Economic Diplomacy: Japan and the Balance of National Interests (Diplomatic Studies, 9) [XX, 210 Pp. ed.] 9004255427, 9789004255425

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Economic Diplomacy

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Diplomatic Studies Series Editor

Jan Melissen

Netherlands Institute of International Relations ‘Clingendael’

Volume 9

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Economic Diplomacy Japan and the Balance of National Interests By

Maaike Okano-Heijmans

Leiden • boston 2013

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Library of Congress Cataloging-in-Publication Data Okano-Heijmans, Maaike.  Economic diplomacy : Japan and the balance of national interests / by Maaike Okano-Heijmans.   pages cm. — (Diplomatic studies, ISSN 1872-8863 ; volume 9)  Originally presented as the author’s doctoral thesis, University of Antwerp.  Includes bibliographical references and index.  ISBN 978-90-04-25542-5 (hardback : alk. paper) — ISBN 978-90-04-25543-2 (e-book) 1. Japan—Foreign economic relations. 2. Japan—Foreign relations. 3. Japan—Economic policy—1989– 4. Japan—Politics and government—1989– I. Title.  HF1601.O3756 2013  337.52—dc23

2013018491

This publication has been typeset in the multilingual “Brill” typeface. With over 5,100 characters covering Latin, IPA, Greek, and Cyrillic, this typeface is especially suitable for use in the humanities. For more information, please see www.brill.com/brill-typeface. ISSN 1872-8863 ISBN 978-90-04-25542-5 (hardback) ISBN 978-90-04-25543-2 (e-book) Copyright 2013 by Koninklijke Brill NV, Leiden, The Netherlands. Koninklijke Brill NV incorporates the imprints Brill, Global Oriental, Hotei Publishing, IDC Publishers and Martinus Nijhoff Publishers. All rights reserved. No part of this publication may be reproduced, translated, stored in a retrieval system, or transmitted in any form or by any means, electronic, mechanical, photocopying, recording or otherwise, without prior written permission from the publisher. Authorization to photocopy items for internal or personal use is granted by Koninklijke Brill NV provided that the appropriate fees are paid directly to The Copyright Clearance Center, 222 Rosewood Drive, Suite 910, Danvers, MA 01923, USA. Fees are subject to change. This book is printed on acid-free paper.

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To my parents

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Contents List of Figures and Tables .............................................................................. ix A Note on Names and Transcription .......................................................... xi List of Abbreviations ........................................................................................ xiii Acknowledgements .......................................................................................... xv Preface .................................................................................................................. xvii Introduction Economic Diplomacy: Japan and the Balance of National Interests ................................................................................... Overview ........................................................................................................ The Context: The Growing Importance of Economic Diplomacy ................................................................................................. The Importance of the Japanese Experience for Understanding Economic Diplomacy ............................................................................ Some Working Assumptions .................................................................... The Book’s Structure ..................................................................................

4 10 12

Chapter One Conceptualizing Economic Diplomacy: Building a Framework for Research ....................................................... Introduction .................................................................................................. New Theories and Concepts .................................................................... Towards a Better Understanding of Economic Diplomacy ............ Building a Conceptual Framework ........................................................ Building an Analytical Framework ........................................................ Four Fields of Literature ........................................................................... Unwarranted Intervention or a Necessary Evil? ................................ Conclusions ...................................................................................................

17 17 20 25 27 33 37 44 49

Chapter Two Japan’s Economic Diplomacy Environment and Establishment ....................................................................................... Introduction .................................................................................................. Economics and Security in Japan’s Diplomacy and Foreign Policy .......................................................................................... Unpacking Economic Diplomacy ........................................................... Changing Role of the State ....................................................................... Conclusion .....................................................................................................

1 1 2

53 53 55 62 72 80

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Chapter Three The ‘Business End’ of Japan’s Economic Diplomacy: Promoting Environmental and Energy Technology Abroad ..................................................................................... 81 Introduction .................................................................................................. 81 Economics and Security in Japan ........................................................... 83 Gearing to ‘Green’ ....................................................................................... 85 ‘Green’ Economic Diplomacy in Practice ............................................ 89 Objectives ...................................................................................................... 95 Challenges Ahead ........................................................................................ 101 Balancing National Interests: Business and Power Play .................. 103 Conclusion ..................................................................................................... 106 Chapter Four The ‘Power-Play End’ of Japan’s Economic Diplomacy: Relations with North Korea ............................................... Introduction .................................................................................................. The Context: Japanese Action and Inaction ....................................... Japan’s Economic Diplomacy towards North Korea ........................ Negotiating Normalization: 1991 to the Present ................................ Policy Drivers ................................................................................................ Conclusion .....................................................................................................

109 109 112 115 117 135 137

Chapter Five Japan’s New Economic Diplomacy: Changing Tactics or Strategy? .................................................................. Introduction .................................................................................................. The Economic Diplomacy Continuum ................................................. Five Strands of Japan’s Economic Diplomacy .................................... Japan’s Trajectory since the 1990s ......................................................... Conclusion .....................................................................................................

141 141 142 144 160 164

Conclusion Power Shift: Economic Diplomacy on the Rise ............ The Theory and Practice of Economic Diplomacy: The Findings ............................................................................................ The Case of Japan in Perspective ........................................................... An Agenda for the Future .........................................................................

167 167 175 183

Bibliography ....................................................................................................... 187 Index ..................................................................................................................... 201

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LIST OF FIGURES AND TABLES Figure 1. The Conceptual Framework: Strands of Economic Diplomacy (Western Countries today) ................................................. Figure 2. The Analytical Framework: Four Dimensions of Economic Diplomacy ................................................................................. Figure 3. Four Dimensions of Economic Diplomacy: The Case of Japan ........................................................................................ Figure 4. The ‘3 or 4 Js Pyramid’ and Other Specialized Agencies Ιnvolved in Japan’s Economic Diplomacy ........................................... Figure 5. Government Policy in Four Sectors ......................................... Figure 6. Japan’s ‘Green’ Economic Diplomacy—The Conceptual Continuum ..................................................................................................... Figure 7. Targets and Objectives of Japan’s ‘Green’ Economic Diplomacy ...................................................................................................... Figure 8. Japan’s Economic Diplomacy towards North Korea— The Conceptual Continuum ..................................................................... Figure 9. Strands of Economic Diplomacy: The Case of Japan .........

30 34 62 75 92 104 105 135 143

Table 1. Items included in Tools and Expressions ................................ 32 Table 2. Japan’s New Economic Diplomacy since the 1990s ............. 161

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A NOTE ON NAMES AND TRANSCRIPTION Following common practice in many East Asian countries—including Japan, China and Korea—personal names are presented in the text with the family name followed by the given name. Concerning all other names, the personal name is followed by the family name. Long vowels in Japanese names and wordings are indicated by a macron on the particular character, with the exception of words that are commonly used in English, such as Tokyo and Kyoto.

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LIST OF ABBREVIATIONS ADB Asian Development Bank AFC Asian Financial Crisis AMF Asian Monetary Fund APEC Asia-Pacific Economic Cooperation APT ASEAN Plus Three (China, Japan and South Korea) ARF ASEAN Regional Forum ASEAN Association of South East Asian Nations BRIC Brazil, Russia, India and China CDM Clean Development Mechanism CEPEA Comprehensive Economic Partnership Agreement CMI(M) Chang Mai Initiative (Multilateralization) DPJ Democratic Party of Japan DPRK Democratic People’s Republic of Korea (North Korea) EAFTA East Asian Free Trade Agreement EPA Economic Partnership Agreement EU European Union FTA Free Trade Agreement GDP Gross Domestic Product GFC Global Financial Crisis IDE-JETRO Institute for Development Economics of JETRO IMF International Monetary Fund INCJ Innovation Network Corporation of Japan IPE International Political Economy IR International Relations JBIC Japan Bank for International Cooperation JETRO Japan External Trade Organization JICA Japan International Cooperation Agency KEDO Korean Peninsula Energy Development Organization KP Kyoto Protocol LDP Liberal Democratic Party of Japan MAFF Ministry of Agriculture, Forestry and Fisheries of Japan METI Ministry of the Economy, Trade and Industry of Japan MLIT Ministry of Land, Infrastructure, Transport and Tourism of Japan MOE Ministry of the Environment of Japan

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list of abbreviations

MOF MOFA NEDO

Ministry of Finance of Japan Ministry of Foreign Affairs of Japan New Energy and Industrial Technology Development Organization NEXI Nippon Export and Investment Insurance NGO Non-Governmental Organization ODA Official Development Assistance OECD Organization for Economic Cooperation and Development OECD DAC OECD Development Assistance Committee R&D Research and Development SDF Self Defense Forces SDP Social Democratic Party of Japan SME Small and Medium-sized Enterprise SPT Six-Party Talks TPP Trans-Pacific Partnership UK United Kingdom UN United Nations US United States WB World Bank WTO World Trade Organization

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ACKNOWLEDGEMENTS This book was originally a Ph.D. thesis that was successfully defended at the University of Antwerp, Belgium, on 19 June 2012. It comprises five chapters and a contextualizing introduction and conclusion that collectively draw attention to continuity and change in the theory and practice of economic diplomacy, with a special focus on Japan. Individual chapters were subjected to peer-review through presentations at (inter)national conferences and publications in scholarly journals and edited books. A small degree of overlap that exists between a few of the chapters is maintained in the text. Chapter one was originally published as ‘Conceptualizing Economic Diplomacy: The Crossroads of International Relations, Economics, IPE and Diplomatic Studies’ in The Hague Journal of Diplomacy, vol. 6, nos. 1–2, 2011, pp. 7–36. This special issue of the journal was republished as a book with Martinus Nijhoff Publishers: Economic Diplomacy: Economic and Political Perspectives, Peter A.G. van Bergeijk, Maaike Okano-Heijmans and Jan Melissen (eds). Chapter three appeared in slightly different from as ‘Japan’s ‘Green’ Economic Diplomacy: Environmental and Energy Technology and Foreign Relations’ in The Pacific Review, vol. 25, no. 3, 2012, pp. 339–364. Chapter four is updated from a text that previously appeared as ‘Troubled Neighbours: Japan’s Negative Economic Diplomacy towards North Korea’ in European Journal of East Asian Studies, vol. 9 no. 2, 2010, pp. 363–394. Chapter five has been published as ‘Japan’s New Economic Diplomacy: Changing Tactics or Strategy?’ in Asia-Pacific Review, vol. 19, no. 1, 2012, pp. 62–87. Finally, substantial parts of the conclusion overlap with a book chapter that was published as ‘Power Shift: Economic Realism and Economic Diplomacy on the Rise’ in Enrico Fels, Jan-Frederik Kremer and Katharina Harmat (eds), Power in the 21st Century—­International Security and International Political Economy in a Changing World (Heidelberg/New York: Springer, 2012).

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PREFACE Years ago, after returning from my first trip to Asia, which took me by train from Hong Kong to Beijing and then on to Tokyo, I made a choice that, in retrospect, laid the basis of my future personal and professional life. There was little doubt about the re-emergence of China as an economic and political power, as fellow students and I stood on the university compound’s roof to see the runway lights of Hong Kong’s famous city airport being switched off once and for all, exactly one year after the city had been returned to China. At the same time, the collapse of the Japanese bubble economy suggested that the land of the rising sun had passed the peak of its economic strength. My stay in the two countries and discussions with fellow students and friends on both sides of the East China Sea had strengthened me in the belief that ability in the language would be the only way to begin to understand either country—let alone dynamics in the region. My guiding professor at the time, the late Raymond Feddema, encouraged me to follow my heart and thus—against the odds—I took up the study of the Japanese language. Not for a moment have I regretted that decision. During that same trip, a dear Japanese friend taught me an instance of Japanese thought, which holds that second place is better than first. As runner-up, one is not inclined to complacency or arrogance and can aspire to more while working in the shade. This anecdote is important, since it is with this in mind that one may start to understand much of what Japan does on the international stage, and how it goes about doing so. It also never fails to remind me that one should constantly try to understand any person’s actions through the norms and values of that other. This book articulates how Japan attempts to employ its economic strength for political purposes and its diplomatic influence for economistic objectives. Not surprisingly considering the above, the focus is on changes since the 1990s, when the rise of China in particular urged Japan to reconsider its policies. An important underlying question is how Japan’s experience illuminates the concept of economic diplomacy more broadly, as well as the future path of rising (Asian) powers in its wake. The seeds of this particular project were laid in the summer of 2006, when I was fortunate enough to participate in the establishment of a unit for Asia Studies at the Netherlands Institute of International Relations ‘Clingendael’

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in The Hague. Things really started to move fast after I registered as a Ph.D. student at the University of Antwerp in autumn 2009 with ­Clingendael’s Jan Melissen as my guiding professor. In writing this book—and the Ph.D. thesis on which it is based—I have benefited greatly from my position at the Clingendael Institute as well as my fellowship at the Asia-Pacific College of Diplomacy of the Australian National University, offering forums for discussion and time devoted to thinking and writing. I want to acknowledge the importance of the criticisms and suggestions of various audiences to whom I was invited to speak—colleagues, students, diplomats and (other) practitioners of economic diplomacy from many countries. Ordering thoughts in preparation and trying out ideas were of indispensible value in helping me to develop clearer arguments. Criticisms and suggestions of experts who commented on particular (sub-)themes of the argument not only helped to improve particular texts but also improved the whole. I wish to record my sincere gratitude to the members of my Ph.D. commission: Mireya Solís, Hosoya Yūichi, Glenn Hook, Tom Sauer, Petra Meier and Dieter Kerwer. They provided generous support and invaluable comments on my doctoral thesis. I also benefited greatly from the critical assessment of the anonymous reviewer(s) for Brill, Martinus Nijhoff Publishers, on the manuscript as a whole. Furthermore, I single out for special thanks Kurt Radtke, who has provided support and inspiration ever since I joined his seminar at Waseda University in 2001. Colleagues whose critical eye and kind encouragement proved extremely valuable include Frans-Paul van der Putten, Ingrid d’Hooghe, Bram Buijs and other (one-time) occupants of the Orangerie. Furthermore, I thank my fellow ‘Ph.D. club members’ Manuel Duran, Ingrid (again), Ellen Huijgh and Arjan Uilenreef. In Australia, Pauline Kerr was an ever-patient guide and sparring partner. Also Gavan McCormack, Leonid Petrov, Peter Van Ness and John Ravenhill’s insights and suggestions have proven invaluable. Japanese scholars who kindly welcomed me more than once during my research visits to Japan, and thereby contributed significantly to my thinking, include Amako Satoshi, Fukushima Akiko, Horiguchi Kenji, Inoguchi Takashi, Isozaki Atsuhito, Kinoshita Toshihiro, Kokubun Ryōsei, Lee Junghoon, Michishita ­Narushige, Tanaka Hitoshi, Takahara Akio, Tōgo Kazuhiko and Urata Shujirō. Meetings with Tosh Minohara, Greg Noble and Nakato Sachio have also been inspirational. In China, repeated meetings with Shi Yinhong and Chu Shulong provided excellent food for thought, as did meetings with many other scholars and practitioners in Beijing and Taipei. Furthermore, I convey

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my warmest thanks to all others who provided support and read pieces of the whole at various stages of the project, especially Marie Söderberg. I also benefited greatly from the comments of many others who I met at conferences, including Brian Hocking, Axel Berkofsky and Brad Glosserman, as well as from the help of Elizabeth van der Wind-Hamill. I should acknowledge the insights and help from practitioners at various ministries, semi-governmental organizations and business representative organizations in Japan, especially Yamada Hitoshi but also Ōba Yūichi and Moribe Hiroyuki. My gratitude is further extended to the many colleagues whom they kindly introduced as interviewees. I also thank Tsuruoka Kōji for sacrificing precious time to meet with me. I acknowledge my debt here with gratitude—including to those who have unduly been left out from this inevitably imperfect list. For providing the invaluable financial support to establish and continue Clingendael Asia Studies, I thank the Dutch Ministry of Foreign Affairs. I am grateful for the openness of many individuals working there, in particular those at the directorate for Asia and Oceania as well as diplomats at the Embassy of the Netherlands to Japan and to China. My prose was much improved by editors of the journals in which the articles appeared and, as a whole, by Rebecca Solheim. Also, for their assistance in gathering and spreading all sorts of publications and their general encouragement, I thank my Clingendael colleagues Ali, Janny and Ellen, and especially Ragnhild Drange. At Brill, Martinus Nijhoff Publishers, I thank senior acquisitions editor Marie Sheldon, assistant editors Alexandra Mitton and her successor Lisa Hanson, as well as Judy Pereira for their practical support and confidence in the manuscript. This book would never have seen the light of day without the continued support of Jan Melissen. Both at Clingendael and as my Ph.D. supervisor, he was an ever-present sounding board and patiently read and commented on multiple drafts of all pieces of the text. I am deeply grateful for the care with which he has guided me over the past six years and the chances he gave me to run, stand still, fall and climb. My writing owes everything to him, and I look forward to continuing to learn from his lucid style, strategic thinking and talent at spotting future trends for many years to come. I dedicate this work with love and gratitude to my parents, Johan and Willemien Heijmans. They never failed to encourage me to spread my wings in far-away countries while continuing to provide a steady and warm nest, thereby offering the invaluable fundamentals of life that anyone wishes for and that I hope to pass on to others. Many thanks also

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to other family and friends who provided cheerful support and were a welcome reminder that there are more important things in life than work and a Ph.D. At home, Kenji, Sophie and Yuji encourage me to make the best of every day in personal and professional life. I am grateful for their love, support, patience and laughter, and look forward to all the good that is hopefully still to come. Maaike Okano-Heijmans The Hague March 2013

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INTRODUCTION

ECONOMIC DIPLOMACY: JAPAN AND THE BALANCE OF NATIONAL INTERESTS Overview The studies on Japanese economic diplomacy in this book show that globalization and shifting power balances between the West and East Asia and within the Asia-Pacific region are creating new incentives and conditions for states to adopt more proactive economic diplomacy. As a result the nature and scope of economic diplomacy, or the strategy by which states pursue economic prosperity and political stability, is shifting. Traditional Western ways of organising relationships between government and business, or the public and private sectors, appear less relevant now than in the past. Today, economic diplomacy reflects the different types of capitalisms practiced by the West and the East (for example Western classical laissez-faire capitalism and non-Western state capitalism) and includes different types of public-private links in which the balance between the public power of states and private power of business corporations is changing.1 Notwithstanding claims that globalization fosters the rise of big business power, state activism continues in old and new ways. Japanese economic diplomacy reveals not only changes but also continuities with the past and in its present form it is a diplomatic instrument for balancing economic and political national interests in Japan’s foreign policy. Studying Japan’s experience informs understandings of economic diplomacy. Not only is change and continuity a feature so too is the fact that Japan throughout the post-war period has employed economic diplomacy in its foreign policy more than any other country, and has social goals and views of the roles of states, companies, communities and individuals that are very different from the West.

1 See also David J. Rothkopf, Power, Inc.: The Epic Rivalry Between Big Business and Government—and the Reckoning That Lies Ahead (New York: Farrar, Straus & Giroux, 2012). Chapter two elaborates on the differences between capitalisms and on Japan’s form in particular.

