, its first bilateral free trade
agreement - with Japan – entered into force. By 2010, duties were eliminated on
99% of products in the ASEAN Free Trade Area (Parcon-Santos, 2011). In 2013,
the Philippines agreed to the Trade Facilitation Agreement, the first multilateral
trade agreement since the WTO’s establishment.9 In 2016, trade negotiations
with the European Free Trade Association (EFTA) were concluded.
The Philippines has also seen investment attraction as a priority, offering
incentives for foreign direct investments (Parcon-Santos, 2011). The Omnibus
Investment Code of 1987 and the Foreign Investment Act of 1991 consolidated
tax perks and liberalized investment regulations. Full foreign equity participation
was allowed in certain sectors. The Philippines has also undertaken a branding
campaign, Invest Philippines (GPH, no date).
In parallel with liberalization efforts, Philippine economic diplomacy has evolved.
The Foreign Service Act of 1991 articulated priority areas for diplomatic posts,
e.g., where ‘favorable trade relations and investments currently exist or
prospects for trade and investments are favorable’ (GPH, 1991). Economic
9
The Philippines is currently undertaking domestic procedures for its ratification.
- 75 –
diplomacy remains the second pillar of Philippine foreign policy, with increasing
trade and investments as a main thrust (del Rosario, 2013). Attachés from other
economic ministries report their promotional efforts to ambassadors and support
economic officers from the Department of Foreign Affairs (DFA).
While the Philippines is the second-fastest growing economy in Asia (Robinson,
2015 and Domínguez, 2015), challenges remain. These include participation in
regional integration, both for export markets and foreign direct investment
(Austria, 2001), and narrowing the trade and investment gap with neighbors
(ASEAN, 2015). Even as constitutional reform efforts are underway (Llanto,
2014), economic diplomacy actors are faced with the challenge of promoting
trade and investments in a highly competitive environment.
4.2 Economic diplomacy for development and competitiveness
4.2.1 The rationale for Philippine economic diplomacy
Federico Macaranas served as Foreign Affairs Undersecretary for International
Economic Relations under President Fidel Ramos, when economic diplomacy was
formally recognized as one of the three pillars of Philippine foreign policy10.
Macaranas (2004, pp. 50-51) asserted that economic or development diplomacy,
i.e., ‘harnessing and the management of all the available resources of the nation
in active pursuit and availment of opportunities abroad’ in vital areas such as
trade, investment, tourism, technology, and development assistance, had been a
concept as old as the Philippine Foreign Service, but was only managed and
made a reality relatively recently. Philippine economic diplomacy is ‘heavily
10
Political security and attention to nationals are the other two pillars.
- 76 –
oriented towards socio-economic development’, and pursued through trade
maximization by negotiations and competitive partnerships, investment
attraction through sound and consistent macro-economic policies, and aid
through cooperation (e.g., APEC model).
Economic diplomacy is pursued through the DFA-led ‘Team Philippines’
(Macaranas, p. 11). It was tasked with marketing and highlighting the
competitiveness of the Philippines, promoting its products and services. The DFA
Economic Diplomacy Unit is a broker house of information on trade and
investments.
Macaranas (p. 51) pointed to the Meiji Restoration in Japan as ‘the most
successful way in which foreign resources were harnessed for the development of
a country’.
Furthermore, Macaranas (p. 52) adds that ‘the 50-years decline… is indeed our
failure as a nation to harness our own resources to address the challenges not
only globally but domestically… indeed we must do our homework first in order
to be able to portray our foreign policy in a stronger light. Because if we are
weak at home, we could not project indeed a Philippines that would be honored
with more investors, more trade agreements, more tourism flows and more
official development assistance. In that line, perhaps what we should do is
examine where in our competitiveness we can make a dent especially in the
diplomatic field.’
Macaranas (2004) benchmarked Philippine economic performance vis-à-vis other
economies through the World Competitiveness Yearbook rankings. He
recommended how diplomacy could help in three main areas of relative

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weakness – productivity, employment growth, and infrastructure. He added that
the work of diplomats should focus on learning from the strong points of more
competitive East Asian neighbors, and how the strengths of the Philippines could
complement their weaknesses.
Despite utilizing economic diplomacy in the pursuit of development generally,
there has been no explicit policy declaration on the importance of economic
diplomacy for domestic reforms.
4.3 Locking in unilateral liberalization
4.3.1 WTO membership
Mendoza (2015) recalled the relatively unhampered concurrence by the
Philippine Senate to Philippine membership to the World Trade Organization
(WTO), due to numerous factors.
Firstly, there was a strong push from the chief architect of foreign policy,
President Ramos, who wanted to lock-in previous unilateral liberalization as part
of his liberal economic reform program. Secondly, Senator Gloria Macapagal
Arroyo championed the treaty. There was also strong support from other
senators, who believed that the benefits from the agreement far outweighed the
costs (Mendoza, 2015).
Thirdly, according to Mendoza, although there was some opposition from non-
governmental organizations and protectionist business groups, no one was
reportedly for outright rejection, and the opposition lacked material foundation.
Instead, the discussions revolved around the provision of safety nets for those
that would be adversely affected.

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Also, the Philippines was able to secure a waiver from WTO obligations to tariffy
rice, one of the most sensitive agricultural sectors, permitting the Philippines to
impose quantitative import restrictions. The Department of Agriculture had
advocated for the Senate’s concurrence in the ratification of the Philippines’
membership to the WTO (Tolentino and dela Peña, 2011).
Those who opposed ratification of the Marrakesh Agreement filed a case in the
Supreme Court on the constitutionality of WTO membership (Tañada v. Angara,
1997). In a unanimous decision dismissing the complaint, the Supreme Court
referred to the following involvement of the country’s top economic diplomats:
two letters by President Ramos to the Senate detailing the policy objectives of
WTO membership; the appearance of Foreign Affairs Secretary Roberto Romulo
at the Senate hearings; and at the request of the Court, a memorandum
submitted by the Philippine Permanent Representative to the United Nations
Office in Geneva, Ambassador Lilia Bautista, providing the historical background
and summary of the covered agreements.
The Court deferred to the ‘judgment call by policymakers’, citing the President’s
expressed objectives, i.e., improved access in agriculture, industrial products,
and services; reduction of export costs and uncertainty; and attraction of more
investments. In fact, the Court added another justification – benefits from
participating in the multilateral dispute settlement mechanism.
The decision, however, was not a wholesale endorsement of liberalization, as
other Constitutional provisions provided policy space or safeguards addressing
the concerns of oppositors. These include pursuing a trade policy serving the
general welfare (i.e., increased exports, employment generation, and consumer