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By use of the case of Japan, this book therefore investigates two questions. First, how might we understand and better analyze economic diplomacy today? And second, in what ways and to what extent does the case of Japan inform the debate on continuity and change in contemporary economic diplomacy? To help answer these questions the book offers conceptual and analytical tools that facilitate the study of economic diplomacy and its practice and its findings suggests hypotheses that provide the basis for further research. The Context: The Growing Importance of Economic Diplomacy The shift of relative power from the West to East Asia and the Asia-Pacific region more generally is encouraging governments all over the world to reassess the effectiveness of their domestic and foreign policies. The role of the state and its involvement in the domestic economy is growing in European countries and the United States, especially since the beginning of the financial and economic crisis in July 2007. Confronted with the limits of the free-market capitalism—now sometimes ridiculed as ‘cowboy capitalism’—that characterized Western countries since the 1980s, governments of established powers are reconsidering their strategy on the politico-economic front. This appears to involve not only a rethink of internal market logics and political structures, but also a renewed emphasis on instruments of economic diplomacy. In terms of the domestic organization of public (state) power and private (business) power, renewed government activism means that more and new forms of capitalism will co-exist and compete internationally. Differences between capitalisms in the West have primarily been defined by the extent of government interference in the market—ranging from classical laissez-faire capitalism and market fundamentalism to more interventionist welfare states. Various forms of Asian capitalism, however, bring in other variations in the relationship between the public and private sectors—ranging from state capitalism and corporate-led strategic capitalism to crony capitalism.2 Moreover, as Western governments are correcting the excesses of free-market capitalism, they are once again

2 For more on the various forms of capitalism, see for example Anatole Kaletsky, Capitalism 4.0: The Birth of a New Economy in the Aftermath of a Crisis (New York: Public Affairs, 2010); and Kent E. Calder, Strategic Capitalism: Private Business and Public Purpose in Japanese Industrial Finance (Princeton, NJ: Princeton University Press, 1993).

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altering old and new characteristics of their political and economic system. This further contributes to the creation of new forms of capitalism. In terms of foreign policy, the policy-reconsideration of established powers in particular means that growing asymmetries between politicaleconomic systems affect industrial competition between states as well as geopolitics. Furthermore, in terms of instruments, states’ potential to intervene in international economic relations for political purposes generally increases. Governments are indeed more likely to employ economic tools in the pursuit of foreign policy interests when a decrease in the legitimacy and power of the existing structures of international cooperation becomes evident.3 Economic diplomacy is thus growing in importance. Although it is certainly not a new phenomenon, scholarly and practical thinking about the subject needs to reflect on the current challenges and opportunities. This involves an examination of economic diplomacy in the broadest sense—that is, as forming part of foreign policy that aims to further a country’s prosperity, and at the same time as an instrument in the quest for political stability and national security. Drawing on insights from the research fields of International Relations, International Political Economy, Economics, and Diplomatic Studies, this book develops a conceptual and an analytical framework of economic diplomacy. These frameworks aim respectively to identify various economic diplomacy strands and analyse the context, tools, and processes of economic diplomacy. The theoretical insights are subsequently tested and applied to the case of Japan, with a focus on developments since the early 1990s. Modes of economic diplomacy are thus studied at the theoretical level4 in parallel with a practical analysis of Japan since the 1990s. The theoretical and practical parts of

3 Michael Mastanduno, ‘Economics and Security in Statecraft and Scholarship’, International Organization, vol. 52, no. 4, 1998, pp. 825–854; and Rik Coolsaet, Historical Patterns in Economic Diplomacy: From Protectionism to Globalization, International Studies Association Convention, 2001, accessed 30 July 2008 at http://isanet.ccit.arizona.edu/ archive/coolsaet.html. Coolsaet asserts that ‘economic diplomacy takes prominence when acceleration in globalization (or a suddenly increased degree of interdependence, together with the awareness of it) is accompanied by an absence of agreed norm setting’. Economic diplomacy in his view entails export and free trade promotion, as well as multilateral (negotiations towards) judicial norm setting. Although the definition applied in this research is more encompassing, the processes are similar and Coolsaet’s claim therefore remains valid. 4 This should not be taken to mean that the aim is to develop a theory of economic diplomacy; rather, throughout this book, ‘theoretical’ refers to considerations regarding the conceptual and analytical frameworks of economic diplomacy.

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the study reinforce one another, yielding a conceptualization of economic diplomacy that is grounded in practical insights and that can also be applied to other countries and regions. In this sense, the underlying study makes a modest and yet ambitious contribution to furthering a research agenda that brings together several scholarly disciplines. The Importance of the Japanese Experience for Understanding Economic Diplomacy Economic diplomacy has been a characteristic element of Japan’s foreign policy throughout the post-war period and a central instrument in Japan’s quest for national security. This emphasis on economic and diplomatic means was facilitated by the United States’ military protection and practised through the so-called Yoshida Doctrine, which was pioneered by Prime Minister Yoshida Shigeru in the 1950s. While this policy continues to exist, it is changing—in particular in response to the growing challenge that China poses to the global hegemony of the United States and to Japan’s regional leadership in the economic field. The ensuing repositioning of Japan in the East Asian region and in the world is producing significant changes in Tokyo’s foreign policy and in Japan’s economic diplomacy practice. As this study demonstrates, the Japanese government attempts to influence relations with other countries and its position in the region through a foreign policy strategy that emphasizes economic means and negotiations on economic subjects. Individual chapters investigate different ways by which Japan employs economic diplomacy, geared towards the pursuit of a balance of national interests. The study thereby unveils the balancing by the Japanese government of considerations about domestic economic prosperity and political stability in its foreign policy.5 Rather than covering homogeneous and readily comparable subjects, the empirical chapters address different subthemes of economic diplomacy that complement one another. While such an approach puts limits on comparisons between the chapters, it helps scholars and practitioners to develop a comprehensive view of related developments in the diverse field of economic diplomacy.

5 Note that, in this context, balancing refers not to the international balancing by states against other states to be equal with or superior to other powers.

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A better understanding of Japan’s experience makes a valuable contribution to the study of economic diplomacy more broadly for four connected reasons. First, Japan has a history of state-led development which stems, at least in part, from the renunciation of military force in the post-war period. Japan’s so-called ‘peace constitution’ and the security guarantee by the United States provided Japanese policy-makers with a unique chance to focus on economic development and to openly emphasize economic, rather than military, means to project and exert power in its relations with other countries. Since the Japanese government follows an approach to foreign policy that employs economic tools to a relatively greater extent than its Western counterparts, analysis of the developments, scope and impact of its economic diplomacy contribute to understanding of the wide range of practices and motivations that economic diplomacy encompasses. Second, Japanese policies have been largely evolving in response to power shifts in the region. An understanding of these developments since the early 1990s provides insights into the evolving functions and modes of economic diplomacy. The reconfiguration of regional and global power, spurred in particular by the re-emergence of China, encouraged the Japanese government to reassess the effectiveness and appropriateness of its domestic and foreign policies.6 In this process, Japan’s practice of economic diplomacy also underwent significant changes that inform a general understanding of the subject. Following naturally from these first two points, the third and perhaps most important reason for why the case of Japan contributes to the study of economic diplomacy more broadly, relates to Japan’s post-war experience of engagement with, and adaptation to, the West. Throughout the post-war period, Japan was the only non-Western member of the developed world. While the Japanese government adjusted its foreign policies in certain ways to suit the ‘Washington Consensus’, its policies remain in many ways fundamentally different from the United States and European countries.7 For one, the relative emphasis on the use of economic means 6 Christopher W. Hughes, ‘Japan’s Response to China’s Rise: Regional Engagement, Global Containment, Dangers of Collision’, International Affairs, vol. 85, no. 4, 2009, pp. 837–856; and Naoko Munakata, The Impact of the Rise of China and Regional Economic Integration in Asia: A Japanese Perspective, Statement before the US-China Economic and Security Commission, 4 December 2003, available online at http://www.uscc.gov/ hearings/2003hearings/written_testimonies/031204bios/naokmunakata.htm. 7 Robert Locke, ‘Japan: Refutation of Neoliberalism’, Post-Autistic Economics Review, issue no. 30, 21 March 2005, at http://www.paecon.net/PAEReview/issue23/Locke23.htm;

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for political purposes and political means for economic objectives has not changed. It seems likely that the path that Japan follows may foreshadow the mode of diplomacy of the larger group of Asian countries that is increasingly exerting influence on the global political scene. Consider, for example, striking similarities that can be observed between China today and Japan some several decades ago. These include the important role of the state in creating high growth rates and the mixed response of the West to this, as well as differences with other developed countries’ practices in fields as diverse as export promotion, development/ economic cooperation, and sanctions. In the area of trade promotion, the public and private sectors work relatively cooperatively, while economic cooperation primarily aims to bring about economic growth rather than political changes in the target country—including human rights. Also, the governments of both countries are relatively more hesitant to use sanctions in foreign policy. Thus, notwithstanding the vast differences that exist between Japan and China—such as the size of the countries, the population and the domestic political system—the changes that Japan has and has not undergone in its evolving practice of economic diplomacy provide insights into the present era wherein a larger group of countries follows an approach that in many ways is similar to that of Japan’s. When such similarities are discerned, these are likely to be by no means coincidental; indeed, the governments of numerous countries in North-East and South-East Asia have studied Japanese practices to learn from its example. The fourth and final reason why the case of Japan is of interest and of broader significance follows from the growing importance of the East Asian region to today’s international relations. East Asia is the region that is most quickly gaining weight in the new world order under construction, and the diplomatic style and practice of countries in this region are expected to profoundly shape the era to come. As explained earlier, economic diplomacy—in general, and Japan’s practice in particular—is of significant interest in this context because the diplomatic style and practice of many Asian countries gaining influence in international politics and economics often resembles that of Japan’s. What is more, these countries are still learning lessons from Japan on what to do and what not to do in their economic diplomacy. The study of continuity and change in

and Ulrike Schaede and William Grimes (eds), Japan’s Managed Globalization: Adapting to the Twenty-first Century (London: M.E. Sharpe, 2003).

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Japan can thus produce valuable hypotheses for understanding economic diplomacy more generally. Studying Japan also allows for at least two innovative steps to be taken. First, it broadens the factors that inform understanding of Japan’s foreign policy and diplomacy. While there is without doubt a huge literature on these subjects, most of the research on Japan’s changing foreign policy since the 1990s is focused on the more traditional ways that states pursue their national interest—that is, military and security strategies.8 Separately, authors with an interest in political economics9 analyse various elements of the political-economic dimension of Japan’s foreign policy. Not often, however, are both the use of economic instruments for political purposes and negotiations on economic issues incorporated in such studies, or are the connections explored. Likewise there are few studies of Japan’s diplomatic practice that integrate economics and security sufficiently. The fact that difficulties continue to plague the Japanese economy since the 1990s, while China and India’s economic growth is headline news, no doubt contributes to under-investigating factors relating to economic diplomacy. The same can be said of increasing willingness in Japan to discuss defence and military issues openly—such as a greater role of the SelfDefense Forces and revision of the peace constitution. But while analysis that focuses on security and military issues adds to the understanding of Japan’s evolving foreign policy, the great potential of the Japanese state to employ economic means as an instrument in its foreign and security policy is worthy of much more attention. Japan’s economy remains the third largest in the world and the government holds significant capacity to practise economic diplomacy in its foreign policy. Indeed, there can be little doubt that economic instruments and goals are the core of Japan’s diplomacy. Second, apart from emphasising the importance of economic diplomacy when examining Japan’s foreign policy this study highlights another feature of Japan’s diplomacy, namely its diplomatic pursuit of a foreign policy based on a balance of national interests comprising prosperity and political stability. This dual nature of Japanese policies was pointed out by Heginbotham and Samuels, who introduced the notion of Japan’s ‘mercantile realism’ that ‘recognizes techno-economic security interests [. . .]

8 See, for example, work by Richard J. Samuels, Kenneth Pyle, Gavan McCormack and Christopher W. Hughes. 9 These include Shujirō Urata, Mireya Solís, Saori N. Katada and Marie Söderberg.

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as central considerations of state policy’10 (see chapter three). This notion provides little guidance on the direction of balancing between economic and politico-security interests, however. The use of the concept of ‘a balance of national interests’—rather than the more commonly sought objective ‘(the) national interest’11—is therefore significant: it indicates that one particular balance is struck from among several options; it shows that human agency rather than the invisible hand of the ‘state’ is at work; and it includes the possibility of human fallibility and the prospect of course corrections.12 Thus, building on the insights of Heginbotham and Samuels and Thakur, this study introduces a framework that provides guidance on how to analyse economic and security interests comprehensively. The focus on the ‘balance of national interests’ is embedded in the study’s conceptual framework, which orders economic diplomacy activities by economic prosperity and political stability considerations. In doing so, the framework distinguishes five strands of economic diplomacy, namely: commercial diplomacy; trade diplomacy; financial diplomacy; inducements; and negative sanctions. This approach highlights the choice of tools that, as Thakur explains, ‘has to be weighed in the balance when evaluating alternative goals, the costs, risks and constraints versus the benefits and advantages of the available tools and instruments in the pursuit of those goals, and the likely consequences in the short, medium, and long term.’13 In specifying a continuum of the multiplicity of concerns that shape views and perceptions of the balance of national interests, the underlying approach addresses the

10 Eric Heginbotham and Richard J. Samuels, ‘Mercantile Realism and Japanese Foreign Policy’, International Security, vol. 22, no. 4, 1998, p. 171. 11 Hans Morgenthau is generally regarded as the chief theorist of the concept of the national interest. See for example Hans Morgenthau, The Politics among Nations (New York: Alfred A. Knopf, 4th edition, 1966). For a critical analysis of Morgenthau’s work on this front, see J. Peter Pham, ‘What Is in the National Interest? Hans Morgenthau’s Realist Vision and American Foreign Policy’, American Foreign Policy Interests, vol. 30, no. 5, 2008, pp. 256–265; Véronique Pin-Fat, ‘The metaphysics of the national interest and the ‘mysticism’ of the nation-state: reading Hans J. Morgenthau’, Review of International Studies, vol. 31, no. 2 (April) 2005, pp. 217–236. 12 For a more detailed argument as to how ‘a balance of interests’ is a more satisfactory descriptor, analytical concept, and policy precept than the ‘the national interest’, see Ramesh Thakur, ‘A Balance of Interests’, in Andrew F. Cooper, Jorge Heine and Ramesh Thakur (eds), The Oxford Handbook of Modern Diplomacy (Oxford: Oxford University Press, 2013), chapter 3. Note that, unlike Thakur, this study adopts a state-centric framework and thus applies the concept of ‘a balance of national interests’ rather than the more actorneutral ‘a balance of interests’. This is obviously not to deny that the state is not a unitary actor nor the only actor in foreign policy. 13 Thakur, ‘A Balance of Interests’.

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oft-heard criticism of the vagueness of (the) national interest as a concept, ‘with its seemingly endless variety of meaning attached to it’.14 Apart from including the notion of a foreign policy based on a balance of national interests rather than the contested concept of the national interest, this study also explores economic diplomacy from four dimensions—context, tools, theatres and processes. Taking these elements as the framework for analysis allows for a holistic understanding of economic diplomacy. The regional context against which Japan’s foreign policy and approach to economic diplomacy is shaped is evolving rapidly. Growing Chinese influence in the region appears to be the primary driving force in this respect. As China strengthens its relations with countries in the region and beyond, the Japanese government is reconsidering its policies, including in the field of economic diplomacy. This means that, for example, the interests of Japanese companies abroad are promoted in new ways, and that efforts towards building a regional architecture in the financial field are being undertaken, as are negotiations towards bilateral and regional trade agreements.15 Moreover Tokyo is becoming increasingly active in summitry and negotiations towards comprehensive partnerships with third countries, including Australia and India. Like its policies towards North Korea and Taiwan, these illustrate how economic and security considerations are interrelated in Japan’s approach to the reconfiguration of power in North-East Asia. Activities in the various strands of Japan’s economic diplomacy thus reveal how traditional and novel tools of economic diplomacy—including development assistance, sanctions, and political commitment at the highest level—are used in different theatres, that is, in specific countries and formal and informal institutions. Obviously, the use of these tools is continuously evolving in parallel with shifting domestic capabilities and perceptions of the balance of national interests. Shifts are clearly seen in Japanese aid, for example, where funds have been decreasing throughout the past decade because 14 W. David Clinton, The Two Faces of National Interest (Baton Rouge: Louisiana State University Press, 1994), p. xii. 15 The Japanese government embarked on a series of trade negotiations from the early 2000s. Trade policy was given a necessary boost with the replacement in early 2006 of the government’s long-term plea for more-encompassing economic partnership arrangements with a willingness to negotiate free-trade agreements with countries in the region, and the announcement in October 2011 of joining negotiations on a Trans-Pacific Partnership. In the field of finance, while Japan’s initial proposal for an Asian Monetary Fund in the aftermath of the Asian financial crisis of 1997–1998 was torpedoed by the United States and China, the Japanese government has worked to create a framework for financial cooperation in the region. These subjects are addressed in greater detail in chapter five.

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of financial constraints and foreign pressure (gaiatsu) to broaden Japan’s engagement with other parts of the world.16 All of these policies take place through processes of bilateral, regional and multilateral negotiations that involve an increasingly broad variety of state and non-state actors. Thus, the analytical framework elucidates the core elements within which change in economic diplomacy may occur. Some Working Assumptions Every study starts from a few basic assumptions. The two most important starting points here are that: (1) economic diplomacy is defined as a strategy by which economic prosperity and political stability are pursued; and (2) states are the most important actors in this game at the global level. These assumptions are realistic, considering that governments seek to advance a variety of goals in their foreign policy and because economic diplomacy is studied in various academic fields, covering the political and the economic spectrums.17 Furthermore, while an increasing group of actors is becoming involved in foreign policy, there can be little doubt that the state remains the primary actor. Indeed, it has been said that while the diplomatic corps as an institution is at the forefront of a campaign to expand the formal membership categories of an international society—states, international organizations, and private enterprises— the society of states remains the critical anchor.18 A state-centric framework is adopted insofar as it informs us about the balancing behaviour of states both in domestic terms and in relation to other countries. More specifically, the study follows the more subtle variant of state-centric analysis—that is, the one that argues that elements of the bureaucracy are often disunified and only make policy through a pluralistic bargaining process.19 While domestic politics can be a driver of economic diplomacy, this state-centric approach does not consider the domestic sphere as such to be part of the analysis. The emphasis is

16 This has spurred attempts to increase the efficiency of allocated money and led to a broadening of the definition of aid to include technological exchange and environmental cooperation. More on this in chapter four. 17 Chapter two elaborates on this in great detail. 18 Paul Sharp and Geoffrey Wiseman (eds), The Diplomatic Corps as an Institution of International Society (New York: Palgrave Macmillan, 2008), Conclusion. 19 For more on the two variants of state-centric analysis, see Calder, Strategic Capitalism, pp. 9–10.

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on continuity and change in discourse and foreign policy practice; the domestic debate and the rationality or efficiency of policies are not the focus of attention. A related working assumption is that realist theory does not provide adequate analytical tools to study the direction of balancing of domestic political and economic interests in foreign policy. Hence eclectic theorizing is implicitly adopted to deepen understanding of inherently complex social and political processes. The neo-liberal approach is useful to analyse the state’s pursuit of economic diplomacy in multilateral politics. Furthermore, constructivist elements are incorporated in the research to study shifts in perceptions on the balance of national interests. This problem-driven approach follows Katzenstein and Okawara, who argue that an insistence on parsimony clashes with the complexity of social processes occurring within specific contexts of both time and space.20 Another assumption is that Robert Putnam’s two-level game theory is a substantial theory that provides insight into the mutually constitutive processes of Japan’s economic diplomacy and the behaviour that results from it.21 The Japanese government conducts a Level I game with other governments, bargaining, for example, for agreements on a range of economic issues, such as trade and monetary agreements and development assistance. Coinciding with this Level I game, the Japanese government also conducts a Level II game, negotiating domestically with various interest groups to persuade them to ratify or support the (tentative) agreements that are made with foreign governments. However, as a logical consequence of the fact that a state-centric view is adopted and that economic diplomacy as part of foreign policy is the main subject under review, negotiations within the Level II game are not in themselves a subject of research. Rather, the outcomes of negotiations among various (groups of) domestic actors are used to study developments in the use of certain economic instruments in foreign policy. Finally, it is also assumed that several domestically embedded norms induce action by domestic

20 Peter J. Katzenstein and Nobuo Okawara, ‘Japan, Asian-Pacific Security, and the Case for Analytical Eclecticism’, International Security, vol. 26, no. 3, 2001–2002. See also Robert Jervis, System Effects: Complexity in Political and Social Life (Princeton, NJ: Princeton University Press, 1997). 21 Robert D. Putnam, ‘Diplomacy and Domestic Politics: The Logic of Two-level Games’, International Organization, vol. 42, no. 3, 1988, pp. 427–460.

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public and private actors in Japan. These include anti-militarism, developmentalism and economism.22 The Book’s Structure Apart from the conceptual chapter the book brings together a collection of separate studies of change and continuity in Japan’s economic diplomacy. Although each chapter can be read as a stand alone study, the five chapters plus the conclusion collectively provide a foundation for improved understanding of the concept and practice of economic diplomacy. At the same time, they illuminate the importance of economic diplomacy in today’s international relations in general, and the evolving practice of Japan’s contemporary economic diplomacy in particular. Chapter one introduces a conceptual and an analytical framework of economic diplomacy. The aim is to establish a framework for research, not just of Japan’s economic diplomacy but also economic diplomacy more generally. While the state is not regarded as the only player, nor as a coherent entity, it is assumed that the state is the primary actor. The conceptual framework discerns five strands of economic diplomacy, namely: commercial diplomacy; trade diplomacy; financial diplomacy; inducements; and negative sanctions. Each of these strands involves tools and purposes that are relatively more commercial/economic (the business end) or political (the power play end) in character. The analytical framework identifies four essential dimensions of economic diplomacy within which historically contingent change may occur: the context; tools; theatres; and processes. Interaction among these four dimensions takes place in multiple ways. Building on the insights provided by these frameworks, the foci, assumptions and methodologies of the research fields that are concerned with economic diplomacy are analysed, and the strategic and ideological considerations that underpin it are discussed. Chapter two establishes a comprehensive overview of new directions in the strategic thinking and practical organization of Japan’s economic diplomacy with a focus on developments since the 1990s. This is done

22 Glenn D. Hook, Julie Gilson, Christopher W. Hughes and Hugo Dobson, Japan’s International Relations: Politics, Economics and Security (London: Routledge, 2005 [2001]), pp. 74–75.

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through a review, mostly of English-language literature and, to a lesser extent, the Japanese language sources, as well as recent policy statements and actual initiatives.23 The analytical framework introduced in the first chapter elucidates the core elements of Japan’s economic diplomacy environment, which in turn help to unveil the evolving interaction between the public and private spheres (kan–min). Alliance politics and rivalry in the region—the China factor—appear as the main explanatory contextual factors of Japan’s contemporary economic diplomacy. A range of actors and institutions—including (semi-)government officials, politicians and representatives of an increasingly diverse private sector and interest groups—shapes and is shaped by the new directions of Japan’s economic

23 The analysis of this, as well as other, chapters is based around primary and secondary sources, mainly in English and also the Japanese language. The secondary sources that were used include scholarly journals and books, and other academic studies. Moreover, the printed media—newspapers and the internet—have been important sources for data collection in the empirical studies on Japan’s economic diplomacy. Primary research was principally conducted through a review of the Japanese government’s Diplomatic Bluebooks, government declarations and policy reports, speeches, statistics, and surveys. This was complemented by a range of semi-structured face-to-face interviews in Japan, and to a lesser extent in China and Taiwan. Research visits were undertaken at least once a year to Japan, China, Taiwan and/or Australia in the period March 2007 and May 2011. In addition, conferences and personal meetings with other scholars were invaluable for research purposes, as well as for networking and writing. Semi-structured interviews were conducted with a total of about 40 practitioners from government institutions and semigovernment or independent institutions—ranging from the rank of Ambassador/DirectorGeneral to (specialized) policy official. In addition, roughly 40 scholars at academic and research institutes have been interviewed, while formal and informal discussions with many more experts inform the analysis. In the cases when interviewees wished to remain anonymous, reference is made only to their affiliation as well as the date and location of the interview. Primary data have been collected from two groups of respondents: policy officials on the one hand; and academics, journalists and other privileged observers on the other hand. Most interviewees were selected via a purposeful sampling strategy, meaning that persons were either introduced to the author or thoughtfully selected based on their expertise on and/or practical experience with the subject under research. Most meetings took place on a one-to-one basis and ranged in length from 30 minutes to three hours. Other interview­ ees and interlocutors were incidental, commonly met in the context of seminars, roundtables and conferences in countries in East Asia and Europe, as well as in Australia and the United States. In these instances, talks commonly consisted of an informal exchange of opinion. Some interlocutors were interviewed more than once. Moreover, in order to optimize the validity of research, preliminary findings were discussed with experts in the field and subjected to peer review through presentations at (inter)national conferences and publications in academic journals, edited books, popular magazines and newspapers. Full details about these publications is provided in the formal acknowledgements, as well as in individual chapters.

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diplomacy. Furthermore, an overview of the marked shifts in Japan’s economic diplomacy in recent years unveils how links between Japanese businesses and government have evolved in recent years in response to foreign pressure. Unlike in the 1980s, the pressure is now indirect and the shift is in the opposite direction—that is, towards a narrowing of the relationship between the public and private sectors. Chapter three presents an analysis of Japan’s ‘green’ economic diplomacy,24 using the conceptual framework to show that developments in this area are illustrative of continuity and change on the ‘business end’ of Japan’s economic diplomacy in particular. It finds that the ‘green’ economic diplomacy effort that materialized in the late 1980s originated in a vision that was shared by both the Japanese government and the business sector, which have long seen opportunities in making environmental protection a core feature of industrial policy. Activities in this field, which largely build on targeted domestic innovation policies, are now entering new ground. Assessing recent developments in the railway, nuclear-power generation, water, and next-generation automobile industries, this chapter analyses how and why the Japanese government uses ‘green’ environmental and energy technology in relations with emerging and developed countries. It also shows how public-private partnerships are strengthened, and how semi-governmental institutions and individual politicians take up new roles. Adhering to comprehensive security traditions, Japan’s policies aim to contribute to balancing its national interests in both economic prosperity and political stability. The primary objectives are new markets abroad, the security of supply of resources, and securing cooperative relations with other countries. Adjusting to shifting global power balances, domestic politics, and climate change challenges also play a role, while ‘hard’ security issues are barely considered in Japan’s ‘green’ economic diplomacy. Chapter four addresses the importance of economic diplomacy in Japan’s relations with North Korea in both the multilateral and bilateral contexts. Applying the conceptual framework shows that Japanese policies in this area signal continuity and change especially on the ‘powerplay end’ of the country’s economic diplomacy. The concept of ‘negative economic diplomacy’ is introduced to understand the actions of the

24 As will be explained, ‘green’ is put between inverted commas, since it includes policies and technologies that harm the environment in certain ways and technologies that are not new.

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Japanese government, which had tried economic engagement in various ways until the early 1990s, but hardened its stance thereafter. Tokyo has come to the conclusion that North Korean rulers are more willing to preserve the status quo than some others wish to believe. Consequently, it used the North Korean threat to justify Japan’s controversial military enhancement in a context of uncertainty about the United States’ commitment and an increasingly stronger China. This strategy was practised through a negative approach to economic diplomacy of withholding economic benefits—in policy fields ranging from the abductees and normalizing diplomatic relations, to trade relations, sanctions, and the Six Party Talks. Japan’s policy was most outspoken from late 2002 until 2007. Building on these findings, chapter five discusses the changes that Japan’s broad economic diplomacy has undergone since the 1990s in response to the reconfiguration of regional and global power. Applying the conceptual framework of economic diplomacy that places the various strands of economic diplomacy along a continuum, shows that slowly but steadily Japanese policies shift from an emphasis on the commercial goals of economic diplomacy to include also a more outspoken element of power play. While tourism promotion is now also considered part of economic diplomacy, long-time practices of trade and investment promotion, business advocacy and development cooperation are revamped with a focus on the environmental and energy fields. The negotiation of trade agreements, which for many years was hijacked by domestic politics, was given new impetus in 2010, while financial diplomacy—which seemed promising in the early 2000s—stalled. Finally, negative sanctioning is no longer taboo, particularly in the relationship with North Korea. The appetite of the Japanese government and private sector to conform to Western countries remains limited, however, and the ambiguity between the old and the new suggests that we are witnessing a change in Japanese tactics rather than in strategy. Finally, the conclusion recaptures the main arguments of each study individually and collectively, and discusses the importance of these findings for other countries and regions and for the future of diplomatic practice and international relations. There can be little doubt that Japan holds a unique position, having long been the only non-Western member of the group of established powers while at the same time not sharing their long diplomatic tradition. It is hypothesized that, now that a larger group of Asian countries, most prominently China, is gaining strength and influence on the international stage, Japan’s experience is relevant for assessing how these countries may employ their capabilities to reshape the new

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introduction

world order and how they may and may not adapt to Western diplomatic standards. This should be of profound interest to European countries as they learn to deal with the changing realities of today’s international relations, wherein economic diplomacy is employed more commonly and more comprehensively in foreign policy than at any other time in ­history.

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CHAPTER ONE

CONCEPTUALIZING ECONOMIC DIPLOMACY: BUILDING A FRAMEWORK FOR RESEARCH Introduction* The term ‘economic diplomacy’ appears regularly in scholarly papers and official documents. Even so, relatively few coherent attempts have been made to develop sounder understanding of the meaning and scope of the concept.1 Both academics and practitioners are talking at cross purposes. That this may cause unwarranted confusion is illustrated by a letter to the Dutch Parliament by (former) Minister for Foreign Affairs of the Netherlands, Maxime Verhagen.2 In the letter, Verhagen states his intention to give economic diplomacy a more central place in Dutch foreign policy, arguing that research has shown that ‘economic diplomacy increases prosperity by 100 to 200 million Euros a year’ and suggesting that economic diplomacy more broadly has a welfare-enhancing effect. These assertions are misleading, however. The definition of economic diplomacy that is used in the cost-benefit analysis to which Verhagen refers3 is limited to

* This chapter is a slightly revised version of an article that was published as ‘Conceptualizing Economic Diplomacy: The Crossroads of International Relations, Economics, IPE and Diplomatic Studies’, The Hague Journal of Diplomacy, vol. 6, nos. 1–2, 2011, pp. 7–36. This special issue on economic diplomacy was republished as a book with Martinus Nijhoff Publishers: Economic Diplomacy: Economic and Political Perspectives, Peter A.G. van Bergeijk, Maaike Okano-Heijmans and Jan Melissen (eds). 1 Notable exceptions are David A. Baldwin, Economic Statecraft (Princeton NJ: Princeton University Press, 1985); Nicholas Bayne and Stephen Woolcock, The New Economic Diplomacy: Decision-Making and Negotiation in International Economic Relations (Hampshire: Ashgate, 2007 [2003]); and Jean-Marc F. Blanchard and Norrin M. Ripsman, ‘A Political Theory of Economic Statecraft’, Foreign Policy Analysis, vol. 4, no. 4, 2008, pp. 374–398. 2 Dutch Minister for Foreign Affairs M.J.M. Verhagen, Kamerbrief inzake Nederlandse vertegenwoordigingen in het buitenland [Letter to Parliament concerning Dutch Representations Abroad], 4 November 2009, available online at http://www.minbuza.nl/nl/Actueel/ Kamerstukken/. 3 Marcel van den Berg, Michiel de Nooij, Harry Garretsen and Henri L.F. de Groot, MKBA financieel buitenlandinstrumentarium [Social Cost-Benefit Analysis of Financial Tools in Relations with Other Countries] (Amsterdam: SEO Economisch Onderzoek, 2008).

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outgoing trade missions with a cabinet member—which are only one of many instruments of economic diplomacy.4 Clearly, there is a need for improved understanding of economic diplomacy’s activities, tools and goals. This chapter contributes to this debate, and proposes a conceptual and an analytical framework of economic diplomacy. The reasons for this are threefold. First, the distinction between economic diplomacy and related concepts is imperative in order to bring order in the definitional chaos. What differentiates economic diplomacy from economic statecraft, economic security, trade diplomacy, commercial diplomacy and financial diplomacy—and how do these concepts relate? Second, a better conceptualization of economic diplomacy is useful in order to address practical questions, such as how to deal with the artificial distinction between the public and private sectors.5 Finally, improved understanding of both the theory and practice of economic diplomacy grows in importance because of shifting power balances. Latecomer countries—including Asian, post-colonial and transition states—are strengthening their role and influence in global politics and economics in a system that has long been dominated by Western countries. Confronted with the viscosity of global governance and international political and financial institutions, the governments of these emerging countries primarily use economic tools and commercial relations to strengthen their position in international politics. The proposed (re)definition of economic diplomacy adds to the existing literature by spurring a meaningful reorganization of the diversity of institutional frameworks in the fields of diplomacy, economic studies

4 Scholars and practitioners in the United States tend to speak more of economic statecraft rather than of economic diplomacy. Illustrative of this are the words of US Secretary of State Hillary Clinton that the US is committed ‘to elevate economic statecraft as a pillar of American foreign policy’ and that ‘[e]conomic progress depends on strong diplomatic ties and diplomatic progress depends on strong economic ties.’ See Hillary Clinton, ‘America’s Pacific Century’, Foreign Policy Magazine, 11 October 2011. As will be shown in this chapter, those who use the term economic statecraft tend to accentuate the element of power-play, which is consciously or unconsciously deemphasized in scholarly and practitioner’s references to economic diplomacy. 5 While politics and economics can hardly be separated, an analytical distinction between the two sometimes needs to be made in order to make the complex reality intelligible and workable. For example, governments generally distinguish between a ministry of foreign affairs and a ministry of the economy (or the like)—while some countries have experimented with a ministry of foreign affairs and trade, with mixed results. In academia a distinction is traditionally made between the research fields of political science and economics, which have relatively recently been complemented by the field of (international) political economy, as will be discussed later.

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and security in general.6 The conceptual and analytical frameworks that are proposed here must therefore be judged by their purpose—that is, to bring order and meaning to a mass of phenomena that would remain disconnected and unintelligible without them. The fundamental questions are, first, what is meant by ‘economic’ in economic diplomacy? That is, are we talking about economic goals (such as enhancing economic prosperity), economic tools (including using deprivation of access to products and funds as political leverage) or economic motives (for example, promoting one’s own industry)? Second, what is meant by ‘diplomacy’? How is diplomacy different from policy, or what distinguishes economic diplomacy from foreign economic policy? Answers to these questions are sought through review and analysis of the available literature in the fields of international relations (IR), economics, international political economics (IPE), and diplomatic studies. While the majority of the literature discussed in this chapter is of relatively recent origin and by Anglo-Saxon authors, it should be emphasized that the concept and practice of economic diplomacy has been treated elsewhere and at earlier times. Limitations of time and space are the sole reasons for the narrow focus that is adopted here. This chapter is divided into four main sections. The first revisits how innovations in various research fields facilitated more refined enquiry into economic diplomacy, and reflects on historical patterns in economic diplomacy. The second section develops a broad definition of economic diplomacy and introduces a conceptual and an analytical framework, which identify respectively specific strands and dimensions of economic diplomacy that are practised by governments. Using these frameworks, the third section looks at the foci and assumptions of the research fields that have contributed to the study of economic diplomacy: mainly IR, economics and IPE, and diplomatic studies. The fourth section addresses the logic of economic diplomacy—that is, the strategic and ideological considerations that underpin it. Finally, the chapter concludes with observations on why unpacking the notion of economic diplomacy is imperative, not only to elucidate both academic and policy debates, but also to develop a sophisticated forward-looking strategy that is required at this time of shifting power balances.

6 For a discussion of economics and security in a narrower sense (largely involving defence, terrorism and conflict), see Alyson J.K. Bailes and Isabel Frommelt (eds), Business and Security: Public-Private Sector Relationships in a New Security Environment (Oxford: Oxford University Press, 2004).

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chapter one New Theories and Concepts

The linkage between economics and politics in practice, and—more specifically—the use of economic instruments for political purposes, can be dated back to ancient times.7 From the beginning, diplomacy was about war and trade issues, and the history of consular relations also shows how trade interests loomed large in international relations. Reference to the use of sanctions can be found, for instance, in The History of the Peloponnesian War by Thucydides, who mentions a trade boycott imposed by Athens against Sparta’s ally Megara.8 Also, the number of representatives of merchants in the main harbour cities in Southern Europe increased in the wake of expanding international trade in Europe in medieval times,9 when the Lex Mercatoria (literally, merchant law) regulated commercial dealings. This is a case of practice preceding theory; the concept predating its label. That being said, the overlap and interrelationship between economics and politics became the subject of serious (empirical) analysis only in the early second half of the twentieth century. Writing in the early post-war period, scholars such as Jacob Viner, Albert O. Hirschman and Quincy Wright were frontrunners in the study of how politics and economics relate. Hans Morgenthau succinctly argued that: It is necessary to distinguish between, say, economic policies that are undertaken for their own sake and economic policies that are the instruments of a political policy—a policy, that is, whose economic purpose is but the means to the end of controlling the policies of another nation. [. . .] The distinction is of great practical importance, and the failure to make it has led to much confusion in policy and public opinion.10

7 This also goes for the linkage between economics and security, and between trade and conflict, which are closely related. Useful literature reviews of these respective fields are found in Michael Mastanduno, ‘Economics and Security in Statecraft and Scholarship’, International Organization, vol. 52, no. 4, autumn 1998, pp. 825–854; and Peter A.G. van Bergeijk, Economic Diplomacy and the Geography of International Trade (Cheltenham: Edward Elgar, 2009), ch. 2. 8 Thucydides, The History of the Peloponnesian War, translated by Richard Crawley (New York: Modern Library, 1951), pp. 78–83, cited in Brendan Taylor, American Sanctions in the Asia-Pacific (London: Routledge, 2009), p. 14. 9 Maaike Heijmans and Jan Melissen, ‘MFAs and the Rising Challenge of Consular Affairs’, in Kishan S. Rana and Jovan Kurbalija, Foreign Ministries (Malta and Geneva: DiploFoundation, 2007), p. 195. 10 Hans J. Morgenthau, Politics among Nations: The Struggle for Power and Peace (New York: Alfred A. Knopf, 1968 [1948]), pp. 28–29.