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welfare), on the basis of equality and reciprocity. The Court furthermore affirmed
that the Philippines will make use of, and benefit from, the protection and
flexibilities afforded by the WTO to developing countries.
In a balancing exercise, the Court also circumscribed WTO membership under
the seemingly contradictory constitutional mandate on economic nationalism,
i.e., limitations on foreign ownership and participation, requirement to make
domestic industries competitive through gradual development, and a self-reliant
and independent economy that did not rule out the entry of foreign investment,
goods and services. Effectively, the Court had confirmed that the exercise of
joining the WTO was largely11 a binding of the existing regime (i.e., unilateral
liberalization within Constitutional restrictions).
A confluence of factors – unilateral liberalization prior to multilateral
commitment; a strong push by the country’s top diplomats; a champion and
strong supporters in the Senate; and mitigating opposition through safety nets
and flexibilities for some sensitive sectors – led to the relative smooth adoption
of an important economic policy measure.
4.3.2 JPEPA
The Japan-Philippine Economic Partnership Agreement (JPEPA), the Philippine’s
first foray into bilateral FTAs, served as a litmus test for the government to
further lock in reforms. This was prompted in part by the deadlock in the Doha
Round multilateral trade negotiations. Unlike WTO membership, lapses and
significant opposition marked JPEPA.
11
Bello et al. (2009) nonetheless noted that numerous laws and regulations had to be
amended or enacted upon the prodding of US agencies, e.g., amended the intellectual property
law, and phasing out its Motor Vehicle Development Program.
- 80 –
JPEPA negotiations started in February 2004, and the agreement was concluded
and signed in Helsinki in September 2006. Although the Japanese Diet ratified
the agreement in December 2006, the Philippines only managed to complete its
domestic ratification process in October 2008. It was longer than many of
Japan’s FTA negotiations with other ASEAN members, and ‘perhaps the most
publicly controversial’ (Mendoza, 2015, pp. 2,18).
As Mendoza narrated, JPEPA’s chief architects were President Gloria Macapagal
Arroyo and Prime Minister Koizumi, who explored negotiations during bilateral
and summit meetings in 2002 and 2003. The academe and business groups were
brought in. Numerous studies by both sides, including the government
development think tank Philippine Institute of Development Studies (PIDS),
found JPEPA favorable. A Joint Coordinating Team was also formed in 2003,
which found that that there would be minimal but still positive impact for both
sides.
Unlike the ‘room next door’ approach of some Latin American countries, the
Philippine side, led by the DTI, conducted the negotiations in relative secrecy.
Mendoza recalled that the House of Representatives (Lower House of Congress)
only learned of the JPEPA during the deliberations for DTI’s 2006 budget;
moreover, Executive Order No. 464 – which required prior Presidential approval
of the sharing of information – and the confidentiality requirements of ongoing
negotiations, prevented DTI from sharing information.
Opposition from many sectors was rife, and was not handled appropriately.
Delays were encountered when US car manufacturer Ford got wind of the
agreement for the phased-in elimination of tariffs for Japanese automobile and
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auto parts by 2010. Ford successfully lobbied for a renegotiation to increase the
customs duties, citing government regulations that mandated the development
of the local industry, and by sharing information regarding Thailand’s continued
protection of its more vibrant domestic automotive industry from Japanese
imports (Mendoza).
In the aftermath of WTO membership, non-governmental organizations also
opposed JPEPA. In joining WTO, Bello (2010, pp. 131-132) lamented that the
Philippines suffered from ‘the ravages of both free trade and monopolistic
competition’, surrendered the option to utilize trade policy for industrialization,
and remained poor, with low productivity. NGOs had pointed out that the rapid
reduction of tariffs and non-tariff barriers had contributed immensely to the end
of local industries. The Philippines was said to not be able to replicate the efforts
of other economies, particularly more advanced economies, in ‘creatively’
protecting industries in the light of liberalization and globalization. With the
government unilaterally reducing tariffs in an accelerated manner, the response
by government to globalization, and not globalization per se, should be blamed
(Hanns Siedel Foundation, 2004, p. 12). Sanchez (p. 794) noted that JPEPA
oppositors bemoaned ‘the shameless surrender of sovereignty, the economic
nationalism of the Constitution, and the one-sidedness of the deal.’
The secrecy of negotiators did not help ease their concerns. According to
Mendoza, civil society organizations went to the Supreme Court to compel the
disclosure of the JPEPA text. They also raised the alarm that Japan would use the
Philippines as a dumping ground for duty-free hazardous and toxic wastes. NGOs
also complained that the agreement would not provide Filipino nurses with
access to the Japanese market given stringent requirements. Further adding

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complication was the possible impact on domestic industries and workers, which
a senator and a diplomat said was yet to be ascertained.12
Lack of coordination within the government was also apparent, with further
delays resulting from the mistaken belief that executive ratification would suffice
given that JPEPA just built upon the previously ratified WTO Agreement. It
however contained provisions not covered by the WTO, and thus considered a
new treaty requiring Senate concurrence.
Lack of consultations also led to potential violations of constitutional and
statutory provisions. During the Senate hearings, former Supreme Court Justice
Florentino Feliciano (2007) identified the legal infirmities. In a ‘stinging rebuke’
(Sanchez, p.797), he blamed negotiators for failure to make reservations or
exemptions, and for not carefully examining the reservations made by Japan,
Thailand, Malaysia and Indonesia in their EPAs. Civil society groups supported
these reservations (Fair Trade Alliance, 2007).
Given the multiple concerns, and the 2007 elections and other political priorities
brewing, the Senate found it difficult to concur with the President’s ratification of
JPEPA; it was resubmitted to the next Congress (Mendoza).
To address constitutional infirmities, the DFA acted as trouble-shooter. Foreign
Affairs Secretary Alberto Romulo requested the Senate to postpone consideration
of conditional concurrence, suggested by another retired justice, as it could have
potentially led to rejection by Japan. The Foreign Ministries of both sides instead
negotiated a supplemental agreement, through an exchange of notes, which
addressed the constitutional and statutory concerns. With the diplomatic
12
See also Fair Trade Alliance (2007).
- 83 –
solution, the Senate finally approved JPEPA on 10 October 2008 through simple
concurrence (Mendoza).
Despite the significant opposition, external pressure used in the ratification of
WTO membership appeared to remain influential in finally overcoming opposition.
Mendoza (p.24) noted that the Philippines ‘feared of being left out and behind by
her ASEAN neighbors’ (or the trade diversion argument13). It was a ‘lose or draw’
situation - rejection would lead to ‘definite’ and ‘calculable’ losses as they would
give an advantage to neighbors, while ratification would lead to minimal gains
(Mendoza).
The final agreement resulted in the locking-in of unilateral liberalization (hence
the ‘minimal gains’), instead of major policy reforms that would have required
constitutional and statutory amendments.
The utilization of the ‘trade diversion’ argument connotes a defensive and
follower mindset manifesting inability to specifically identify the benefits from a
trade agreement, which is fundamental in formulating and pursuing a negotiating
strategy, identifying the specific roles of relevant government agencies and non-
state actors, and in crafting transition mitigation strategies that genuinely
address the concerns of opposing actors. One way of veering away from this
generic argument is to explicitly enunciate a longer-term strategy for
undertaking FTAs, with the articulation of policy reform objectives as one of the
pillars.
13
See also ABS-CBN News, 2008
- 84 –
4.4 Inducing reforms through trade agreements
4.4.1 Domestic reforms through WTO participation
Ambassador Esteban B. Conejos, Jr.14, former Permanent Representative to the
WTO, shared his thoughts on economic diplomacy:
Economic diplomacy plays an important catalytic role in facilitating domestic