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Confronted with substantial changes in the international order, IR scholars mainly in the United States and (to a lesser extent) Europe developed new concepts and theories that sought to integrate politics and economics more explicitly. The 1970s marked the start of ground-breaking thinking in several sub-fields of international relations studies. Looking back, these innovations can be seen to have facilitated a more refined enquiry into economic diplomacy—a research field that gathered renewed interest from the 1990s. While political scientists working in the fields of IR, IPE and diplomatic studies became increasingly involved in economic diplomacy themes (both explicitly and implicitly—addressing the subject with and without using the label), economists gradually developed more sophisticated empirical studies that strengthened quantitative enquiries into economic diplomacy. As will be shown, this did not result in real interaction between the two epistemic communities, even though the breakdown of the artificial distinction between the scholarly fields of politics and economics narrowed. While the Cold War division continued to define the contours of international relations studies, the consequences of globalization and new economic challenges—including the oil shocks, the collapse of the Bretton Woods system and the emergence of non-Western economies (first of all, Japan)—necessitated a more comprehensive framework of analysis. International economic relations were broadened to include the political sphere, thereby creating the current IR focus on IPE that generated research on international economics, internationalization and globalization. Furthermore, political scientists sought to relate domestic politics and international relations. The so-called ‘two-level games’ or ‘double-edged diplomacy’ of Robert Putnam et al. called for analysis of the combined impact of domestic and international forces in international bargaining. This concept has been much developed since its introduction in 1988.11 11 Putnam’s two-level games approach presents a framework for analysing the combined impact of international and domestic factors in international bargaining (level I and level II, respectively), wherein the central government functions as a transmission belt between domestic politics and international affairs. Scholars like Jeffrey Knopf and Susan Strange have subsequently attempted to address the role and function of other (domestic) groups entering directly into the (international) negotiation arena. See Robert D. Putnam, ‘Diplomacy and Domestic Politics: The Logic of Two-level Games’, International Organization, vol. 42, no. 3, 1988, pp. 427–460; and Peter B. Evans, Harold K. Jacobson and Robert D. Putnam (eds), Double-Edged Diplomacy: International Bargaining and Domestic Politics (Berkeley CA: University of California Press, 1993). For a critical review of Putnam’s theory in the EU context, see Rebecca Adler-Nissen, ‘Late Sovereign Democracy’, The Hague Journal of Diplomacy, vol. 4, no. 2, 2009, pp. 121–141.

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In many ways, the domestic level provides insight into the underpinnings of the power bases and the constitutive process of economic diplomacy, and thereby in the behaviour that results from it. Negotiations among groups of domestic actors thus serve to help us understand the (foreign) policymaking process and the economic diplomacy strategy of governments. In the post-war period, economists also developed models that were meant to perform cost-benefit analyses of various economic diplomacy instruments through statistical analysis of data sets. Early studies of the trade–conflict relationship focused on the welfare-enhancing effects of international trade, such as the trade-stimulating effect of geographical distance, colonial ties, and (shared) language and currency. Of major importance to the development of research in this field was the work of Jan Tinbergen, who first introduced the gravity model of trade.12 His model became used by the next generation of economists in empirical analyses of the (material) benefits of active political involvement in international trade. This includes the welfare-enhancing effect of certain modes of diplomacy—such as summitry—and diplomatic representation in general. Complementing the gravity approach, other techniques to study trade intensities have also been developed.13 Introducing the concept of ‘triangular diplomacy’, Susan Strange et al. called attention to the fact that states must now also negotiate with foreign firms, and that multinational firms themselves increasingly have to become more statesmanlike.14 At the same time, multinational firms appear to have become less powerful since the 1980s, and especially in

While negotiations within the Level II game as such are not a subject of study in economic diplomacy, they should not be underestimated. More on this in the paragraph ‘Towards a Better Understanding of Economic Diplomacy’ in this chapter. For more on how the domestic sphere forms part of the empirical analysis in this book, see the paragraph ‘What is Out There’ in the Introduction. 12 Jan Tinbergen, Shaping the World Economy: Suggestions for an International Economic Policy (New York: Twentieth Century Fund, 1962). 13 For example, Roemer investigates trade patterns using area and sector intensities. He finds that ‘trade intensities in the Western world cannot be explained solely by economic factors, but must result in part from causes that are in the narrow sense not economic’. See John E. Roemer, ‘The Effect of Sphere of Influence and Economic Distance on the Commodity Composition of Trade in Manufactures’, Review of Economics and Statistics, vol. 59, no. 3, 1977, pp. 318–327. See also van Bergeijk, Economic Diplomacy and the Geography of International Trade, p. 41. 14 J. Stopford, S. Strange and J. Henley, Rival States, Rival Firms: Competition for World Market Shares, Cambridge Studies in International Relations no. 18 (New York: Cambridge University Press, 1991).

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this new millennium.15 While certain industries have an indispensible role in tackling global challenges, including climate change, other multinational corporations have fewer issues to negotiate with governments, and more actors are competing for attention on the domestic level.16 David Baldwin contributed greatly to the field of IPE with his study on economic statecraft, which he defined as ‘governmental influence attempts relying primarily on resources which have a reasonable semblance of a market price in terms of money.’17 Notably, the central actor in his analysis is the state. Linking economics and conflict, Solomon Polachek developed the concept of economic security. He argued that increases in trade and investment reduce the likelihood of conflict. While contributing greatly to the debate on what comprises economic statecraft and economic security, the questions of when policies towards these ends are successful and how these concepts inform practical negotiations are left unanswered in the works of Strange, Baldwin and Polachek. Political scientists and economists alike have attempted to overcome these shortcomings. Jean-Marc Blanchard and Norrin Ripsman, for example, developed a political model to theorize economic statecraft that calls attention to the importance of the domestic political arrangements of the target as well as the sender state, and the international political variables that can alter the political costs of facing the target state.18 Peter van Bergeijk produced an elaborate review of the various models that empirically test the (material) benefits of active political involvement in international trade. While the study and analysis of the interrelationship between international politics and economics gains ground on both ends, the subject is studied very differently by political scientists and economists. This may explain the virtual lack of interaction and mutual learning between the two.

15 Geoffrey Jones, The Evolution of International Business (London: Routledge, 1996). This subject is also addressed in Alex E. Fernández and Barbara Hogenboom (eds), Big Business and Economic Development (London and New York: Routledge, 2007). 16 Whether the influential power of internationally operating companies increases or remains more or less the same obviously varies not only between industries, but also between countries and regions. Examples of the more powerful internationally operating companies are state-owned enterprises and funds, as well as banks. 17 Baldwin, Economic Statecraft, pp. 13–14. The overlap and distinction between economic diplomacy, economic statecraft and economic security are discussed in more detail in the next paragraph. 18 A sub-set of the model is presented in Blanchard and Ripsman, ‘A Political Theory of Economic Statecraft’, pp. 374–398.

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chapter one

Cycles of Economic Diplomacy To say that economic diplomacy received little attention in IR studies until recently is, of course, not to argue that it is a new phenomenon. As noted earlier, economic diplomacy was a tool in foreign relations long before the establishment of the institutions that have become part and parcel of foreign policy and diplomacy practised by states today. Governments’ (relative) attention for economic diplomacy tends to be cyclical, however, and relates to power shifts domestically as well as in the world order. At the national level, new governments typically launch fresh initiatives at an early stage of their time in power.19 The commercial and trade dimensions of economic diplomacy tend to be prominent in clear-cut and direct policies. At a later stage—heading towards elections—politics become increasingly prominent and strategic issues a greater concern. One should be cautious of generalizations, however, as domestic policies are substantially dependent on macroeconomic conditions and political culture. This brings us to the global cycle of economic diplomacy, which suggests that economic diplomacy takes prominence when acceleration in globalization is accompanied by an absence of agreed rules of conduct.20 That is to say, governments are more likely to employ economic tools in the pursuit of foreign-policy interests when the legitimacy and power of existing structures of international cooperation decrease. Changes at the global level have a significant impact on long-term trends in economic diplomacy. Three factors are crucial to understand how policy-makers (and scholars alike) have treated the relationship between economics and security: the international distribution of material capabilities; the international strategic environment; and the position of the dominant world power in international economic competition.21 Applying this to the case of the United States, for example, Mastanduno argues that when the international economic position of the United States is strong, foreign economic policy complements national security policy. 19 Matthew Goodman, ‘When the Twain Meet: US Economic Diplomacy towards Asia’, in Bayne and Woolcock, The New Economic Diplomacy, pp. 190–191. More recent examples include Japan, where the Democratic Party of Japan-led government presented its ‘New Growth Strategy’ three months after coming to power in September 2009, and the United Kingdom, where the first major speech by newly appointed Prime Minister David Cameron in May 2010 addressed ‘the first priority of [t]his government: transforming our economy’. 20 Rik Coolsaet, Historical Patterns in Economic Diplomacy: From Protectionism to Globalization, International Studies Association Convention, 2001, p. 9, accessed on 30 July 2008, http://isanet.ccit.arizona.edu/archive/coolsaet.html. 21 Mastanduno, ‘Economics and Security in Statecraft and Scholarship’, pp. 825–854.

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When it is weak(er), foreign policy is used for particularistic or national interests. The profound reconfiguration of the international order that is currently under way explains why economic diplomacy is gaining in importance once again. China is returning to the international stage and poses increased challenges to the hegemony of the United States and the world order that was built by the transatlantic powers after 1945. Barring unforeseen circumstances, Washington will increasingly have to make room at the negotiating table—even if it remains the most powerful actor on the international stage in the decades to come. Adding to the growing importance of economic diplomacy is the fact that the challengers are latecomers in an international system with institutions that are largely dominated by Western countries. These states have fundamentally different ideas about the relationship between the private and public sectors— that is to say, distinct forms of capitalism—and follow an approach to foreign policy that emphasizes economic tools as well as political tools for economic purposes. Thus, the shift in the global balance of power encourages governments all over the world to reassess their national and foreign policies—including on the politico-economic front—and interests in international institutions. In the newly emerging multi-polar system, which historically has been more unstable than bipolar or even uni-polar systems,22 economic diplomacy is a useful means by which to pursue national interests through peaceful means. The upgrading by the first Obama administration of the strategic and economic dialogue with China that was initiated by former US President George W. Bush in 2006 may also be seen in this context. Meanwhile, the European Union has greater difficulty in successfully employing its economic clout in political negotiations with powerful third countries, as it largely fails to interconnect political and economic policy at the Union level. Towards a Better Understanding of Economic Diplomacy Many different concepts are used in the research fields that contribute to the study of economic diplomacy. The interrelationships, overlaps and distinctions between these concepts are often unclear. The same can be

22 Global Trends 2025: The National Intelligence Council’s 2025 Project, p. 29, accessed in December 2008 at http://www.dni.gov/nic/PDF_2025/2025_Global_Trends_Final_ Report.pdf.

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chapter one

said of the various concepts’ meanings—let alone their position within the broad realm of foreign policy and international economic policy. This goes for economic diplomacy as well as for economic statecraft, economic security, trade diplomacy, commercial diplomacy and financial diplomacy.23 While the term ‘economic diplomacy’ is most frequently left undefined, those who use ‘economic statecraft’ or ‘commercial diplomacy’ tend not to consider the distinction between these two (and other) alternatives. This situation is a handicap for academics and practitioners and politicians.24 More order is needed if research on economic diplomacy is to move decisively into a more mature phase. In his seminal book on economic statecraft, Baldwin asserted that ‘[w]hereas economic statecraft is defined in terms of means, alternative concepts are usually defined in terms of actual or intended effects of a policy or in terms of the process by which the policy was made.’25 While it is indeed the case that economic diplomacy is primarily about processes and practices, throughout this book economic diplomacy is defined in terms of means—like economic statecraft. Different from the rather narrow focus of most studies of economic statecraft on coercive instruments such as sanctions and boycotts, economic diplomacy is thought to involve also the employment of economic instruments in non-coercive ways.26 In its broadest sense, economic diplomacy is considered as the narrow stem 23 This challenge is by no means confined to economic diplomacy; it can be argued that studies of diplomacy more generally also largely fail to address the difference between diplomacy and statecraft. 24 This is illustrated by the opening paragraph of this chapter, as well as by discussions at the international conference on economic diplomacy that took place at the Clingendael Institute in October 2009. For the conference proceedings, see http://www.clingendael.nl/ cdsp/events/20091015/. 25 Other alternative concepts are foreign economic policy, international economic policy, economic leverage, economic sanctions, economic warfare and economic coercion. See Baldwin, Economic Statecraft, pp. 33–40. 26 See, for example, Taylor, American Sanctions; Blanchard and Ripsman, ‘A Political Theory of Economic Statecraft’. An exception to this rule is Kelton, who uses economic statecraft in an analysis of preferential trade agreements, in an apparent attempt to bolster the strategic, politico-military angle of the study; see Maryanne Kelton, ‘US Economic Statecraft in Asia’, International Relations of the Asia-Pacific, vol. 8, no. 2, 2008, pp. 149–174. Mastanduno tries to overcome the ‘narrow’ application of economic statecraft to coercive sanctions, and distinguishes between negative sanctions and positive sanctions (inducements). He notes that ‘more often than not, policy-makers treat economic sanctions as part of a package of foreign policy measures. Nonetheless, scholarly analysis thus far has not addressed systematically the interaction of sanctions and other instruments of statecraft’. This book answers his call, but uses ‘economic diplomacy’ rather than ‘economic statecraft’ as the umbrella term. See Michael Mastanduno, ‘Economic Statecraft,

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of a funnel through which all expressions of the interrelationship between IPE and diplomatic studies are channelled. A major issue in the study of economic diplomacy originates in the study of diplomacy at large, and concerns the extent to which economic diplomacy is tied to the state or, alternatively, involves a broader range of private and other (non-governmental) actors.27 This is another important point that distinguishes economic diplomacy from economic statecraft, which generally considers actions taken unilaterally by the state and—in its initial form as set forth by Baldwin—does not address the domestic context.28 The most thorough attempt made to date to analyse economic diplomacy from an IR and diplomatic perspective, by Nicholas Bayne and Stephen Woolcock, addresses this same issue. The authors argue that in economic diplomacy, governments try to reconcile three types of tensions: (1) the tension between politics and economics; (2) the tension between international and domestic pressures; and (3) the tension between government and other actors, such as private business and NGOs.29 While economic diplomacy may be largely concerned with actions taken by the state, it also considers the dynamic environment in which the state operates. Economic diplomacy thus cannot be seen as separate from the domestic context (of both the sender and the receiving state) and the activities of the state as influenced by other actors, such as private business and other interest groups. Building a Conceptual Framework Taking these insights into account, the state is here not regarded as the only player, nor as a coherent entity. It is assumed, however, that the state is the primary actor in economic diplomacy. Understood in such

Interdependence and National Security: Agendas for Research’, Security Studies, vol. 9, nos. 1 and 2, 1999, pp. 288–316 (quoted on p. 299). 27 Donna Lee and Brian Hocking, ‘Economic Diplomacy’, in Robert A. Denemark (ed), International Studies Encyclopedia Online (Oxford: Blackwell, 2010; Blackwell Reference Online, 18 March 2010). 28 Some scholars of economic statecraft have more recently incorporated the domestic interest groups in the target and/or sender state in their research. See, for example, Blanchard and Ripsman, ‘A Political Theory’; and Taylor, American Sanctions. In certain cases the emphasis on process rather than means begs the question of whether the term ‘economic diplomacy’ instead of ‘economic statecraft’ would not more accurately reflect the subject that is discussed. 29 Bayne and Woolcock, The New Economic Diplomacy, ch. 1.

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a state-centric realist framework, economic diplomacy has been defined as the pursuit of economic security within an anarchic system.30 If economic security is thought to comprise the economic prosperity and political stability of a nation,31 it follows that economic diplomacy pursued by a government involves a variety of instruments that are relatively more economic or more political in character. In other words, economic diplomacy involves a ‘business end’ and a ‘power-play end’, and all tools (in mirror view: expressions) of economic diplomacy can be placed somewhere in between these two extremes. What is more, the two ends of the spectre can be directly related to the two main determinants of the balance of national interests—that is, economic prosperity on the one hand and political stability and national security on the other hand. This also reflects the idea that economic power involves different forms of power. In the words of Thomas Berger, ‘[e]conomic power is one of the most basic and important sources of soft power’, but, ‘to the extent that it supports military power [. . ., it] is [also] very much a form of hard power’.32 By explicating what tools of economic diplomacy are or can be employed, the continuum that ranges from the ‘business end’ to the ‘power-play end’ helps to identify which considerations of the national interest are of relevance and how they are prioritized and pursued by policymakers. The analytical framework thus elucidates the multiplicity of interests and tools involved with economic diplomacy, and provides guidance on how to navigate through competing goals when multiple interests collide. In this sense, it serves the same purpose as does the concept of ‘a balance of interests’ in itself.33 Figure 1 illustrates this. At the ‘power-play end’ are economic diplomacy instruments which generally involve actions and negotiations that are primarily political in character, such as sanc-

30 Lee and Hocking, ‘Economic Diplomacy’. 31 On the close link between security and prosperity, and the advance of national interests, see also Harry W. Kopp, Commercial Diplomacy and the National Interest (Washington DC: American Academy of Diplomacy / Business Council for International Understanding, 2004), especially p. 1. 32 Berger argues that economic power can translate into soft power in at least three ways: (1) by influencing other countries’ desire to cooperate and work with that country for the sake of increasing their own material prosperity; (2) by the country becoming a model that others seek to emulate; and (3) by enabling the country to undertake other types of soft power activities. See Thomas Berger, ‘Japan in Asia: A Hard Case for Soft Power’, Orbis, Fall 2010, p. 569. 33 Ramesh Thakur, ‘A Balance of Interests’, in Andrew F. Cooper, Jorge Heine and Ramesh Thakur (eds), The Oxford Handbook of Modern Diplomacy (Oxford: Oxford University Press, forthcoming 2013), chapter three.