reforms. Trade deals at the bilateral, regional and multilateral levels involve a
considerable degree of give and take. Countries which otherwise are adverse
to unilateral reform can be persuaded to embrace change on the promise of
reciprocal and mutually advantageous exchanges with other countries.
In the Philippines, the principal government agencies involved in economic

diplomacy are the DTI, DA, NEDA, and DFA. Technical work is undertaken on
an interagency basis at the sub-ministerial level. Policy decision and political
guidance is taken at the ministerial level.
The process involved in bilateral, regional and multilateral trade negotiations

is fairly standard, i.e. establishing a mandate, scoping exercise, conduct of
negotiations and the signing of the final agreement. The important thing to
remember is that the entire process should be transparent and inclusive.
Consultations with relevant and affected sectors are important to ensure
stakeholder buy-in and the smooth adoption of needed implementing
domestic reform.
In some instances, amendment of domestic laws would be required to effect

domestic reform. Hence, consultations with key members of the legislature is
also important to assure the smooth adoption of amendatory legislation.
Economic diplomacy facilitation is likely to succeed if there is a strong

domestic demand to undertake a specific economic diplomatic initiative
coupled with a strong political will to carry out the reform program to see the
initiative through.
14
Replies to questions, sent to the author through email on 6 August 2016. The author
served as deputy (Third Secretary, then Second Secretary) to Ambassador Conejos.
- 85 –
Generally, pro-reform external and internal forces view diplomatic efforts

favorably. Entrenched vested interests and protectionist tendencies will resist
domestic reforms. To overcome opposition, it is important to show through
effective economic diplomacy that only by undertaking domestic reform can
new or enhanced market access be achieved or that strengthened trade rules
can protect domestic industry.
In every trade negotiation it is important to identify your objectives, broad

principles and the general process. These can be identified in advance in
policy papers. Negotiating positions and the necessary adjustments to be
taken along the way will depend on the dynamics of the negotiations.
4.4.1.1 TFA
The Trade Facilitation Agreement (TFA) is the first multilateral trade agreement
since the WTO’s establishment in 1995. It provides rules on expediting the
movement, release and clearance of goods. It covers cooperation between
customs and other authorities, and provides for technical assistance and capacity
building (WTO, 2014).
The agreement provides a novel approach to special and differential treatment,
allowing members to categorize and phase in commitments based on capacity.
Category A commitments are binding immediately upon the TFA’s entry into
force. This would mainly apply to obligations that would only lock-in current
regimes. Category B commitments provide for transitional periods, while
Category C commitments provide for both transitional periods and technical
assistance. These latter two categories presumably cover new reforms that a
Member would have to undertake.
The Philippines committed twenty-eight provisions under Category A, which is
relatively high compared with other WTO Members. These commitments, while
- 86 –
merely binding unilateral reforms multilaterally, are seen as a complement to
numerous efforts to enhance customs operations particularly for the benefit of
small and medium enterprises. Other reform efforts include the Customs
Modernization and Tariff Act, which could facilitate the identification of Category
B and C commitments, and initiatives in other international bodies.
Conejos was able to uphold Philippine interests (i.e., customs brokerage,
considered a profession in the Philippines), arguing that brokers played a trade
facilitative role particularly for small and medium-sized enterprises. He was able
to assuage the concerns of other delegations, and contribute to the conclusion of
negotiations:
During the TFA negotiations, the Philippines was virtually alone in opposing
the abolition of customs brokers. By negotiating for a limited and
circumscribed role for customs brokers, i.e., limited to countries already using
customs brokers and prohibiting reinstatement once abolished, we were able
to buy time for our customs brokers to make the necessary adjustments thus
paving the way for the passage of a law which authorizes the phasing out of
customs brokers in a few years’ time.
4.4.1.2 Rice waiver
The Philippines had been able to secure during the Uruguay Round a ten-year
waiver from the WTO that allowed it to impose quantitative restrictions on rice
imports. The Philippines negotiated for a seven-year extension when this special
treatment expired in 2005. Subsequently, the Philippines was able to secure a
waiver extending the quota until June 2017.
DA requested ‘for the extension to build the production capability of farmers so
they can cope with increased competition in Southeast Asia’ (Ranada, 2014),
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citing food security concerns with the volatility of world market prices, and the
detrimental impact of non-extension on smallholding farmers.
Critics, on the other hand, noted the ‘relatively concentrated and organized’
beneficiaries of the ‘current distorted and economically inefficient policies and
arrangements in rice marketing in the Philippines…’ (Tolentino and dela Peña,
2011, p. 176). Furthermore, there are advocates for tariffication within the
government, including former economic ministers.
However, rice, being the Filipino’s primary staple food, is a politically sensitive
issue, particularly with the involvement of farmers. The timing of Executive
Orders No. 191 and 192 implementing the rice waiver also appears to be crucial,
coming a few months before the May 2016 elections.
Conejos was also a lead negotiator in the waiver negotiations. As the Philippines
is the only WTO member left permitted to provide special treatment (i.e.,
quantitative restrictions) to an agricultural product, negotiations were difficult,
requiring numerous concessions and with expectations of tariffication upon
expiration. He had conveyed Members’ expectations to stakeholders, while
articulating all available options for the Philippines. He thus narrated:
By availing of the special treatment for rice and its subsequent renewal, we
were able to buy time for our farmers to prepare for the eventual tariffication
and abolition of QRs (quantitative restrictions) on rice. When the present
waiver will expire, one of the options being explored is to renegotiate the tariff
on rice while pursuing tariffication.
- 88 –
4.4.1.3 Agriculture negotiations
Another sensitive issue particularly for net food-importing developing countries is
trade liberalization in the agriculture sector. Conejos, who was also lead
negotiator on Agriculture, is of the view that safeguards can serve to facilitate
market access reforms:
As part of the G-3315, the Philippines is also pursuing the initiatives for the
establishment of a Special Safeguard Mechanism and on Public Stockholding for
Food Purposes. Providing for necessary safeguards can pave the way for
agricultural market access negotiations to take place.16
4.4.1.4 The Distilled Spirits case17 and the Sin Tax Law
In 2009, the EU and the US complained that the Philippines imposed different tax
rates based on the raw materials used to make the distilled spirit. Specific types
of spirits that were made from raw materials readily available locally were taxed
less than the same type of distilled spirits made from other raw materials. In
2011, the WTO Panel and Appellate Body ruled that the tax measure violated the
national treatment provisions of the GATT 1994, affording protection to Philippine
domestic production.
Compliance with the WTO ruling involved a two-pronged approach. The Philippine
Mission to the WTO negotiated with EU and US counterparts to provide the
Philippines 13 months and 16 days (or until 8 March 2013) to enact WTO-
compliant legislation.
15
The G-33, also known as ‘Friends of Special Products’ in agriculture, is a coalition of
developing countries in the WTO pressing for flexibility for developing countries to undertake
limited market opening in agriculture.
16
The Philippines is also part of the ‘Friends of ESM’, which has similarly supported an
emegency safeguard mechanism for services imports.
17
The author was Philippine delegate during the appellate and compliance phases of the
dispute.
- 89 –
Reforming the domestic regime to comply with the ruling was also undertaken.
There was clamor to update the Philippine ‘sin taxes’ on alcohol and tobacco
products, with the aim of increasing revenues and funding health programs. To
some observers, ‘the sin tax reform would not have happened but for the
impetus from a case about taxes on distilled spirits that the Philippines “lost” at
the WTO… In sum, the outcome has the potential to be one of the most
significant public health victories in recent memory in the Philippines, and it was
propelled initially by the results of a WTO dispute.’ (Chavez et al., pp. 7 and 25).
Drope et al. (2014, p. 46) elaborated that the threat of economic retaliation from
the EU (and the US) with non-compliance with the WTO ruling within the
reasonable period of time ‘created a broader impetus to revisit tax reform across
alcohol beverages and tobacco’.
There was significant opposition from the domestic spirits and tobacco sectors,
and also dynamics between the two groups on the burden sharing of increased
taxes (Drope et al.). They also tapped industry workers and farmers that would
supposedly be affected by the new tax measure. Numerous revisions to the
House and Senate bills were made to address these dynamics, including phase-in
periods prior to full implementation. As the process reached the bicameral
committee stage to reconcile the House and Senate versions, concerns were
raised on another potentially WTO-inconsistent provision – the requirement to
source a certain percentage of tobacco raw materials domestically. Senator
Miriam Defensor Santiago opined that the local content requirement was WTO-
inconsistent, and upon her motion, the Senate agreed to summon the DTI
Secretary to shed light on the possible breach (Fernandez, 2012). The Philippine
Mission contributed concretely by transmitting the legal opinion of Geneva-based

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law experts on the WTO-consistency of the bills. In the end, the final version of
the bill rectified the WTO inconsistent taxes on distilled spirits, and did not
include the proposed local content requirement on tobacco products.
Throughout the legislative proceedings, the Philippine Mission to the WTO
provided reports and recommendations on the various bills. This also involved
meeting with the US and EU delegations and the World Spirits Alliance to receive
their concerns and communicate them to capital.
Drope et al. and Chavez et al. documented the central role played by President
Benigno Aquino III in the passage of the tax reforms, and the confluence of
support from other high-level officials, e.g. Finance Secretary, Senate Finance
Committee Chair, House Ways and Means Committee Chair, and the Internal
Revenue Commissioner. They also noted that civil society played a key role,
through a strong relationship with the government, a well-coordinated pro-
reform coalition that was consistent with its message, and material support from
domestic and external sources.
Technical assistance in modeling various reform scenarios, provided by the
Department of Finance to Congress, was also crucial (Chavez et al., p. 25-26).
‘Several government officials suggested that having domestic capacity to work
through these issues was important for making the case for reform convincingly
because the core arguments and evidence came largely from within Philippine
society.’ The World Bank, the World Health Organization, and independent
consults also reportedly helped the DOF and BIR to develop models in the
Philippine context. Chavez et al. add that the World Bank particularly helped
objectively define the economic impact on farmers, who would be significantly

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affected by the policy reform. There was some difficulty obtaining data from
external sources regarding other countries’ experiences; the case authors noted
the importance of consistent support during the entire process.
4.4.2 Interest in the Trans-Pacific Partnership and EFTA
Former Foreign Affairs Undersecretary Laura Del Rosario18 is of the view that if
domestic reforms were the objective, economic diplomacy has to be done
bilaterally. She noted that economic diplomacy could be ‘outwardly directed’ or
‘inwardly directed’. ‘If a state wants to look into getting resonance in its efforts,
it should consult potential partners and see how two economies can align their
policies. This alignment of regulations and policies is what makes it easier for an
investor to make a decision to invest because no time or money is wasted in
studying an economy’s rules and regulations,’ Del Rosario noted.
As an example, her office monitored issues in the Trans-Pacific Partnership (TPP)
negotiations. DTI met negotiators of selected TPP parties to identify common
issues faced by developing economies. Ambassadors of TPP countries also briefed
the DTI and, upon request, the DFA. Subsequently, ambassadors of EFTA
countries, which negotiated a free trade agreement with the Philippines
beginning in 2015, also briefed both ministries. According to Del Rosario, ‘these
meetings and briefings made senior officials involved in negotiations anticipate
possible concerns and how these concerns could be addressed, provided no
constitutional prohibition was in place.’
She is of the view that ‘the head of the relevant agencies and the next ranking
officials have to carry out the reform process’. They however have to get
18
Replies to questions, sent to the author through email on 21 July 2016.
- 92 –
instructions from the country’s leader. In the case of the Philippines, ‘it took a
while for the Aquino cabinet ministers to give definite signals about negotiating
FTAs – which to DFA means, ‘to liberalize’ – and only after almost three years,
i.e., in 2013.’
She added that campaigning for TPP membership was a motivating factor.
‘Seeing that Vietnam became a member within two years of the negotiations
signaled to the Philippines that it should follow. After all, Vietnam was a
latecomer in APEC and in WTO, is a centrally controlled economy, but it joined
TPP in 2014,’ she wrote. Furthermore, ‘it also helped that US officials in Manila
kept on discussing the benefits of joining TPP.’ In addition, she noted that EFTA
countries also invited the Philippines to FTA talks given that Vietnam had already
started negotiations with EFTA.
4.5 Sectoral policy reforms
4.5.1 Privatization of a water distribution utility
The privatization of the Metropolitan Waterworks and Sewerage System (MWSS)
is described as ‘a singularly successful structural reform in the annals of
Philippine political economy’ (Fabella, 2011, p.65). In the transformation of this
government-owned and operated corporation - known for poor service, huge
foreign debt, and an overmanned, politicized and protected workforce – to two
private concessionaires that offered competent and efficient delivery of water
and sewerage services, Fabella (2011) discussed key change agents and factors,
many of which involved diplomacy.