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tions (and the lifting thereof ). The primary drivers behind these activities are the strategic goals of a government, and the underlying cost-benefit calculations follow a political logic. Activities aim primarily to contribute to a stable international environment and are often referred to as economic statecraft. At the ‘business end’ of economic diplomacy are found the cooperative efforts by government and business that aim to achieve commercial objectives that advance national interests,34 including trade and investment promotion (commercial diplomacy). Here, cost-benefit calculations primarily follow an economic logic, and maximizing business opportunities is the primary driver behind activities. In between these ends are activities that may be more or less economic or political, such as economic or development assistance (and suspension of these activities), bilateral and multilateral negotiations on trade agreements (trade diplomacy), and financial and monetary policy/negotiations (financial diplomacy).35 Differences notwithstanding, it should be emphasized that the distinction between the different strands is fluid and that strands may overlap—implying that economic diplomacy is not a linear, but more of a network concept. The two ends of the spectre are also implicit in the definition of wellknown scholars in diplomatic studies, Geoff R. Berridge and Alan James, who defined economic diplomacy as (1) diplomacy concerned with economic policy questions; and (2) diplomacy that employs economic resources, either as rewards or sanctions, in pursuit of a particular foreign policy objective.36 While the latter part of this definition is about economic tools that are used for political purposes, the former part is about political tools—while the objectives remain unspecified. The definition adopted in this book tries to overcome this weakness. Thus, economic diplomacy is understood as the use of political means as leverage in international negotiations, with the aim of enhancing national economic prosperity, 34 This follows Kopp, Commercial Diplomacy and the National Interest. It should be noted, however, that the distinction between overseas development assistance (ODA) and other commercial activities in which the government is involved is more explicit here. 35 This latter sub-field is growing in importance and requires much more research in order to discern better the means and intentions involved. 36 Geoff R. Berridge (with Alan James), Dictionary of Diplomacy (Basingstoke: PalgraveMacmillan, 2nd edition, 2003), p. 91. Various instruments can be used to perform economic diplomacy actively. Most commonly referred to in this regard are economic aid or ‘carrots’ and economic sanctions or ‘sticks’. Bayne and Woolcock argue that economic diplomacy is concerned with the (decision-making) processes rather than structures, and with international economic issues. See Bayne and Woolcock, The New Economic Diplomacy, ch. 1.

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chapter one primary goal: political

‘power-play end’ ** stability **

negative sanctions inducements financial diplomacy

tool: political

trade diplomacy

tool: economic

commercial diplomacy ‘business end’ ** prosperity **

primary goal: economic

Source: author’s compilation.

Figure 1. The Conceptual Framework: Strands of Economic Diplomacy (Western Countries today). Source: author’s compilation.

and the use of economic leverage to increase the political stability of the nation. Paraphrasing Gilpin,37 the essence of economic diplomacy is to interrupt, employ and direct commercial and political intercourse. Most expressions of economic diplomacy involve multiple goals and can, in principle, be classified under more than one category. Generally, however, one can make a reasonable judgement as to what category best characterizes the primary goal or basis of a particular expression of economic diplomacy. Few would dispute, for example, that sanctions primarily serve political and strategic goals, while export promotion aims to strengthen one’s own industry and, thus, primarily serves the nation’s economic prosperity. The primary goal of aid and trade negotiations is relatively more dependent on the specific circumstances of a case and tends to vary more between countries and across time. This fluidity is illustrated by the arrows in Figure 1. For example, while development aid from European countries and the United States is on the whole more political in character and purpose (aiming to promote good governance, democracy and human rights),38 Asian countries use such funds primarily to spur the

37 With reference to Hirschman’s earlier work, Gilpin argued that ‘the essence of economic power, or at least one form of it, is the capacity to interrupt commercial intercourse’; see Robert Gilpin, The Political Economy of International Relations (Princeton NJ: Princeton University Press, 1987), p. 76. 38 Moral drivers of ODA policy—or the high political symbolism of such a policy— may also influence a government’s approach to development assistance. Such drivers partly explain the emphasis in ODA policy, especially of Western countries, on political rather than commercial goals. See also the practitioner’s perspective of Arjan de Haan,

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economic strength of the aid recipient and the aid provider, through trade and investment. In this context, it is telling that Japan, China and India prefer to speak of economic cooperation rather than of development aid. In a similar vein, trade negotiations can be more or less political in character. Here the roles are reversed, compared to the aid example: while trade diplomacy is often more political in the Asian context—where trade and financial agreements play a role in the competition for influence in the region—European countries more often have commercial objectives and enhanced cost-effectiveness in mind when negotiating bilateral or regional trade agreements nowadays.39 The classification presented in Figure 1 is thus particularly representative of Western countries, and would have to be adjusted slightly if it was to represent other (groups of ) countries or regions, especially in Asia and the Middle East.40 Again, the dotted lines in Figure 1 represent such variations between countries. The different strands also inform the methodology of study—especially whether certain expressions within a specific strand can be studied through quantitative or qualitative analysis. While the more economic expressions of economic diplomacy can be researched relatively better by applying economic models to extensive data sets, more political expressions are commonly studied through case studies. That being said, the distinction is obviously not as neat as suggested by this simplification of reality, and some exceptions and a variety of studies operating on the borders of the two can be found. The proposed conceptual framework may also be useful in this respect, for it facilitates the research of economic diplomacy by illuminating the various angles from which international economic and foreign policy can be studied and analysed.41 ‘Development Cooperation as Economic Diplomacy?’, The Hague Journal of Diplomacy, vol. 6, nos. 1–2, 2011, pp. 203–217. 39 It should be noted that political objectives constituted a major driving force for enhanced cooperation in the field of trade and commerce in the early days of European integration—that is, in the politically unstable years after the Second World War. This conforms with the argument that governments are more likely to employ economic tools for political and foreign policy goals during periods of systemic change. 40 For more on this, see other chapters in this book and Maaike Okano-Heijmans, ‘Power Shift: Economic Realism and Economic Diplomacy on the Rise’, in Enrico Fels, Jan-Frederik Kremer and Katharina Harmat (eds), Power in the 21st Century—International Security and International Political Economy in a Changing World (Heidelberg/New York: Springer, 2012). 41 A review of the literature reveals that the primarily economic and commercial expressions studied by economists, categorized on the ‘business end’ of economic diplomacy, are studied through quantitative, empirical analysis relatively more often. The growing availability of statistical data in these fields makes for an increasing body of literature

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chapter one Table 1. Items included in Tools and Expressions.

Commercial diplomacy

Trade diplomacy

Financial diplomacy

Inducements

Sanctions

trade promotion

bilateral FTAs, EPAs

currency swap agreements

bilateral assistance: grants, loans

embargo (exports; state)

investment promotion

multilateral: WTO

exchangerate policy

debt relief

boycott (imports; individuals)

business advocacy

(antidumping) tariffs

buying/ selling of government bonds

humanitarian aid

suspension of assistance and aid

tourism promotion

export or import licences

freezing assets

granting access to technology

capital controls

promotion of socially responsible investing

import or export quotas, trade and investment barriers

withholding dues or payments

granting membership of international organization

blacklist

(un)favourable taxation  opening/closing of diplomatic representation   summits and high-level visits  Source: author’s compilation.

Each strand of economic diplomacy involves a wide variety of activities and expressions, as Table 1 illustrates. Countries are more successful in economic diplomacy if they increase the number of activities, conceive of new ways to conduct economic diplomacy, or terminate activities that have proven unsuccessful. But, to paraphrase Porter, economic diplomacy is more than the sum of a country’s activities.42 The multitude of activion this front. The more that politics is involved, the more difficult ‘objective’ analysis of economic diplomacy becomes. Strategic interests pursued through economic means such as ODA and sanctions can be subjected to quantitative analysis to the extent that statistics are available on the levels of assistance and the impact of sanctions on trade. 42 This section draws on Porter’s analysis of the competitive advantage of firms in global industries, which suggests that the complex environment of interlinked economic

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ties within the different economic diplomacy strands form an interdependent system or network of activities. These activities are connected by linkages, which occur when the way in which one activity is performed affects the cost or effectiveness of other activities. It follows that linkages create trade-offs in performing different activities that must be optimized. For example, imposing an embargo or suspending aid reduces opportunities for trade and investment, while granting a country membership to an international financial institution may increase commercial opportunities in/with the target country. To be successful in economic diplomacy, any government must resolve such trade-offs in accordance with the perceived balance of national interests and its foreign policy strategy at large. Careful management of linkages and continuous investigation of existing and potential economic diplomacy activities are thus of utmost importance. Building an Analytical Framework The conceptual framework helps us to distinguish various strands of economic diplomacy and to begin to understand the relationship between, and diversity of tools within, those strands. This is one important step in untangling the pieces of the economic diplomacy puzzle. The next challenge is to identify essential dimensions of economic diplomacy, within which historically contingent change may occur. Four key elements of economic diplomacy are proposed: the context; tools; theatres; and process. These dimensions spell out the analytical angles that altogether provide a complete understanding of a country’s economic diplomacy— that is, how economic diplomacy is embedded in the pursuit of a balance of (national) interests. Figure 2 shows how the concepts (at the three angles, the side and the core of this triangular analytical framework) are separate, yet interdependent. Each research field in which economic diplomacy is studied is largely representative of one dimension of the analytical framework, although this distinction is also not as neat as the simplified model may seem diplomacy activities of a country may be likened to the series of primary and support activities that make up the operations of a firm. While firms seek competitive advantage in an industry or industry segment by being more efficient or creating better value (resulting in lower costs or differentiation, respectively) than competitors, countries seek success in economic diplomacy by using political tools to enhance economic prosperity and by employing commercial instruments to achieve and maintain political stability. See Michael E. Porter, The Competitive Advantage of Nations (London: Palgrave, 1998 [1990]).

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chapter one International Relations: Context

IPE: Theatres

Balance of National Interests:

Prosperity Economics: Tools

IPE: Theatres

Stability

IPE: Theatres

Diplomacy: Processes

Figure 2. The Analytical Framework: Four Dimensions of Economic Diplomacy. Source: author’s compilation.

to suggest.43 The environment in which (a specific strand of ) economic diplomacy is pursued is understood best through an IR approach to economic diplomacy. For example, it is mainly IR scholars who inform us about different levels that define the context in which economic diplomacy is exercised—namely, the interplay respectively between the domestic and international sphere, and between politics and economics. Such analysis provides little insight, however, into the variety and efficacy of instruments that can be used, where certain activities take place, or the ways and motivations of agents who practise economic diplomacy—that is, on the relationships themselves. For this, it is useful to look at analyses from the economics, IPE and diplomatic studies traditions, respectively. The interest of economists in the effectiveness of activities generally results in a focus on the tools of economic diplomacy—that is, what instruments do governments use and do they bring about the intended effect? IPE is largely concerned with structures and institutions in international relations, which facilitates an assessment of the theatres (negotiating forums, such as international institutions) relevant to economic diplomacy. Work by scholars from this field can be placed somewhere in between IR and

43 One is tempted to believe that the four dimensions of economic diplomacy—that is, context; theatres and tools; and processes—may even be connected to the familiar triad in IR approaches: realism; liberalism; and constructivism, respectively. This facilitates analytical eclecticism at yet a different level, but a detailed consideration of this is beyond the scope of this chapter.

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economics, or IR and diplomatic studies. The former includes studies that are concerned with how one or more strands of economic diplomacy are practised by a country or group of countries, while the latter involves research on the interplay between public and private actors, in specific countries or strands of economic diplomacy. The more practical processes by which economic diplomacy is constructed and practised are addressed primarily by scholars of diplomatic studies. This includes analysis of how negotiations proceed in different modes and environments (such as in summits, regional diplomacy, and bilateral and multilateral economic or monetary institutions), which tactics are used towards what strategic ends, as well as the motivations and the interests of the actors involved. Other (sub-)fields where studies on economic diplomacy can be found are international law, business studies and foreign-policy analysis. These are included here in the fields of IR, economics and diplomatic studies respectively. Economic diplomacy actors are subject or object of analysis in each of the four fields. Since diplomatic behaviour is embedded in both international and domestic structures and norms, the ongoing process in which ideas and culture play a central role influences the mode of economic diplomacy that is practised by a government. Although the state is the primary actor and thereby at the core of this process, many other actors have a say in (what eventually becomes) foreign and economic policy. Domestic politicians and economic interest groups—including multinational corporations—exert the largest effective influence on (the formulation of ) economic diplomacy. To understand a country’s economic diplomacy thus requires an understanding of evolving schemes of thought, identities and actions that move governments, domestic politicians, economic and other interest groups—as well as the relative power balance among these actors. Diverging social realities of policy-making influence the extent to which actors are successful in shaping the parameters of a government’s economic diplomacy. Such differences are most apparent in comparisons between regions—such as European, Asian and Middle Eastern countries—but can also be found within regions.44

44 For an analysis of how these dynamics work out within East Asia, for example, see Kurt W. Radtke, ‘Security in Chinese, Korean and Japanese Philosophy and Ethics’, in Hans Günter Brauch et al. (eds), Globalization and Environmental Challenges: Reconceptualizing Security in the 21st Century, Hexagon Series on Human and Environmental Security and Peace, vol. 3 (Berlin, Heidelberg and New York: Springer, 2008).

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A question that needs to be addressed next is: how do these analytical lenses relate? This is of importance if one is to make the most of analytical eclecticism, which regards existing research traditions fluidly and is willing to borrow selectively from each to construct accounts that travel across the sides of the triangle.45 Interaction takes place in multiple ways. Policy-makers select the economic tools and theatres that are most appropriate to pursue (perceived) national interests, in consideration of the country’s unique position in the world and their judgement of how power can be exerted or projected optimally. The context thus shapes the judgement of agents about how their interest can be advanced most effectively. Moreover, the assessment of how this context is constructed informs policy-makers’ choices of the instruments by which, and the places where, to promote a balance of interests. The use of certain instruments and ongoing negotiations will, in the medium to long term, alter the context in which agents operate. The four lenses are thus not only interrelated, but also complementary. This implies that economic diplomacy is most effective when based on inclusive strategic thinking that considers analysis of all four concepts and their interactions. Put differently, the questions of ‘when’ (context), ‘what’ (instruments), ‘where’ (theatres) and ‘how’ (process) inform the question of ‘why’ economic diplomacy exists as a strategy by which states pursue national interests, comprising economic prosperity and political ­stability. Clearly, each angle (and concept) of the analytical framework incorporates many sub-themes. These are too extensive and too complex to be dealt with comprehensively in any one study. Indeed, most available studies focus on a certain contextual element, one or more tools or theatres, or a specific element of the processes of economic diplomacy by one or more states. The analytical framework provides the larger picture in which these studies may be placed and thereby facilitates comparative research.

45 The approach adopted here differs from Katzenstein and Sil in the sense that three out of four research traditions/dimensions are here positioned at the corners of the triangle, while Katzenstein and Sil place them along the sides. The underlying logic is not fundamentally different, however, as the characterization introduced here represents a relative rather than an absolute focus. See Peter J. Katzenstein and Rudra Sil, ‘Rethinking Asian Security: A Case for Analytical Eclecticism’, in J.J. Suh, Peter J. Katzenstein and Allen Carlson (eds), Rethinking Security in East Asia: Identity, Power and Efficiency (Stanford CA: Stanford University Press, 2004), p. 17.

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Four Fields of Literature A review of contemporary economic diplomacy studies is presented to subs­ tantiate the underlying assertion that—exceptions notwithstanding— researchers from certain fields largely tend to focus on specific dimensions and strands of economic diplomacy. In itself, this finding may be hardly surprising since, for example, IR scholars are primarily interested in the ‘power-play end’, while economists are mostly engaged with the ‘business’ of economic diplomacy. Again, this is not to deny that exceptions obviously do exist, as do scholars who operate on the borders of various research fields. The literature is categorized here by the strand(s) and dimensions that it discusses, often with a focus on a particular country, group of countries or region(s). A functional approach is adopted, meaning that the classification of writings follows from their content rather than the author’s training or affiliation. The analytical framework of economic diplomacy helps to position a particular case in its wider context and, thereby, to judge the comprehensiveness of economic diplomacy policies of the given case. After all, in most instances (case) studies can be regarded as specific examples of a more general category of events rather than as unique historical phenomena.46 The conceptual framework is used as yet another way to position a case within the broad economic diplomacy field, and to untangle the relationship between various studies, which in turn may also help in identifying the strand(s) of economic diplomacy that are taken up in a study. This strand is not necessarily made explicit by the original author—and, where explicitly stated, may differ from the interpretation of the various concepts here. Economic Diplomacy in International Relations Economic diplomacy studied through an IR lens is primarily concerned with high politics and issues related to national security, where national interests are primarily defined in terms of (inter)national stability. When considered in the broader field of economic diplomacy, this strand of research is characterized by an interest in power elements rather than policy and process. Illustrative is Baldwin’s introduction to his study

46 Baldwin, Economic Statecraft, p. 25.

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on economic statecraft, which reads that it ‘is a study of economics as an instrument of politics’.47 The high politics or power-play element explains why political scientists who study the interrelationship between international politics and economics regularly employ the term ‘economic statecraft’, or tend to discuss the subject without linking it to any concept at all. In the former case, the focus is often on sanctions—negative or positive—while research of the latter kind tends to address the relationship between foreign policy on the one hand and trade or investment on the other. Three research foci can be distinguished in IR scholarship on economic diplomacy. The first concerns conceptual analysis that aims to improve general understanding of the interrelationship between international economic relations and foreign and military policy. This includes books and articles on economic power (Knorr), economic statecraft (Baldwin), economics and security (Mastanduno; and Sandler and Hartly), historical patterns in economic diplomacy (Coolsaet) and the political theory of economic statecraft (Blanchard and Ripsman).48 The second category comprises case studies that discuss the economic diplomacy practice of particular (groups of) countries or specific economic diplomacy expressions. This includes analysis of Japan’s development aid (Arase), EU sanctions (Portela), ‘normative trade policy’ (Orbie), Chinese investment in North Korea (Kim), the United States in the Cold War period (Kunz) and Myanmar’s foreign trade and its political consequences (Alamgir).49 Within this category, the body of research on financial and monetary expressions of economic diplomacy in particular is

47 Baldwin, Economic Statecraft, p. 3. See also P. Hanson, Western Economic Statecraft in East-West Relations: Embargoes, Sanctions, Linkage, Economic Warfare and Détente (London: Royal Institute of International Affairs, 1988). 48 Klaus Knorr, The Power of Nations: The Political Economy of International Relations (New York: Basic Books, 1975); Baldwin, Economic Statecraft; Mastanduno, ‘Economic Statecraft, Interdependence and National Security’, pp. 288–316; Todd Sandler and Keith Hartly (eds), Handbook of Defense Economics: Defense in a Globalized World (Volume 2) (Amsterdam: Elsevier, 2007); Coolsaet, Historical Patterns in Economic Diplomacy; and Blanchard and Ripsman, ‘A Political Theory of Economic Statecraft’, pp. 374–398. 49 David Arase (ed), Japanese Aid in the New Millennium (London: Routledge, 2005); Clara Portela, European Union Sanctions and Foreign Policy: When and Why do they Work? (Abingdon: Routledge, 2010); Jan Orbie (ed), Europe’s Global Role: External Policies of the European Union (Aldershot: Ashgate, 2008); Kim Jae Cheol, ‘The Political Economy of Chinese Investment in North Korea’, Asian Survey, vol. 46, no. 6, November/December 2006, pp. 898–916; Diane B. Kunz, Butter and Guns: America’s Cold War Economic Diplomacy (New York: Free Press, 1997); Jalal Alamgir, ‘Myanmar’s Foreign Trade and Its Political Consequences’, Asian Survey, vol. 46, no. 6, 2008, pp. 977–996.

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growing. This includes conceptual work (Steil and Hinds), and work on currency issues—exchange-rate policies and currency wars—as well as changes in financial institutions (the International Monetary Fund and the World Bank) that result from the rise of emerging economies. Country case studies include those on the United States (O’Hara; and Tsokhas), China (Drezner) and Japan (Hook et al.).50 The final category of economic diplomacy research from an IR perspective, which is slightly distinct from the others but nevertheless included here because of its international focus, deals with legal issues—that is, international law. This includes work on legal institutions governing international trade (Hudec; and Reich) and on commercial law, originating in the Lex Mercatoria (Sealy and Hooley).51 Economists’ Perspectives on Economic Diplomacy In contrast to IR perspectives, the economic approach to economic diplomacy is grounded in an understanding of national interests as defined in economic terms. It is concerned with all of the ways by which govern­ ments deliberately and directly intervene in the market, whether the economic (trade and investment) or financial fields. The focus here is on economic diplomacy as a tool to enhance economic prosperity, and the leading question is whether specific economic diplomacy tools are ­cost-efficient in the sense that they have a welfare-enhancing effect. Political aims may be considered, but are by and large not (as) explicit—let alone

50 Benn Steil and Manuel Hinds, Money, Markets and Sovereignty (New Haven CT and London: Yale University Press, 2009); Glen O’Hara, ‘The Limits of US Power: Transatlantic Financial Diplomacy under the Johnson and Wilson Administrations, October 1964–November 1968’, Contemporary European History, vol. 12, 2003, pp. 257–278; J. Kosmas Tsokhas, ‘Anglo-American Economic Entente and Australian Financial Diplomacy’, Diplomacy and Statecraft, vol. 5, no. 3, November 1994, pp. 620–641; Daniel W. Drezner, ‘Bad Debts: Assessing China’s Financial Influence in Great Power Politics’, International Security, vol. 34, no. 2, 2009, pp. 7–45; Glenn D. Hook, Julie Gilson, Christopher W. Hughes and Hugo Dobson, ‘Japan and the East Asian Financial Crisis: Patterns, Motivations and Instrumentalization of Japanese Regional Economic Diplomacy’, European Journal of East Asian Studies, vol. 1, no. 2, 2002, pp. 177–197. See also the practitioner’s piece by Nicholas Bayne, ‘The Diplomacy of the Financial Crisis in Context’, The Hague Journal of Diplomacy, vol. 6, nos. 1–2, 2011, pp. 187–201. 51 Robert E. Hudec, Enforcing International Trade Law: The Evolution of the Modern GATT Legal System (Salem MA: Butterworth Legal Publishers, 1993); Arie Reich, ‘From Diplomacy to Law: The Juridicization of International Trade Relations’, Northwestern Journal of International Law and Business, vol. 17, no. 2/3, 1997, pp. 775–849; and Len S. Sealy and Richard J.A. Hooley, Commercial Law: Text, Cases and Materials (New York: Oxford University Press, 2009).

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the focus of attention. Most studies in this field employ (a mixture of ) the term(s) ‘economic diplomacy’, ‘commercial diplomacy’ and ‘trade diplomacy’, while ‘economic statecraft’ is hardly employed.52 Economic diplomacy of the primarily economic realm can be divided into three categories. The first concerns studies on the effects of specific economic diplomacy activities on international trade. Such analysis employs economic and econometric models—often the gravity model of trade, but also the social welfare function, bilateral trade model, elasticities and market shares, or a combination of these—for cost-benefit analysis of one or more tools of economic diplomacy. This includes studies on embassies as export promoters (Rose), state visits (Nitsch) and a variety of financial tools to promote one’s own business abroad (van den Berg et al.).53 A second category of research of economic diplomacy from an economic perspective employs macroeconomic and micro-data studies for an economics-based interpretation of larger conceptual questions, such as on the relationship between trade and conflict or cooperation (Polachek) and general aspects of trade uncertainty (van Bergeijk).54 The third category of research, which is slightly distinct from the above two but included here because of its link to international economics, tackles economic diplomacy from a business studies’ perspective. It addresses the complex political environments in which internationally operating companies conduct business from these firms’ point of view. Such research deals, for example, with the effectiveness of so-called ‘business diplomacy management’ (Saner et al.), the export-related expertise of manufacturing firms and the gap between governmental export-promotion efforts and private sector needs (Kotabe and Czinkota).55 52 As mentioned earlier, Kelton is the exception to this rule (see footnote 26). 53 See Andrew K. Rose, ‘The Foreign Service and Foreign Trade: Embassies as Export Promotion’, The World Economy, vol. 30, no. 1, 2005, pp. 22–38; Volker Nitsch, State Visits and International Trade, CESifo Working Paper no. 1582 (Munich: CESifo Group, 2005); and van den Berg et al., MKBA financieel buitenlandinstrumentarium. 54 Solomon W. Polachek, ‘Conflict and Trade: An Economics Approach to Political International Interactions’, Peace Economics, Peace Science and Public Policy, vol. 5, no. 2, spring 1999; Solomon W. Polachek, ‘Why Democracies Cooperate More and Fight Less: The Relationship Between International Trade and Cooperation’, Review of International Economics, vol. 5, no. 3, 1997, pp. 295–309; and van Bergeijk, Economic Diplomacy and the Geography of International Trade. 55 Raymond Saner, Lichia Yiu, and Mikael Sondergaard, ‘Business Diplomacy Management: A Core Competency for Global Companies’, Academy of Management Executive, vol. 14, no. 1, 2000, pp. 80–92; and Masaaki Kotabe and Michael R. Czinkota, ‘State Government Promotion of Manufacturing Exports: A Gap Analysis’, Journal of International Business Studies, vol. 23, no. 4, 1992, pp. 637–658.

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Economic Diplomacy and International Political Economy International Political Economy is primarily concerned with the ways in which political forces shape the systems through which economic interactions are expressed, and, conversely, the effects that economic interactions have upon political structures and outcomes. More than the other research traditions, the work of IPE scholars on economic diplomacy thus involves a mix of foreign policy objectives and commercial tools, and commercial objectives and political tools in a certain environment where economic diplomacy is shaped or practised. The literature in this field can be divided into studies that focus on— what has been labelled here as—trade diplomacy and commercial diplomacy (positioned on the IR–economics side of the analytical triangle) and conceptual work (positioned on the IR–diplomacy side). The former is about economic diplomacy that focuses on trade liberalization and ­domestic forces, and employs trade statistics not combined with econometric models. Examples are studies on Japan’s foreign economic policy (Solís and Urata), trade diplomacy (Drysdale; and Pekkanen, Solís and Katada) and East Asian regionalism (Ravenhill).56 Applied work on commercial diplomacy by IPE scholars includes studies of government programmes involving trade finance, trade facilitation, trade advocacy (Stremlau) and trade missions, or a combination of these (Garten, Zoellick and Shinn).57 Last but not least, the more conceptual work in this research tradition includes work on state–firm diplomacy and firm–firm diplomacy (Strange), and commercial diplomacy (Rothknopf; and Kopp).58 To the extent that the edited book by Bayne and Woolcock focuses on 56 Mireya Solís and Shujirō Urata, ‘Japan’s New Foreign Economic Policy: A Shift Towards a Strategic and Activist Model?’, Asian Economic Policy, vol. 2, no. 2, December 2007, pp. 227–245; Peter Drysdale, ‘Japan’s Trade Diplomacy: Yesterday, Today, Tomorrow’, Pacific Economic Paper, no. 178 (Canberra: Australia–Japan Research Centre), 1989; Saaida M. Pekkanen, Mireya Solís and Saori N. Katada, ‘Trading Gains for Control: International Trade Forums and Japanese Economic Diplomacy’, International Studies Quarterly, vol. 51, December 2007, pp. 945–970; and John Ravenhill, ‘The “New East Asian Regionalism”: A Political Domino Effect’, Review of International Political Economy, vol. 17, no. 2, pp. 178–208. 57 John Stremlau, ‘Clinton’s Dollar Diplomacy’, Foreign Policy, no. 97, winter 1995, pp. 18–35; and Jeffrey Garten, Robert Zoellick and James Shinn, Riding the Tigers: American Commercial Diplomacy in Asia (New York: Council on Foreign Relations, 1998). 58 Susan Strange, ‘States, Firms and Diplomacy,’ International Affairs, vol. 68, no. 1, January 1992, pp. 1–15; David J. Rothkopf, ‘Beyond Manic Mercantilism’, in R.J. Albright et al., US Commercial Diplomacy, background papers from the Study Group on ­American Commercial Diplomacy in Asia (New York: Council on Foreign Relations, 1998); and Kopp, Commercial Diplomacy and the National Interest.

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trade, investment and finance negotiations, it may also be included in this category.59 Diplomacy and Negotiation: Foreign Policy and National Interests Starting from the 1980s, diplomacy and international negotiation (the latter also included in Putnam’s analysis) became subjects of serious scholarly attention. The main trigger for this was the characterization of diplomacy as an institution that contributes to order in international society, next to the balance of power, international law, war and the great powers.60 Paralleling developments in structural IR analysis starting in the 1970s, significant steps were made in the study of actors, interests and processes in international relations. Constructivism was posited next to (neo-)realist and (neo-)liberal theories of IR. Different strands of this school call attention to various elements of the ‘social reality’ of international relations— such as goals, threats, cultures and identities—as social constructs of actors. These insights can be seen to have contributed also to the study of diplomacy by academics and practitioners. As diplomatic studies matured, so enquiries into economic diplomacy from this particular perspective grew. Studies of economic diplomacy by scholars from the diplomatic studies tradition share an emphasis on the procedural rather than structural aspects of economic diplomacy. Obviously, no study of economic diplomacy can neglect this angle, but these studies stand out for their relative emphasis on actors and on processes. Analysis within this research tradition broadly involves three categories. The first is conceptual analysis that focuses on economic diplomacy at large (Lee and Hocking; and Bayne and Woolcock) or on a specific strand, such as commercial diplomacy (Lee and Hudson; and Kostecki and Naray).61 Other categories have a narrower focus and discuss, respectively, various aspects of negotiations and one or more actors. The former includes modelling of international economic negotiations, with a focus on strategies and incorporating markets (Odell) and multilateral economic diplomacy at the Kennedy Round of the General Agreement on Tariffs

59 Bayne and Woolcock, The New Economic Diplomacy. 60 Hedley Bull, The Anarchical Society: A Study of Order in World Politics (Hampshire and New York: Palgrave, 2002 [1977]). 61 Lee and Hocking, ‘Economic Diplomacy’; Bayne and Woolcock, The New Economic Diplomacy; Donna Lee and David Hudson, ‘The Old and New Significance of Political Economy in Diplomacy’, Review of International Studies, vol. 30, no. 3, July 2004, pp. 343–360; M. Kostecki and O. Naray, Commercial Diplomacy and International Business, Clingendael Discussion Paper in Diplomacy no. 107 (The Hague: Clingendael Institute, 2007).

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and Trade (GATT) (Lee).62 Economic diplomacy is pursued by governments but shaped by a range of domestic state and non-state actors. Analysis of actors in economic diplomacy include studies on the international chamber of commerce (Kelly), business in UK diplomacy (Lee), Indian economic diplomacy from a diplomat’s perspective (Rana), and state and non-state actors—such as non-governmental organizations and consumer groups (Woolcock; and Saner and Yiu).63 Also worth ­mentioning is the literature on diplomacy that includes (a brief) discussion of commercial and economic issues (Hamilton and Langhorne; Marshall; Barston; and Pigman), for this provides insight into the role of economic diplomacy within diplomatic practice at large.64 The edited book by Bayne and Woolcock entitled The New Economic Diplomacy provides the most elaborate analysis of economic diplomacy to date, both theoretically as well as empirically. This warrants a short elaboration into how the underlying study relates to that book’s findings. Two observations should be made in this respect. First, whereas Woolcock (in his individual chapter) implicitly posits economic diplomacy as forming part of IPE,65 the two are explicitly distinguished here. The reason for this is that while the ontological starting point of economic diplomacy and IPE is much the same, the epistemology of the two research fields differs fundamentally. That is to say, scholars of IPE and economic diplomacy look at the same reality, but use different coloured glasses and therefore

62 John S. Odell, Negotiating the World Economy (Ithaca NY: Cornell University Press, 2000); and Donna Lee, ‘Endgame at the Kennedy Round: A Case Study of Multilateral Economic Diplomacy’, Diplomacy & Statecraft, vol. 12, no. 3, September 2001, pp. 115–138. 63 Dominique Kelly, The International Chamber of Commerce as a Diplomatic Actor (Leicester: Centre for the Study of Diplomacy, University of Leicester, July 2000); Donna Lee, ‘The Growing Influence of Business in UK Diplomacy’, International Studies Perspectives, vol. 5, no. 1, 2004; Kishan S. Rana, Bilateral Diplomacy (New Delhi: Manas Publications, 2002); Stephen Woolcock, ‘State and Non-state Actors’, in Bayne and Woolcock, The New Economic Diplomacy (note that this subject is addressed in two separate chapters in the 2007 edition); and R. Saner and L. Yiu, International Economic Diplomacy: Mutations in Post-modern Times, Clingendael Discussion Paper in Diplomacy no. 84 (The Hague, Clingendael Institute, January 2003). 64 Keith Hamilton and Richard Langhorne, The Practice of Diplomacy: Its Evolution, Theory and Administration (London and New York: Routledge, 1995); Peter Marshal, ­Positive Diplomacy (Basingstoke: St. Martin’s Press, 1997); R.P. Barston, Modern Diplomacy (London: Pearson, 2006[1988]); and Geoffrey Allen Pigman, Contemporary Diplomacy: Representation and Communication in a Globalized World (Cambridge: Polity Press, 2010). 65 Woolcock states that ‘It is [the] focus on process rather than the structure of power or interests shaping any given outcome that distinguishes the study of economic diplomacy from the rest of international political economy’ (emphasis added). See Stephen Woolcock, ‘Theoretical Analysis of Economic Diplomacy’, in Bayne and Woolcock, The New Economic Diplomacy, p. 25.

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see (or focus on) a different reality. Looking at the World Trade Organization, for example, an IPE scholar may take an interest in the workings of the institution within the world trade system, while an economic diplomacy scholar would consider why and how a government negotiates a deal on tariff reductions, as well as how negotiations form part of the broader context of diplomatic practice. Rather than viewing one field as part of the other, the two are thus posited at the same level under the same IR umbrella. This book further differs from Bayne and Woolcock in that it distinguishes between economic diplomacy on the one hand and economic statecraft and commercial, trade or ‘dollar’ diplomacy on the other. The former is understood as the umbrella term, while the latter terms are considered as ‘power-play end’ and ‘business end’ derivatives of economic diplomacy, respectively. Unwarranted Intervention or a Necessary Evil? A government or any other economic diplomacy actor’s views on the rightfulness and usefulness of economic diplomacy in practice depends partly upon one’s ideas about the separation of the public and private spheres—which is, in turn, commonly influenced by a country’s level of development. In an attempt to bridge the theory–practice divide, this section addresses the key considerations that shape the standpoints of government and other actors, as well as the form of capitalism of a particular country. Political culture and historical consciousness have a significant impact on the way that economic diplomacy is framed, both at the national and practical levels. In turn, diplomacy is directly related to the way in which a state goes about projecting its ideology and strategic interests. Few may disagree that diplomacy requires deterring power, good judgement and opportunity,66 but ideas on what this means for diplomatic practice differ substantially between countries and regions. States or state-like entities that prefer or rely (out of necessity) on non-military means to exert international power generally follow an approach that emphasizes economic tools and tend to use positive incentives rather than pressure—or ‘carrots’ instead of ‘sticks’. Motivations for taking this particular approach differ widely. In the case of the European Union, for example, the fact 66 Hitoshi Tanaka and Soichiro Tahara, Kokka to Gaikō [The State and Diplomacy] (Tokyo: Kōdansha, 2005).

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that economic integration has proceeded much quicker and gone much further than politico-military integration is an explanatory factor, while Japan’s relative emphasis on economic diplomacy is explained, at least in part, by its formal renunciation of military means for offensive purposes.67 For advocates of free trade and proponents of a strict separation of politics and economics (including many economists, especially in Western countries), economic diplomacy in all its different forms is little more than an undesirable, market-distorting government intervention. According to this view, economic diplomacy benefits the powerful rather than the powerless, is unnecessary (private business and free markets would do), encourages big government and corruption, and may conflict with the promotion of human rights and non-proliferation.68 In various ways, it is argued, economic diplomacy distorts the ‘level playing field’ and can hardly be successful in correcting (perceived) market failures. Indeed, economic diplomacy by definition prioritizes (at times narrow) domestic economic interests and intervenes in markets for political and strategic purposes. This is inevitable if economic resources are employed in pursuit of foreign policy objectives. To balance economic and political objectives is no easy task for any government. Moreover, whether a policy is deemed legitimate or not touches upon practical and normative concerns. Policies that constitute justifiable government intervention (in general or on a specific occasion) for one party can be regarded by others as undesirable protectionism. The ‘Buy American’ clause in the economic recovery package of the first Obama government, the negative response of the Chinese government to calls to allow its currency to appreciate and (large parts of ) the European Common Agricultural Policy are but a few examples of this. The main underpinning of economists’ enquiries into economic diplomacy is the desire to come to an effective cost-benefit analysis from a welfare-theoretic point of view. Insights gained accordingly serve as a guide to the considerations of politicians and government officials who engage in economic diplomacy. Noticing that a priori the market is most efficient without government intervention, it is from this perspective 67 For more on the case of Europe, see for example Orbie, Europe’s Global Role, especially pp. 12–17. For Japan, see Makoto Iokibe (ed), The Diplomatic History of Postwar Japan (New York: Routledge, 2010). 68 For a more detailed discussion of this in the context of commercial diplomacy, see Garten et al., Riding the Tigers, pp. 3–4.

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‘quite understandable that economists are very suspicious about commercial policy and economic diplomacy’.69 After all, government intervention could divert rather than create trade, firms in principle should be able to cope with (international) market pressures on their own, and consumer interests may be armed by intervention. The argument continues that intervention is thus only justified when a market failure exists or when this intervention generates more benefits than costs. However, even to those who adopt this relatively narrow, economic perspective on the conduct of foreign relations, economic diplomacy is not in all ways trade-distorting, since benefits may arise at the macroeconomic level—through the impact of trade on GDP and/or its growth rate—and at the microeconomic level.70 Few scholars, however, limit their analysis of foreign policy to economic factors alone. So while economic diplomacy may constitute unwarranted government intervention from a purely economic perspective, political scientists with a (neo-)realist inclination would be prone to argue that economic diplomacy is, on balance, a necessary evil. From this viewpoint, economic diplomacy is just one of many tools that governments use to strengthen the economic, political and security capacities of their country, in a world dominated by the power struggles of nation-states. Private and other non-governmental actors gain in importance, and compete with and complement the role of the state. The sometimes blurry boundaries between public and private actors of a growing number of (newly developing) countries—with forms of capitalisms that are rather different from most European countries and the United States—has led governments of some industrialized countries to reconsider the relationship between the state and the market.71 The idea that governments may have a growing role in protecting private companies from corporate ­espionage by foreign actors has further contributed to this trend. Moreover, the Asian financial crisis of the late 1990s and the global financial

69 Van Bergeijk, Economic Diplomacy and the Geography of International Trade, p. 70. 70 See, for example, Van Bergeijk, Economic Diplomacy and the Geography of International Trade, pp. 70–71. 71 See, for example, ‘EU-Kommissar Tajani: “Der Schutz unseres Wissens ist unverzichtbar” ’, Handelsblatt (online), 27 December 2011. The World Investment Report 2010 notes that ‘A dichotomy in investment policy trends is emerging. It is characterized by simultaneous moves to further investment liberalization and promotion on the one hand, and to increase investment regulation in pursuit of public policy objectives on the other’; see World Investment Report 2010: Overview (UNCTAD/WIR/2010), p. ix and pp. 18–23, 22 July 2010, available online at www.unctad.org.