- 93 –
Firstly, there was a strong push from top diplomat Ramos, the chief architect. His
administration had aspired to become a ‘Tiger Economy,’ and saw the upgrading
of infrastructure and utilities as essential to enhancing export competitiveness
and the attraction of foreign direct investments. Furthermore, the President
entertained Malaysian investors and their partner, a British water service
provider, who came to meet him and Pubic Works Secretary Gregorio Vigilar to
express interest in the outright purchase of the utility, and ‘painted the picture of
a completely transformed water service’ (p.86). Crucially, there were successful
templates for water utility reform in developing countries, particularly in Buenos
Aires and Macau, which appealed to Ramos and Vigilar. Public Works officials led
by Vigilar and the MWSS went on missions to Argentina, Macau, France and the
United Kingdom, to learn first-hand from their systems (Fabella, 2011).
The public criticism of Philippine telecommunications service by Singapore Senior
Minister Lee Kuan Yew during an official visit to Manila also reportedly served as
impetus to address poor services in general. The French embassy in Manila
provided a grant to conduct a technical feasibility study, while the British
embassy arranged the visit to England. Multilateral agencies also played a part,
with the World Bank manuscript on the Buenos Aires success story, and the IFC
serving as principal adviser for the privatization (Fabella, 2011).
4.5.2 Competition in telecoms
The introduction of competition in the telecommunications sector is seen to have
led to rapid technological advancement, the spawning and growth of the business
process outsourcing industry, and massive employment generation.

- 94 –
Mirandilla-Santos (2011) highlighted President Ramos’ ability to gain support of
the Speaker and other members of the House of Representatives and
encouraging consumer coalitions to organize. She (p. 109) added that the
impetus for the reform came in 1992, when Singapore’s Senior Minister Lee Kuan
Yew joked during a speech in Manila that ‘98 percent of the population are
waiting for a telephone, and the other 2 percent for a dial tone.’ In response,
Ramos immediately issued two executive orders mandating interconnection and
service improvement.
The Canadian International Development Agency (CIDA) also supported the 20-
year National Telecommunications Development Plan, which the Department of
Transportation and Communication (DOTC) used to influence the Senate bill
translating the President’s executive orders into a legislative statute (Mirandilla-
Santos).
4.5.3 Open skies policy
Salazar-Rodolfo (2011) documented the leadership role of President Ramos in
the liberalization of civil aviation. To allow entry of more carriers into the
domestic and international markets, Ramos issued a landmark executive order
articulating the national interest from the perspective of consumers rather than
the air service providers. There was a challenge to the regulator, the Civil
Aviation Board (CAB) to support the tourism industry, which was lagging behind
ASEAN neighbors in terms of air access.
A few years later, encountering opposition from the regulator itself and the
privatized national carrier on a full open skies policy, a creative ‘pocket open
skies’ approach for secondary gateways was undertaken. The influence of

- 95 –
President Gloria Macapagal Arroyo in her own province, where the regional
international airport was located, was used. USAID and the Asia Foundation also
assisted. There was weaker opposition by the elites in localities, and provincial
sectors that would benefit from increased air traffic were also mobilized along
with national business groups.
This success changed national perceptions and was followed by the issuance by
President Benigno S. Aquino III, Arroyo’s successor, of an executive order
providing for pocket open skies in all secondary gateways (Faustino and Fabella,
2011a).
Salazar-Rodolfo recounted that after a failing to overcome opposition to ‘pocket
open skies’ through unilateral liberalization, the administration undertook
accelerated bilateral air services agreements at the behest of president Arroyo.
This time, the incumbents supported the approach given the reciprocal access to
other countries.
The Department of Foreign Affairs has been directly and actively involved in air
services talks, which ideally injects a broader national interest perspective and
serves as a balance to possible capture by incumbents of the regulatory
authority.
In between the liberal administrations of Ramos and Arroyo, the Estrada
government was involved in a protectionist decision that was rectified only after
significant damage was done. Mendoza (2015, p. 25) explained the ‘inordinate
power and influence of the Philippine President’ as top diplomat, manifested in
the abrupt decision of Estrada to abrogate the air services agreement with
Taipei, allegedly in order to protect a friend who owned the national air carrier.
- 96 –
As a result, major investors (including Acer) pulled out, and tourists stayed
away; Taipei threatened to limit entry of Filipino workers, and Filipino workers
had to suffer with indirect flights to and from Manila. In the end, Estrada
backtracked and signed an agreement similar to the one abrogated.
Detailing the steps taken to resolve the conflict, Salazar-Rodolfo (pp. 51-52)
noted that the Congressional Committees on Foreign Affairs, Transport, and
Tourism conducted legislative inquiries and wrote to Estrada’s Economic
Coordinating Council, calling for immediate resolution of the matter and
upholding liberalization. They cited the importance of Taipei ‘as the third largest
tourism market, fifth largest trading partner, fifth largest source of foreign
investment, and host of more than 100,000 OFWs’ (overseas Filipino workers).
The Department of Tourism and DTI were said to respond to the appeals of
tourism and trade interest coalitions. After Acer complained to President Estrada,
he finally ordered air talks, tasking Mr. Rod Reyes, managing director of the
Manila Economic and Cultural Office in Taipei19, to lead negotiations along with
the transportation minister.
4.6 Soft approaches
4.6.1 Policy dialogue, peer review, and capacity building
Despite numerous reform efforts, the Philippines is still a work in progress.
NEDA (2008, Figure 15) illustrated the linked and reinforcing cycles of ‘booty
capitalism, poor governance, poverty and social chaos.’ At the center of these ills
were ‘policy distortions and weak institutions.’
19
With the One-China Policy, the Philippines does not have an embassy in Taipei. Instead,
MECO serves to manage relevant interests.
- 97 –
Figure 15. Vicious cycles plaguing the Philippines (Source: NEDA, 2008)
Addressing these vicious cycles included numerous aspects and linkages,
including political economy reform and microeconomic reforms (Figure 16):

- 98 –
Figure 16. Development Agenda (Source: NEDA, 2008)
Regulatory reforms were needed in the following services sectors: power,
telecommunications, air transport, ports, and shipping. Even though reforms in
some of these sectors have been documented and discussed above, NEDA noted
that the regulatory agencies overseeing these sectors were prone to capture.
Being prone to regulatory capture means being subjected to strong lobbying and
political influences. This presents a challenge in binding existing regimes (or

- 99 –
removing the so-called ‘water’ or ‘policy space’) through international
commitments; undertaking further unilateral reforms would appear to present a
more difficult challenge.
Where reforms require long-term effort and huge amounts of political capital,
such as in the sectors mentioned above, softer approaches could contribute to
incrementally push the reform agenda.
The Philippines has benefited from trade-related training from the WTO Institute
for Training and Cooperation. This includes not only ensuring that members
abide by their liberalization commitments, but also to enable members to utilize
the trade remedies and flexibilities available to them. The Philippines has also
benefited from APEC capacity building projects. These are proposed and
implemented by relevant agencies according to their specific needs.
Pathfinder approaches enable members to adopt non-binding principles at their
own pace. APEC ministers endorsed the Data Privacy Pathfinder Initiative (DPPI)
in 2007 to implement the APEC Privacy Framework, which is in furtherance of
facilitating trade while ensuring data privacy (APEC PSU, 2011). DPPI contained
general commitments that would lead to the development of ‘an APEC Cross-
Border Privacy Rules (CBPR) system under the guidance of the APEC Information
Privacy Principles’ (APEC PSU, 2011, p. 3).
While DPPI was endorsed in September 2007, the Philippines joined only in July
2008. The initiative called for processes and templates on self-assessment,
compliance review, recognition, dispute resolution and enforcement. The
Philippines noted that the domestic data framework being developed at that time
was aligned with the APEC Privacy Framework. This included a data privacy bill in
- 100 –
Congress, and a 2006 interim DTI administrative circular. The Data Privacy Act
(Republic Act No. 10173) was eventually enacted into law in August 2012.
Another useful tool for reforms involving international engagement is peer
review. The WTO Trade Policy Review Mechanism comprehensively discusses the
economic and trade situation of a member through periodic self-assessments,
Secretariat report, discussants (usually a Ambassadors of other members), and
replies to other Members’ questions. APEC provides for the Individual Action Plan
(IAP) peer review, measuring the progress in achieving the Bogor Goals.
UNCTAD also conducts voluntary peer reviews on competition law and policy,
which the Philippines availed of (DOJ, 2014) prior to enacting its Competition
Act.
4.6.2 Competitiveness and out-of-the-box opening up
Building upon the reforms of his predecessors, President Aquino approached
trade liberalization cautiously, having rejected the JPEPA when he was a senator.
He first focused on the home front, through fiscal consolidation, enhancement of
competitiveness, and anti-corruption. Aquino ‘emphasized that foreign policy
begins at home. A clear and reform-driven domestic policy provides the solid
foundation for a more effective and credible conduct of foreign policy’ (Romulo,
2011).20
Aquino’s focus on domestic strengthening yielded impressive results. During his
term, annual economic growth averaged 6.2 percent, second only to China. From
2010 to 2015, the Philippines jumped thirty-eight places from 85th to 47th in the
20
While the specific role of foreign policy in facilitating reform-driven domestic policy has not
been formally enunciated, Del Rosario elaborated upon the ‘out of the box’ diplomatic approach
below.
- 101 –
World Economic Forum Global Competitiveness Index. His administration had
enacted many reforms, including a comprehensive competition policy law, open
skies, sin tax reform, and procurement and budget reforms.
According to Undersecretary Del Rosario, when her office started looking at the
possibility of opening up more economic areas for investment (i.e., ‘liberalizing
our regulatory policies’), she was cautioned not to undertake it openly since
there were ‘strong forces’ reportedly against it. In her analysis, she wondered
who were against opening up, as most domestic businesses were in ‘not so big
sectors’, e.g., trading, real estate development, retail, distribution, and
franchising. She also identified the emerging field of services, e.g., energy,
information and communications technology (ICT), finance, education, media
and entertainment.
She noted that the resistance came from senior officials of economic ministries in
charge of agriculture, manufacturing, and the above-mentioned sectors, whose
stakeholders had a ‘fear of the unknown’ as they were not sure how liberalization
would affect their respective sectors. A senior economist mentioned ‘the
conglomerates.’
In spite of the opposition, in 2012, her office, together with NEDA, PIDS, and the
National Competitiveness Council (or the NCC, a public-private institution)
focused on the competitiveness of services industries as potentially a broader
source of growth for the economy.
Due to the efforts of the Department of Finance and the NCC, she observed that
‘the national outlook started to become optimistic’ in 2013 with the successive
investment rating upgrades given by three major credit rating agencies. She also
- 102 –
noted that industry leaders started to realize that having more open policies
would attract investors looking for alternative investment sites with the financial
slowdown in the US and in the Eurozone.
On services, her office – the Office of the Undersecretary for International
Economic Relations (OUIER) – worked with the NCC’s private arm, led by the
Makati Business Club, and NEDA, through Deputy Director-General Dr.
Emmanuel F. Esguerra. Esguerra had a reformist view on services, and had the
backing of his superior, Director-General Arsenio Balisacan, who was ‘also
pushing for some changes as the economy had to move in certain sectors to
expand employment and economic activities’.
‘What started as a quiet effort among three agencies – DFA-OUIER, NEDA/PIDS,
and NCC – started to grow as more business missions came in looking for
investment or trading partners,’ Del Rosario added.
Another factor, Del Rosario noted, was the ‘growing number of interested
investors in the country’, as explained above.
On the processes, methods and fora involved, Del Rosario narrated a ‘multi-
faceted process’ involving both domestic and international initiatives:
Pursuing domestic reforms is a multi-faceted process. One has to get the

stakeholders involved if they must have ownership of the reforms. In the
21
case of services, we formed a National Services Coalition coordinated by the
Makati Business Club and the National Competitiveness Council so that the
existence of the coalition will not depend on the DFA Undersecretary for OIER.
This was formalized in 2013-14. Now the coalition meets whenever the
members need to.
21
This was a successor to the Philippine Services Coalition, which was a government-led
initiative under former Undersecretary Edsel Custodio.
- 103 –
Then there is the matter of introducing initiatives, as in the case of APEC 2015
Hosting when the Philippines pushed for the adoption of an APEC Services
Agenda starting with the Framework for Services Cooperation. Now the APEC
Senior Officials are working on a Services Roadmap.
The same can be done within ASEAN, and the ASEAN Economic Community is
an example of attempts to achieve regional integration, which is the ultimate
aim of having uniform and parallel policies.
Negotiating an FTA is the surest way to initiate reforms because the

commitments in the FTA will necessitate legislative changes or improvements.
Negotiating an FTA with EFTA and now with the EU will open our policies
towards liberalization further than what was achieved in other FTAs with
ASEAN members vis-à-vis their Dialogue Partners. EFTA and EU plus the US
(should the Philippines join TPP) have higher requirements in terms of
openness, governance, and predictability of application of principles. But these
negotiating efforts have to be spearheaded by the lead agency in FTA
negotiations: the DTI.
Del Rosario added that Foreign Service Posts (FSPs) play a special role:
Ambassadors can meet with policy makers, think tanks, business associations,
chambers of commerce, to get the pulse of the host country. The FSPs can
either do trade promotion or pushing our products abroad or investment
promotion or pulling investors to consider the Philippines. This is where the
funding support from DTI or the DFA- OUIER can be considered.
Economic diplomacy is two-directional. Post can invite Philippine exporters to

go out and go sell in the host country or they can invite investors to go out
and invest in the country. But whatever they do, they learn to look at the
market—what products or services sell, what is innovative, what is improving
the quality of life of the countries they are in. So their reports are important.
And these reports are then passed on to the relevant government agencies for
their information.
She furthermore pointed out that the legislative body could facilitate domestic
reforms. She wrote, ‘the relevant committees in charge of economic reforms and
- 104 –
trade are important. It is the legislators, after all, who might pass the much
needed law to improve the operation of a particular sector.’
She is also of the view that the Cabinet Economic Cluster, while not part of the
DFA economic diplomacy work, ‘can facilitate reforms especially when foreign
chambers voice their investors’ problems.’ The cluster as a body can ‘carry out
the proposals for the agencies to implement or to pass on to the legislative body
to draft laws on.’
While agreeing that economic diplomacy is traditionally viewed as a means to
promote economic interests (e.g., trade, investment, overseas labor) and is not
commonly used for reform, Del Rosario observed that ‘there was a confluence of
interest in domestic reform in ways that will improve the economy without going
through constitutional or charter change’ during the Aquino administration. She
noted that President Aquino himself stated that there were policies that could be
improved, e.g., those that regulate businesses (ease of doing business), trade
(border issues) and services (the role of foreign providers), as well as the role of
economic zones and free ports.
She narrated the use of the APEC as an ‘out of the box’ forum for pursuing
reform initiatives – given the position of the President on constitutional
amendments – which gained positive attention from other APEC members:
So the parameters of change (without resorting to charter change) created an