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and economic crisis of recent years have shown that even the most liberal governments intervene when supposedly free markets malfunction and threaten to disrupt the social order. Should governments not engage in economic diplomacy at all? This rhetorical question is of little meaning, if it is accepted that governments are ultimately responsible for protecting a balance of national interests and the well-being of their citizens. Cynics might say that a world without economic diplomacy is as desirable and unlikely as a world without war or competition between states and peoples. The more useful way to address the issue may be to accept that economic diplomacy is a reality of the world in which we live, and that understanding of the concept should be enhanced in order to recognize, control and optimize its expressions and outcomes. Discussion on the sometimes conflicting interests of human rights and trade, and the self-serving dimension of economic assistance, for example, are better understood when addressed in the open, instead of negated. Acceptance of economic diplomacy as a tool of foreign policy is not unconditional and raises many pertinent questions. Most would agree that the promotion of national interests to the extent that it undermines international political, economic and financial agreements and institutions is undesirable. Even here, however, differences in ideology, capitalism, and levels of development make for different standards and modes of economic diplomacy.72 Are tariffs and subsidies acceptable to protect weak domestic businesses? Can foreign assistance be used as leverage in competing for business opportunities? Are economic sanctions an acceptable way to influence foreign governments even when they hurt innocent citizens in the target country? Is discrimination of certain (state-owned) foreign investors acceptable—in general or in specific sectors? There are clearly no clear-cut answers to these questions, which involve moral as well as practical considerations. The choices that governments (and different actors within government) make in addressing these questions pro72 This is directly related to how one perceives the legitimacy of existing agreements and institutions. For example, Chang convincingly argues that virtually all of today’s developed countries did not practise free trade when they were developing countries themselves; see Ha-Joon Chang, Kicking Away the Ladder: The “Real” History of Free Trade, FPIF Special Report, December 2003. Mahbubani argues that ‘[t]he iconization of democracy—an unquestionably virtuous idea—became an ideological crusade that insisted democracy could be exported to any society everywhere in the world, regardless of its stage of political development’; see Kishore Mahbubani, The New Asian Hemisphere (New York: PublicAffairs, 2008), p. 6.

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foundly influence the interaction between these actors at the national and international levels. And there can be little doubt that as an increasing number of countries with political and economic systems that are fundamentally different from the West enter the diplomatic stage, differences between countries will become more explicit and conflicts increasingly likely. As an expression of this, references to ‘currency wars’, ‘trade wars’ and ‘economic warfare’ are already increasingly heard.73 Goals and Effectiveness These almost philosophical reflections bring the discussion to another important question, namely whether economic diplomacy is generally successful and provides value for money. An answer to this question requires choices concerning the measurement of success: should success be regarded in economic terms, or in political or even strategic terms? And how can standards be defined for any of these, if incentives are often inexplicit and in most cases involve primary, secondary and tertiary motives?74 Adding to this complexity is the equally important and difficult question of whether to look at immediate effects or at the long(er) term. It is clearly a thorny task to count the measure of success in other than economic terms—and even that is difficult since statistics are often not readily available, and when they do exist they are often not easily comparable between countries. In certain cases—mostly instances of commercial and trade diplomacy—the returns of economic diplomacy can be quantitatively measured. The evaluation of effective or desirable economic diplomacy of economists’ analysis is then derived from costbenefit analysis that is based on financial and material, rather than political, considerations. When economic diplomacy is pursued primarily for strategic reasons, it is even harder to measure effectiveness with statistical data or in ‘dollar terms’. The question that needs to be answered is whether policy has been successful in achieving broad foreign policy goals or transmitting values. If success is regarded in terms of increases in power, an important distinction is that of effects on power in trade (the capacity to defend

73 See, for example, ‘Tensions Rise in Currency Wars’, Financial Times, 9 January 2011; ‘Trade War Looming, Warns Brazil’, Financial Times, 10 January 2011; and ‘China Link Probed in Renault “Economic Warfare” Scandal’, Reuters UK, 7 January 2011. 74 One may, of course, question to what extent measurement is an academic or a practical issue of concern to governments.

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one’s own interests in international commercial negotiations) and power through trade (the ability to employ trade as the backbone of power to influence more broadly).75 A rare example of a policy-maker making this latter consideration explicit is US Trade Representative Robert Zoellick’s statement that the US targets free-trade-agreement partners based on criteria including strategic concerns, seeking ‘cooperation—or better—on foreign policy and security issues’.76 Such ‘linkage politics’ was revived after the terrorist attacks in 2001 as the United States endeavoured to bolster its position in the international system.77 Importantly, however, policies and attempts to influence do not always succeed, while success in using economic techniques is not always due to the economic bases of power.78 Complicating matters further is the tendency of observers to treat the capabilities of states (power resources) as if they were property rather than relational concepts.79 Conclusions Economic diplomacy is a foreign policy practice and strategy that is based on the premise that economic/commercial interests and political interests reinforce one another and should thus be seen in tandem. At stake is a diversity of broad national interests that includes political and strategic as well as economic dimensions. Differentiation is required between policy expressions and between tools and purposes to bring order and meaning to the mass of phenomena that economic diplomacy encom75 S. Meunier and K. Nicolaïdis, ‘The European Union as Trade Power’, in S. Meunier and K. Nicolaïdis, International Relations and the European Union (Princeton NJ: Princeton University Press, 2005). 76 Inside US Trade, ‘Zoellick says FTA candidates must support US foreign policy’, 16 May 2003, p. 7, quoted in Kelton, ‘US Economic Statecraft in Asia’. For another example of how free-trade agreements and political goals may relate, see Emilie M. HafnerBurton, ‘Trading Human Rights: How Preferential Trade Agreements Influence Government Repression’, International Organization, vol. 59, 2005, pp. 593–629. 77 Kelton, ‘US Economic Statecraft in Asia’. 78 Baldwin, Economic Statecraft, pp. 23–24. For example, while levers, policy and weapons are property concepts, leverage, power and war are (the corresponding) relational concepts. 79 That is, statesmen are often described as ‘employing’ or ‘using’ their capabilities as if these were possessions of one state—while in fact policy instruments should be treated as the properties of a single state and thus discussed without implying anything whatsoever about the probable effectiveness of an attempt to influence by employing a particular instrument. These observations remain valid even more than two decades after Baldwin first presented them.

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passes. These distinctions and syntheses have largely remained underexplained, however, in earlier fragmented studies that address one or a few particular element(s) of the whole. Starting from the premise that better understanding of such links is vital to explain the complex processes that economic diplomacy involves, this chapter has proposed a conceptual and an analytical framework to further study in this burgeoning field. The frameworks can be viewed as a menu from which specific hypotheses can be derived and tested in individual cases—as the following chapters will do for the case of Japan. Furthermore, they map out which factors researchers and practitioners ought to consider, and propose how these factors are logically connected within the model. In this way, improved understanding of the whole should facilitate academic and practical discussions of what are the more and less important factors in a particular case or situation. The conceptual framework of economic diplomacy facilitates distinction between diverging strands—and thereby between broad categories of perspectives from which economic diplomacy can be studied. A ‘business end’ and a ‘power-play end’ are distinguished and policy expressions are positioned along two axes, which represent the tools and goals of activities. Certain overlap notwithstanding, policies can thereby be grouped based on a reasonable judgement as to what constitutes the primary goal or basis of a certain expression of economic diplomacy. The different categories also inform the methodology of study and the extent to which a specific expression of economic diplomacy can be qualitatively analysed. Governments pursue economic diplomacy with the aim of promoting overall economic prosperity and political stability. The primary analytical perspective of economic diplomacy is thus foreign policy, which is concerned with (decision-making) processes and the employment of political–economic instruments in international negotiations in specific theatres, and defined by the global, regional and bilateral context. The analytical framework presented in this chapter helps to elucidate these four dimensions and the many linkages among them. To be successful, any government must resolve trade-offs between different economic diplomacy activities in accordance with the balance of national interests. Crucial in this respect are careful management of linkages and continuous investigation of existing and potential economic diplomacy activities. The underlying effort of reflecting on the theory and practice, as well as challenges and opportunities, of economic diplomacy can also be seen

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to contribute to the improved policy response of any government that operates in today’s changing environment of shifting balances in global power. Earlier research has shown that economic diplomacy takes a more prominent place in foreign policy during periods when international society seems to be in flux. Thus, considering the emergence of new centres of economic and political power, and the decline in the relative importance of the transatlantic powers, it is no surprise that economic diplomacy has been gaining in importance in recent years. The newness of the present day lies in the fact that variations in countries’ domestic political cultures, capitalisms and ideologies, as well as levels of development (particularly between the established powers and the challengers), are now bigger than at almost any time in history. We are thus in for a turbulent period, in which criticisms of perceived misuse of economic diplomacy will arise more frequently. The patterns described here support many of the theories that have been developed to explain the links between economics and politics, public and private, and domestic and international occurrences. But they also elucidate many (new) puzzles. Here lies an important task for scholarship: to evaluate and explain policies of the past that may inform the future of economic diplomacy theory and practice. If successful in doing so, economic diplomacy students and practitioners may be able to make a humble contribution to proving history wrong, by emphasizing the feasibility of a peaceful remake of the world order. The remainder of this book aims to do just that, by elucidating the case of Japan and its broader relevance in a world wherein a larger group of Asian countries is strengthening its role and influence in the international system.

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CHAPTER TWO

JAPAN’S ECONOMIC DIPLOMACY ENVIRONMENT AND ESTABLISHMENT Introduction Economic diplomacy has been a characteristic element of Japan’s foreign policy of the post-war period and is a key instrument in Japan’s quest for national security. This emphasis on a strategy that holds that economic/ commercial interests and political interests reinforce one another, and should thus be seen in tandem, contrasts with the traditional approach of transatlantic powers, which attaches relatively greater importance to the military–economic linkage in their quest for influence. As illustrated by the intense debate on whether, when and how Japan will become a ‘normal’ country,1 scholars and practitioners alike have had difficulties in coming to terms with Japan’s exceptional configuration. The 1980s and early 1990s were characterized by (not rarely critical and at times alarmist) accounts of ‘Japan Inc.’ and the distinct nature of Japanese capitalism in comparison to many Western countries.2 As the growth of 1 Normalcy is commonly discussed in the neorealist sense, meaning that a country’s military might is commensurate with its economic might. See, for example, Hiro Katsumata and Mingjiang Li, ‘What is a “Normal” Japan? Implications for Sino-Japanese Relations’, China Brief, Jamestown Foundation, vol. 8, no. 16, 1 August 2008; and Shulong Chu, The Security Challenges in Northeast Asia: A Chinese View (Carlisle, PA: Strategic Studies Institute, November 2007). A ‘normal country’ generally refers to a situation where a government is willing and able to speak out and act on behalf of its national interest, (also) through military means. A fine critique of the idea of Japanese exceptionalism is provided in Linus Hagström, ‘Critiquing the Idea of Japanese Exceptionalism: Japan and the Coordination of North Korea Policy’, European Journal of East Asian Studies, vol. 7, no. 1, 2008, pp. 131–154. 2 Examples include Clyde V. Prestowitz, Trading Places: How We Allowed Japan to Take the Lead (New York: Basic Books, 1988); and Edward Lincoln, ‘The Asian Regional Economy’, in David Shambaugh and Michael Yahuda (eds), International Relations of Asia (Lanham, MD: Rowman & Littlefield, 2008). Balanced academic studies include Kent E. Calder, Strategic Capitalism: Private Business and Public Purpose in Japanese Industrial Finance (Princeton, NJ: Princeton University Press, 1993); and Robert Wade, Governing the Market: Economic Theory and the Role of Government in East Asian Industrialization (Princeton, NJ: Princeton University Press, 1990). Explicating the changes in ‘Japan Inc.’ and the shift from economic triumphalism to pessimism about Japan in the 1990s are Jennifer Amyx and Peter Drysdale (eds), Japanese Governance: Beyond Japan Inc. (London:

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the Japanese economy slowed from the 1990s and Japan’s government became more active in the military field—albeit in a non-combat role— political scientists’ enquiries largely turned to the (alleged) ‘remilitarization’ of Japan.3 The relative shift of attention towards developments in the military– strategic field has resulted in a deficient understanding of shifts in economic–strategic thinking among Japanese elites in recent years. This chapter aims to contribute somewhat to restoring the balance by narrowing the gap between the artificial separation of political–economic and security studies that is still often seen in the literature.4 It does so by applying the analytical framework for the study of economic diplomacy established in chapter one, to the case of Japan. In the comprehensiveness of this approach lies also the novelty of the underlying study, which seeks to make explicit the theoretical and practical links that can be drawn between the fields of IR and the study of diplomacy, IPE, and security studies. The picture that emerges conforms with Weiss’s argument that the Japanese state is not ‘normalizing’ but ‘adapting, dismantling and innovating’.5 Like other East Asian so-called ‘developmental states’, Japan is not converging on a neo-liberal (Anglo-American) norm, but, rather, is in a transformative phase.6 While shifts are discernible in the field of military security, substantial changes are also taking place on the politico–

Routledge-Curzon, 2003); and Christopher Wood, The End of Japan Inc: And How The New Japan Will Look (New York: Simon & Schuster, 1994). 3 See, for example, Michael J. Green, Arming Japan: Defense Production, Alliance Politics, and the Postwar Search for Autonomy (New York: Columbia University Press, 1995); and Glenn D. Hook, Demilitarization and Remilitarization in Contemporary Japan (London: Routledge, 1996). An important exception to the turning away from studies of Japanese industry and industrial policy is Ulrike Schaede, Choose and Focus: Japanese Business Strategies in the 21st Century (Ithaca, NY: Cornell University Press, 2008). 4 Obvious exceptions include Eric Heginbotham and Richard J. Samuels, ‘Mercantile Realism and Japan’s Foreign Policy’, International Security, vol. 22, no. 4, 1998, pp. 171–203; Peter J. Katzenstein and Rudra Sil, ‘Rethinking Asian Security: A Case for Analytical Eclecticism’, in J. J. Suh, Peter J. Katzenstein and Allen Carlson (eds), Rethinking Security in East Asia: Identity, Power and Efficiency (Stanford, CA: Stanford University Press, 2004); and Christopher W. Hughes, Japan’s Security Agenda: Military, Economic, and Environmental Dimensions (Boulder, CO: Lynne Rienner, 2004). 5 Linda Weiss, ‘Developmental States in Transition: Adapting, Dismantling, Innovating, Not “Normalizing” ’, The Pacific Review, vol. 13, no. 1, 2000, pp. 21–55. 6 See also Robert Locke, ‘Japan, Refutation of Neoliberalism’, Post-Autistic Economics Review, issue no. 30, 21 March 2005; and Steven K. Vogel, Japan Remodeled: How Government and Industry Are Reforming Japanese Capitalism (Ithaca, NY: Cornell University Press, 2006), esp. p. 3 and 211.

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japan’s economic diplomacy environment and establishment 55 economic front. Triggered by important developments in Japan’s foreign policy environment and establishment, as well as by the increasing attention that the concept of economic diplomacy has received in recent years, this chapter discusses the main literature of the contemporary period in these fields. It addresses scholarly as well as government publications— focusing on Western, English-language material but also considering Japanese texts. To a lesser extent it also builds on interviews with Japanese counterparts. The first section briefly sketches the historical context of Japan’s economic diplomacy by reviewing the role of economics in Japan’s (post-war) foreign policy. This is followed by a discussion of the four key dimensions of the analytical framework that altogether provide a comprehensive understanding of a country’s economic diplomacy. As elaborated in the previous chapter, these elements are: (1) the international context, which shapes perceptions on how to secure the balance of national interests; (2) theatres, or forums for negotiation, such as international institutions; (3) processes, involving the characteristics of a country’s diplomatic practice as well as international negotiations; and (4) tools, comprising instruments as well as modes of diplomacy. Alliance politics and rivalry in the region—the China factor—recur in the discussion of every element of economic diplomacy, and thereby appear as the main explanatory contextual factors of Japan’s contemporary economic diplomacy. The third section addresses the changing role of the state by looking at domestic actors and institutions and their influence on economic diplomacy thinking and policy-making. It underscores the organizational restructuring of Japan’s economic diplomacy and the reconfiguration of ties between the public and private sectors, generally resulting in closer ties between the two. Economics and Security in Japan’s Diplomacy and Foreign Policy As the defeated power in the Pacific War and latecomer in a system that was largely dominated by the United States and European countries, Japan in the post-war period followed an approach to economic and foreign policy that emphasized—to a greater extent than its Western counterparts—economic tools for political and foreign policy purposes, and political tools for commercial purposes. In the domestic sphere, the term ‘industrial policy’ is used to refer to such active and conscious attempts

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by government to influence specific firms, industries, or sectors.7 In the international context, the concept of economic diplomacy captures the wide range of government attempts to employ, and direct economic and political intercourse. Japan’s activism in this field may be thought of as the foreign policy implication of Gerschenkron’s argument8 that latecomers in the world economy require a centralized approach to industrialization and economic growth. Japan’s approach entailed a move beyond the emphasis on the military–economic linkage that transformed European states into established powers.9 And as is well documented, the Japanese ‘peace constitution’ and security guarantee provided by the United States facilitated and reinforced this tendency. Clearly, the Cold War not only had an impact on Japan’s security policy, but also on its economic diplomacy. The so-called Yoshida Doctrine (Yoshida rosen, Yoshida dokutorin), which was pioneered by Japanese Prime Minister Yoshida Shigeru in the 1950s and by later prime ministers in the 1960s, became symbolic of Japan’s approach and was premised on a focus on economic growth and passivity in global affairs—sometimes referred to as mercantile or economic realism and free-riding.10 The domestic organization of the political economy that facilitated this approach became conceptualized in the notion of the ‘developmental state’, characterized by an interventionist government that guides and supports social–economic development through industrial growth in a capitalist environment.11 More specifically, Japan’s success was said to lie in the government–industry partnership that had resulted in a system with the ‘firm as family

7 George C. Eads and Kozo Yamamura, ‘The Future of Industrial Policy’, in Kozo Yamamura and Yasukichi Yasuba (eds), The Political Economy of Japan—Volume 1: The Domestic Transformation (Stanford, CA: Stanford University Press, 1987), pp. 424–425. 8 Alexander Gerschenkron, Economic Backwardness in Historical Perspective (Cambridge, MA: Harvard University Press, 1962). 9 Tilly argues that the expansion of military force drove the processes of state formation in Europe; see Charles Tilly, Coercion, Capital, and European States, AD 990–1990 (Cambridge, MA: Basil Blackwell, 1990). 10 In this context it is interesting to note that criticism of Tokyo’s industrial policies and so-called mercantilist foreign policy—at its height in the 1980s—lessened in recent years, while similar policies and activities continue, albeit with different focuses. 11 See, for example, Chalmers Johnson, MITI and the Japanese Miracle: The Growth of Industrial Policy, 1925–1975 (Stanford, CA: Stanford University Press, 1982); and M. WooCumings (ed.), The Developmental State (Ithaca, NY: Cornell University Press, 1999). For a useful historical discussion, see Richard Stubbs, ‘What Ever Happened to the East Asian Developmental State? The Unfolding Debate’, The Pacific Review, vol. 22, no. 1, 2009, pp. 1–22.