‘out of the box’ thinking—why not use economic diplomacy and economic
forums to create a movement for change? For this, APEC proved to be the
most useful because everything that APEC does is geared towards two main
objectives: trade and investment liberalization and facilitation and regional
economic integration.
- 105 –
Since the Philippines is a member of APEC and had to host APEC in 2015, the
Philippine APEC National Secretariat worked with all the technical working
groups to carry out its agenda: upgrading training of human resources to
meet global developments and technological changes through referencing
frameworks, working on trans-border education or globalization of Philippine
education so that Philippine universities can compete with their counterparts,
working on the services agenda affecting professions, ICT/ BPO services,
creative industries, educational services, etc.
The Philippines became the Convenor for the Group on Services 22 during the
China host year, and it moved on to become chair or vice-chair of many TWGs
(technical working groups).
Together with the agenda on improving domestic economic regulations, was

the initiative to embed governance in all that APEC does. The governance
element was introduced in the APEC Quality Growth Framework.
The government agencies involved in APEC then saw the potential reforms
that could be achieved through APEC. Their ministerial meetings and
statements were aligned according to the main priorities of the Philippine
hosting with the fundamental objectives of improving policies and governance.
They, too, became part of the reform.
The other members of APEC were also impressed at what the Philippines were
attempting to do, as the efforts would definitely contribute to regional
economic integration.
22
Custodio was responsible for the group’s creation, with the DFA funding the participation
of a former convenor.
- 106 –
5 RECOMMENDATIONS
Figure 17. Recommendations
5.1 Lessons and remaining challenges
Philippine economic diplomacy in the context of domestic reform has been state-
centric, with a primary role for the political leader as architect and visionary
(albeit only in the medium-term). The DFA has also played a significant, although
sporadic, function, acting as messenger, analyst, reporter, negotiator, adviser,
counsel, coordinator, capacity-builder, implementer, facilitator, promoter, and
troubleshooter.
- 107 –
It has also exhibited aspects of new state capacity (niche diplomacy and
transgovernmentalism), with economic ministries undertaking vital
responsibilities towards reforms. The reactionary approach to liberalization (‘not
left behind’ mentality) shows aspects of capital-driven and marginalized foreign
policy. The electoral cycles also resulted in hints of regime survival, inhibiting
reforms. Stakeholders have also been mobilized on both sides, showing the
importance of non-state actors.
Economic diplomacy has also been crucial in making the case for reforms,
expanding the information set of decision makers, linking policies to national
interests and norms, and providing inputs (framing) to the legislative and judicial
processes. Top diplomats have provided the political will and credibility to push
through with reforms. Incrementalism and compromise have also been key.
However, more sophisticated and targeted use of transition mitigation strategies
that genuinely addresses the concerns of losing sectors appears to be at an
inchoate stage; this could potentially prevent avoidable stumbles and delays in
the future.
Success stories on reform, and the Philippines’ strong macroeconomic
fundamentals, are a source of joy and hope. The ‘out of the box’ diplomatic
approach to reforms is a promising avenue. However, key challenges remain.
Poverty incidence and unemployment remain high. The political and economic
elite remains formidable, and officials prone to capture. The bureaucracy could
be more efficient and responsive. Consumer and civil society influence and
mobilization have been patchy. A ‘flawed and incomplete Constitutional,
regulatory, and institutional design and framework that is inadequate to

- 108 –
withstand the pressures and demands of going global’ makes international
economic engagement risky for the Philippines’ sovereignty, and may negate
possible gains (Sanchez, pp. 836-837). Deeper and wider reforms are needed to
achieve inclusive and sustainable development.
Regional inequality is significant; the current administration’s focus away from
Manila and onto rural development is needed, and suggests the importance of
dealing with sub-national actors in undertaking diplomatic and reform efforts.
Rana (2016) has documented the presence of the MFAs of India, China and
Mexico in local states, which could serve as models for the Philippines.
5.2 Role of economic diplomacy in addressing outstanding challenges
Economic diplomacy is now primarily concerned with the promotion of trade and
attraction of investments. The effectiveness of these efforts is usually
constrained by domestic economic conditions and a nation’s competitiveness.
Institutional and policy reforms are needed to achieve development in the long
run. Likewise, these internal reforms are essential for economic diplomats to
effectively make the case for export competitiveness and the attractiveness of a
country as an investment destination. Economic diplomacy has a role to play in
facilitating reforms, which are imperative in developing countries like the
Philippines.
The cases show that a country’s economic diplomats – particularly the DFA –
have been involved in numerous ways in various reform initiatives. However, in
the case of the Philippines, their participation – apart from the consistent
leadership of reform-minded Presidents, and the ad hoc roles played in numerous

- 109 –
cases – does not appear to have been undertaken in an explicit, conscious,
systematic and active approach. The role of the President, the top diplomat, has
been crucial, and many of the initiatives would not have been realized without
his imprimatur. There have been explicit policy pronouncements through
executive orders and development plans, built mainly as the Chief Executive, and
not necessarily as chief economic diplomat. While it is difficult to distinguish
between the two, many of the reforms have not been driven by the DFA, nor
involved its continuous supervision or participation. The DFA had only been
tapped to play particular roles in certain phases of the reform process, e.g.,
testifying before Congress on international treaties, providing inputs to the
Judiciary, negotiating, capacity-building, coordinating participation of external
players, assisting in outgoing or incoming missions. It has not had a constant
integrating or coordinating role. However, when it has been involved, it has
oftentimes been effective, particularly as troubleshooter.
When the economic leader sanctions reforms, the DFA and relevant agencies
could provide key support, particularly given democratic checks and balances, in
hurdling bureaucratic inertia and convincing other branches of government.
While political leadership is important, short electoral cycles in the Philippines
and relatively short-term development plans engender unpredictability and lack
of sustainability, subject to the wisdom or whims of the President. One would
hope for the remarkable top-down, pro-reform policy continuity experienced by
Chile. In the absence of sustained reform-minded politics, the DFA could have a
more sustainable and predictable role in facilitating reforms in the long run by
supporting reform-minded Presidents, and as a calibrated, ‘statesman-like’
adviser and check on reform-averse leaders.

- 110 –
The numerous pending challenges, and shortcomings in other reform efforts,
suggest that a more conscious, systematic and active participation of economic
diplomats could help gather increased external resources, rally domestic
constituents, and overcome opposition through transition mitigation and other
efforts.
The following recommendations contribute to the Philippines’ use of economic
diplomacy in a more conscious, active and systematic manner to facilitate
domestic reforms:
a. Recognize the role of economic diplomacy as catalyst for domestic
reform, and the potential contribution to leading efforts in the Philippine
setting.
b. Institutionalize this function, through formal enunciation as a policy in
the MFA’s terms of reference and strategic plan, and the Philippine
Development Plan.
c. Devote the necessary resources, including setting up of formal
mechanisms, and training diplomats to be adept at the political economy
of reforms and the catalytic role to be played. Establish an office as focal
point to gather scattered efforts of various government agencies, local
non-state actors, and external influencers.
d. In the near-term, utilize the same diplomatic skill set and networks, but
calibrate and re-orient towards domestic reform. From the cases
surveyed, these include: arranging outbound and inbound missions,
linking external resources with domestic offices, entertaining relevant

- 111 –
foreign visitors, seeking and managing targeted aid and technical
assistance, organizing peer reviews and policy dialogues, dealing with
international organizations, etc.
e. In the longer-term, training and immersion would be needed to expand
soft approaches and play a more active role in hard approaches (e.g.,
treaty negotiations, including FTAs; developing strategic templates to
engage in the reform process, particularly the legal and public relations
arenas).
f. Codify relevant practices and experiences, and lessons learned from
other jurisdictions.
g. Adopt good practices that are adapted to the domestic situation.
h. Utilize external pro-reform factors or influences in pursuit of self-
determined and contextualized reforms. Treat external influences with a
grain of salt, identifying their vested interests and selecting elements or
aspects that fit self-determined reform needs.
i. Work more closely with other government agencies, including the Office
of the President, and domestic non-stakeholders in reform areas.
j. The DFA should play a more active role in economic and trade
negotiations, which increasingly touch upon behind-the-border
regulations. The DFA should work closely with NEDA, which is geared
towards domestic reform efforts, in providing a broader foreign policy
and international economic perspective on domestic reforms. The DFA is
the ideal ministry for such endeavor; other agencies, although with
- 112 –
international offices, have confined mandates. DFA can take a broader
approach on the interface of external influences and internal factors.
DFA could also lead efforts to make better use of transition mitigation
strategies. In this regard, DFA should train diplomats in economic and
commercial negotiations, which are imbued with foreign policy
considerations, and are ultimately political processes involving
compromise, reciprocity and other political economy strategies.

- 113 –
6 CONCLUSION
This paper has surveyed theories and practices on economic diplomacy,
developing-country foreign policymaking, and the political economy of reform.
This paper then provided a conceptual framework on the role of economic
diplomacy as catalyst or facilitator of domestic economic reforms. A sampling of
political and economic cases has shown that diplomacy has been utilized as
impetus for a state’s own internal reforms, and provide lessons that could be
distilled and contextualized for application in other states. The Philippine
experience provided further evidence of the uneven use of economic diplomacy
for reforms. The paper then suggested ways by which the Philippines could utilize
economic diplomacy effectively in a conscious, active and systematic manner in
furtherance of its own domestic reform efforts.
The ideas presented shed preliminary light on this supplemental function of
economic diplomacy in the attainment of national interest, particularly economic
development. Further research would be needed to clarify the concepts, learn
from other experiences, and apply both in specific contexts.

- 114 –
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Economic Diplomacy as Impetus for Philippine Domestic Reforms:

Theory, Evidence, and Recommendations

Ryan Francis D. Gener

I hereby declare that this dissertation is my own original work.

Ryan Francis Gener

I would like to thank Ambassador Kishan S. Rana, my thesis adviser and

This paper surveyed theories and practices on economic diplomacy, developing-

country foreign policymaking, and the political economy of reform. It then

provided a conceptual framework on the role of economic diplomacy as catalyst

or facilitator of domestic economic reforms. A sampling of political and economic

contextualized for possible application in other states. The Philippine experience

economic diplomacy effectively in a conscious, active and systematic manner in

furtherance of its own domestic reform efforts.

2.5.5.3 The disadvantages ................................................................................................ 48

VI. LIST OF ABBREVIATIONS AND ACRONYMS

OIER Office of International Economic Relations

OUIER Office of the Undersecretary for International Economic Relations

PIDS Philippine Institute for Development Studies

PTA Preferential Trade Arrangement

TFA Trade Facilitation Agreement

TPP Trans-Pacific Partnership

VII. LIST OF TABLES, FIGURES AND ILLUSTRATIONS

research, on the role of economic diplomacy in facilitating internal reforms. There

international engagement has likely contributed to these reforms.

economic diplomacy, whether intentionally or unwittingly, in furtherance of

well functioning. While economic diplomacy has traditionally focused on

projecting national interest externally (e.g., promoting exports and employing

economic diplomacy has the potential to be utilized to facilitate a state’s own

been useful as impetus for internal reform, through commitments to international

treaties, dispute settlement, free trade agreements, overseas development

assistance, policy dialogues, peer reviews, and capacity building. It is unclear,

products of a state’s diplomatic efforts aimed at traditional objectives, or

intended outcomes from deliberate and systematic approaches taken by a state’s

own foreign policy actors.

1.2 Research question

How can the Philippines utilize economic diplomacy in furtherance of domestic

1.3 Thesis statement

Economic diplomacy can be utilized effectively in a conscious, active and

systematic manner in furtherance of a state’s own domestic reform efforts, with

particular application to the Philippine context.

1. Gather existing theories on the role of economic diplomacy in

undertaking domestic reforms. If necessary, create a new theory or

elaborate upon existing ones.

2. Collate good or best practices of diplomatic institutions and other foreign

policies and approaches taken by the Philippines in utilizing economic

diplomacy as an impetus for domestic reforms.

4. Suggest methods and approaches to better utilize Philippine economic

diplomacy as a tool for domestic reform.

1.5 Scope and Limitations

including relevant aspects of foreign policymaking in developing countries, and

the political economy of domestic reforms. The linkage between economic

The paper will be a non-exhaustive discussion on existing theories and cases,

based on the availability of information. It will focus on diplomacy from the

perspective of state agents and practitioners, particularly the Foreign Ministry

government agencies and non-state actors – whether internal or external –

would be discussed only insofar as they may coordinate with or complement

economic diplomats in pursuit of economic reform.

Apart from numerous documented cases, there is scarce systematic research on

the role of economic diplomacy in domestic reform efforts. Economic diplomacy

is normally framed in the articulation of a state’s interests abroad, and reform

efforts in the context of external constraints or domestic political dynamics. The

these reforms would have to be conceptualized.

1.6 Methodology and Framework