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japan’s economic diplomacy environment and establishment 57 corporate paternalism’12—a hybrid public–private system, driven preeminently by market-oriented private-sector calculations.13 The implications of this domestic organization for foreign policy practice at large received relatively little attention, however, except in studies on Japan’s industrial networks in South-East Asia.14 The emphasis on economic and diplomatic means rather than on military means to protect Japan’s national security is also ingrained in Japan’s comprehensive security (sōgō anzen hoshō) policy, which was developed in the 1980s. In addition to the military field, this security policy addresses economic and environmental dimensions.15 This conforms with the idea of economic diplomacy involving a ‘business end’ and a ‘power-play end’— as detailed in the previous chapter. In order to secure the balance of national interests, the Japanese government adopted a ‘dual hedge’ strategy, wherein the alliance with the United States served as a hedge against China’s military power and other regional security threats. At the same time, different partners were cultivated, especially in Asia and the Middle East, to hedge against economic dangers—the so-called ‘military shield and mercantile sword’.16 This policy continues to exist although, as this and subsequent chapters will demonstrate, the way in which it is translated into practice has changed in response to game-changing developments in the strategic environment surrounding Japan since the early 1990s. A grand conclusion to the debates on Japan’s foreign policy and diplomacy was sought in the late 2000s by two long-time Japan watchers: Richard Samuels and Kenneth Pyle.17 Samuels argued that change in Japan will be continuative, involving a reformulation rather than abandonment of the Yoshida Doctrine, while Pyle suggested that Japan’s foreign policy will be very different from the grand strategy that Yoshida pioneered. Taken together, these studies mark a new phase in thinking about Japan: after the triumphalist 1980s and ‘Japan passing’ of the 1990s, Japan was

12 Richard J. Samuels, Machiavelli’s Children: Leaders and their Legacies in Italy and Japan (Ithaca, NY: Cornell University Press, 2003). 13 Calder, Strategic Capitalism. 14 For example, Hatch and Yamamura, Asia in Japan’s Embrace; and Rosecrance, The Rise. 15 Hughes, Japan’s Security Agenda. 16 Heginbotham and Samuels, ‘Japan’s Dual Hedge’. 17 Richard J. Samuels, Securing Japan: Tokyo’s Grand Strategy and the Future of East Asia (Ithaca, NY: Cornell University Press, 2007); and Kenneth B. Pyle, Japan Rising: The Resurgence of Japanese Power and Purpose (New York: Public Affairs, 2007).

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now seen to be rising again18—for strategic reasons, rather than in (narrow) economic terms. Improved understanding of happenings in the field of economic diplomacy contributes to this debate, to the extent that an answer is sought to the question of whether we are witnessing a change in Japanese tactics or strategy.19 Samuels’ argument can be related to the underlying subject of Japan’s economic diplomacy in several ways and is therefore worthy of closer scrutiny. He points to the consistency in Japan’s strategy and diplomacy by observing that Japan’s leaders have been persistent rather than ‘reluctant’ realists;20 arguing against the idea that it was pacifist idealism that dominated Japanese grand strategy during the Cold War. ‘Mercantile’ or ‘economic realist’ thinking thus constitutes the strategic vision underpinning Japanese actors’ perceptions about how best to secure Japan’s balance of national interests, which apparently still revolves around alliance politics and, to an increasing extent, the multiple challenges of a rising China.21 Such, rather structural, economic realist thought has been translated into diplomatic practice through economic diplomacy. The Study of Economic Diplomacy in Japan While many theoretical and applied studies exist on the political economy of Japan (including the seminal The Political Economy of Japan, volumes 1–3), study of the more practical/procedural economic diplomacy (keizai gaikō) has been remarkably modest on the part of Japanese scholars, and only slightly less so for foreign observers.22 This may have to do with the fact that the distinction between diplomacy and foreign policy is not commonly made in the Japanese language23—both are regularly referred to as gaikō, while taigai-seisaku (the literal translation of

18 T. J. Pempel and M. Mochizuki et al., ‘Book Review Roundtable: Kenneth Pyle’s “Japan Rising” and Dick Samuels’ “Securing Japan” ’, Asia Policy, vol. 4, 2007, pp. 187–211. 19 This question is explicitly addressed in chapter five on Japan’s new economic ­diplomacy. 20 On the latter, see Michael J. Green, Japan’s Reluctant Realism: Foreign Policy Challenges in an Era of Uncertain Power (New York: Palgrave, 2003[2001]). 21 MOFA, Diplomatic Bluebook; and MOD, Defense of Japan, various years, more explicitly from 2007. 22 This is especially so for studies that make direct reference to the term, but also for studies that may be classified as such based on the definition of economic diplomacy that is used here. 23 Admittedly, such confusion is not confined to the Japanese case; even Kissinger’s seminal book, Diplomacy (1994), largely deals with foreign policy. See Henry A. Kissinger, Diplomacy (New York: Simon & Schuster, 1994).

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japan’s economic diplomacy environment and establishment 59 ‘foreign policy’) is much less used.24 Another part of the explanation may lie in the fact that Japanese IR studies were largely mirrored by scholarship in the United States, and at the same time more closely aligned with the world of practitioners, including politicians and the media.25 The result has been that the study of diplomacy, which originated in Europe in the 1980s, has been receiving relatively little attention from Japanese scholars—notwithstanding obvious exceptions such as Iokibe Makoto and Hosoya Yūichi.26 Even if diplomacy, as such, remains under-studied in Japan, this is not the case for diplomatic history. Also here, however, economic diplomacy is hardly or not explicitly addressed. This includes studies of Japan’s contemporary diplomacy—from the Meiji Restoration of 1868 to now27—as well as for accounts of Japan’s post-war diplomacy/IR.28 Hosoya’s rare conceptual study on diplomacy does note that economic diplomacy and energy diplomacy became more important for Japan in the aftermath of the oil crisis of the early 1970s.29 More concerned with diplomacy and the diplomatic studies’ tradition at large, rather than with Japanese diplomacy, however, Hosoya’s study also makes little additional reference to economic diplomacy. The same goes for two books by Tanaka Hitoshi, a practitioner-turned-scholar, which present further exceptional analysis of diplomacy and address the ‘power of diplomacy’ and strategic negotiations.30 24 Exemplary of this is the more popularly written book by Kiyoshi Sugawa, Gaikōryoku wo kitaeru [Forging Diplomatic Power] (Tokyo: Kōdansha, 2008). 25 Tanaka, ‘Nihon no kokusai-seiji: “sumiwake” wo koete’ [Japan’s International Politics: Beyond Isolation] in Akihiko Tanaka et al. (eds), Nihon no kokusai-seiji-gaku, Dai 1-kan: Gaku to shite no kokusai-seiji (Tokyo: Yuhikaku, 2009), pp. 10 and 12. 26 Iokibe Makoto, who served as adviser on foreign policy to several Japanese prime ministers, uses his experience as a practitioner also in his scholarly reflections on diplomacy and diplomatic history. See, for example, Makoto Iokibe (ed.), The Diplomatic History of Postwar Japan (London: Routledge, 2011) (originally published in Japan by Yuhikaku Publishing, 1999). Keio University professor Hosoya Yūichi spent several years of his student and academic life in the United Kingdom and continental Europe, and brings in the more scholarly approach to diplomatic studies. See, for example, Yūichi Hosoya, Gaikō: tabunmei-jidai no taiwa to kōshō [Diplomacy: The Dialogue and Negotiations across Civilizations] (Tokyo: Yuhikaku, 2007). 27 Akira Irie, Nihon no gaikō: Meiji-ishin kara gendai made [Japan’s Diplomacy: From the Meiji Restoration to Contemporary Times] (Tokyo: Chūkō Shinsho, 2005 [1966]). 28 This includes Yoshihide Soeya, ‘Sengo Nihon gaikō-shi’ [History of Postwar Japanese Diplomacy], in Jong-wong Lee et al. (eds), Nihon no kokusai-seiji-gaku, Dai 4-kan: Rekishi no naka no kokusai-seiji (Tokyo: Yuhikaku, 2009), pp. 209–226. 29 Hosoya, Gaikō, p. 9. 30 Hitoshi Tanaka, Gaikō no chikara [The Power of Diplomacy] (Tokyo: Nihon Keizai Shimbun Shuppansha, 2009) and Purofesshonaru no kōshōryoku [The Logic of Strategic Negotiations] (Tokyo: Kōdansha, 2009).

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Writings by Japanese scholars that are of particular relevance to the study of Japan’s economic diplomacy, then, can be divided into two groups. The bigger set concerns IR/International Political Economy (IPE) studies that address the subject without necessarily referring to ‘economic diplomacy’, while a smaller group concerns studies that do employ the term explicitly. Examples of the former are Kojima, who discusses a new paradigm for diplomacy and the national interest, and Tadokoro.31 With reference to earlier work by Naya Seiji, Tadokoro discusses at length the term ‘economic security’, meaning ‘policies that protect a country’s domestic economy from outside harmful influence.’ He thus slightly narrows the concept from the often-used depiction of economic security as security policy by economic means.32 This is said to overlap to a large extent with ‘normal economic diplomacy policy’, which is not further elaborated upon. The other group of literature includes a limited number of conceptual studies, addressing for example the economic diplomacy of postwar Japan and economic diplomacy management.33 Ishizuka adopts a rather narrow view on economic diplomacy, however, noting that the concept is generally defined as ‘inter-governmental negotiations in the international economy’,34 while the greater part of the analysis focuses on the systemic framework based on the General Agreement on Tariffs and Trade (GATT) of the World Trade Organization (WTO). This second set of literature also involves a limited number of country case studies— including on economic diplomacy between Japan and China35—and practical perspectives.36

31 Akira Kojima, ‘Shinjidai no kokueki no saiteigi to gaikō no shin-paradaimu’ [Redefining the National Interest for a New Era and a New Paradigm for Diplomacy’], Gaikō Forum, January 2003; and Masayuki Tadokoro, Kokusai-seiji-keizai-gaku [International Political Economy] (Nagoya: Nagoya University Press, 2008). 32 Tadokoro, Kokusai-seiji-keizai-gaku, p. 184. 33 Hirofumi Takase, Sengo Nihon no keizai-gaikō: ‘Nihon no imeiji’ no saiteigi to ‘shinyo no kaifuku’ no doryoku [Economic Diplomacy of Postwar Japan: Redefining ‘Japan’s Image’ and Attempting to ‘Restore Trust’] (Tokyo: Shinsansha, 2008); and Tetsuya Ishizuka, Keizai gaikō manejimento [Economic Diplomacy Management] (Kyoto: Kōyōshobō, 2008). 34 Ishizuka, Keizai gaikō, p. 1. 35 See Yoshihide Soeya, Japan’s Economic Diplomacy with China 1945–1978 (London: Oxford University Press, 1998); and Seung-won Suh, Nihon no keizai-gaikō to Chūgoku [Japan’s Economic Diplomacy and China] (Tokyo: Keio University Press, 2004). 36 For example, Toshikazu Inoue, ‘Keizai gaikō no tōtatsuten’ [The Achievements of Economic Diplomacy], Gaikō Forum, May 2005; and Kiyoaki Kikuchi, Keizai gaikō no genba o kataru [Recalling Economic Diplomacy in Action] (Tokyo: Bensei Shuppan, 2003).

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japan’s economic diplomacy environment and establishment 61 Moving to diplomatic practice, it is noticeable that the term ‘economic diplomacy’ has rarely been used in official documents published by the Japanese government, especially from the 1980s. This may be explained by recalling the (then) often-heard criticism of Japan’s so-called ‘mercantile policy’, which apparently prompted Japanese officials to avoid the term so as not to arouse further suspicion. Similarly, the concept is not often employed in policy proposals by think tanks and other research committees. An exception that proves the rule concerns a policy evaluation on the strategic dissemination of global economic diplomacy standards.37 In recent years, the geo-economic take on foreign policy and diplomacy has been gaining ground in the United States and Europe. This has arguably had the effect of reducing Japanese politicians’ and policy-makers’ earlier reluctance to employ the term ‘economic diplomacy’. A desire of the Democratic Party of Japan (DPJ) to distinguish itself from the Liberal Democratic Party (LDP) can be considered as playing a role in this as well. The clearest example of this novel rhetoric is the foreign policy speech of (then) Foreign Minister Maehara Seiji in January 2011, which placed economic diplomacy at the centre of foreign policy. Economic diplomacy was said to comprise four pillars: (1) promoting the free-trade system; (2) securing the long-term and stable supply of resources, energy and food; (3) promotion internationally of infrastructure systems; and (4) the promotion of Japan as a tourism-oriented nation.38 Supplementing these, Japan’s Diplomatic Bluebook of 2011 mentions a fifth pillar of publicizing the ‘Japan brand’.39 Maehara’s speech followed the launch of a task force at the Japanese foreign ministry one month earlier in December 2010, headed by the minister himself, to promote diplomacy with the aim of amplifying Japan’s economic gains. That economic diplomacy was more than just Maehara’s pet project became clear when his successor, Matsumoto Takeaki, also made explicit reference to the concept in his inaugural meeting with the press.40

37 Japan Institute for International Affairs (JIIA), Keizai gaikō ni okeru gurobaru sutandādo no senryakuteki tenkai [Strategic Spread of Global Standards of Economic Diplomacy] (Tokyo: JIIA, 2004). 38 Ministry of Foreign Affairs of Japan (MOFA), ‘Foreign Policy Speech by Minister for Foreign Affairs Seiji Maehara to the 177th Session of the Diet’, 24 January 2011. 39 MOFA, Diplomatic Bluebook, 2011 (Tokyo: MOFA, September 2011), p. 8. 40 MOFA, Press Conference by Minister for Foreign Affairs Takeaki Matsumoto, 9 March 2011.

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Better understanding of the establishment and environment of Japan’s economic diplomacy is sought here through the application of the analytical framework that was introduced in the previous chapter—that is, through a discussion of four key dimensions of economic diplomacy: the international context; tools; theatres; and processes. It should be recalled that the four elements are interrelated and complementary, separate yet interdependent, and can be placed at the three angles, the side and the core of a triangular framework (see chapter one, Figure 2). Taken together, the four analytical dimensions provide a comprehensive—albeit simplified—understanding of Japan’s economic diplomacy environment and establishment. The core characteristics and contemporary changes are summarized in Figure 3. International Context The environment in which (a specific strand of ) economic diplomacy is pursued is understood best through an IR approach to economic diplomacy. Although, as noted earlier, few studies exist on Japan’s economic diplomacy per se, many scholars have illuminated the context that shapes (what is here referred to as) Japan’s economic diplomacy. The famous depiction of Japan as a ‘reactive state’ posited that Japanese foreign economic policy is typified by a complex mixture of strategy, hesitancy and CONTEXT: US-Japan Alliance, China Factor

THEATRES (regions): East Asia; newer: Africa, Latin America, Central and South Asia

BALANCE of NATIONAL INTERESTS: Prosperity

TOOLS: ��nancial and economic leverage; newer: technology, o���cial visits

THEATRES (institutions): United Nations; newer: organizations and agreements in East Asia

Stability

THEATRES (domestic organization): public-private links

PROCESSES: ‘aikidō’; newer: power-play

Figure 3. Four of Economic Diplomacy: The Case of Japan. Source: Dimensions author’s compilation. Source: author’s compilation.

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japan’s economic diplomacy environment and establishment 63 pragmatism.41 Essential characteristics are that the state fails to undertake major independent foreign economic policy initiatives when it has the power and national incentives to do so, and responds to outside pressures for change, albeit erratically, unsystematically, and often incompletely. While the underpinning of this argument focused on economic issues, the theory subsequently came to be used to analyse foreign policy in general. Other well-known characterizations of Japan’s foreign policy mode range from ‘reluctant realism’42 and ‘cautious liberalism’,43 to ‘security multilateralism’44 and ‘active pacifism’.45 Two recurring themes in contextual debates about Japanese policies are the role of the US–Japan alliance and Japan’s activities in the region. These have largely determined Tokyo’s economic diplomacy and can be directly related to the two main determinants of the balance of national interests—stability and prosperity—as the Japanese government considers both the economic and the military benefits of the alliance and of its own regional role. The heated debates involving the relocation of the US Marine Air Station in Futenma, Okinawa—especially from September 2009, in the early days of the DPJ-led government at the time—illustrate that Japan’s interests in this regard have shifted, but that Tokyo struggles to identify the right tactics to deal with the changes. Much of this is directly related to its rapidly evolving relationship with Beijing, which in recent decades has had a great influence on how the trade-off between the economic and security sides of Japan’s partnership with Washington is perceived in Tokyo. The Japan Forum on International Relations dedicated one of its policy recommendations to this cause46 and many scholarly investigations on the subject have been published in 41 Kent E. Calder, ‘Japanese Foreign Economic Policy Formation: Explaining the Reactive State’, World Politics, vol. 40, no. 4, 1988. 42 Green argues that the post-Cold War decade brought about a new realism in Japanese foreign policy, in which the alliance with the United States remains the main pillar and economic tools are the first choice for Japanese policy-makers. See Green, Japan’s Reluctant Realism. 43 Thomas Berger, ‘Japan in Asia: A Hard Case for Soft Power’, Orbis, Fall 2010, pp. 565–582. 44 Peter J. Katzenstein and Nobuo Okawara, ‘Japan and Asian-Pacific Security’, in J.J. Suh, Peter J. Katzenstein and Allen Carlson (eds), Rethinking Security in East Asia: Identity, Power, and Efficiency (Stanford, CA: Stanford University Press, 2004). 45 Japan Forum on International Relations, New World Order of No-War Community and Future of Japan–US Alliance (Policy Recommendations) (Tokyo: Japan Forum on International Relations, 2004). 46 Tomoyuki Kojima et al., The 28th Policy Recommendations on ‘Japan and China in the Changing Asia’ (Tokyo: Japan Forum on International Relations, 2006).

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Japanese and in English.47 A major point of interest that illustrates China’s importance to Japan’s evolving policies, as well as the inter-linkage between economics and security, relates to the Senkaku Islands in the East China Sea (Diaoyutai in Chinese). In better times, the Senkaku issue represents an opportunity for economic cooperation in the Sino-Japanese relationship, while in worse times it has the potential to become a territorial and political flashpoint. In autumn 2010, for example, the two neighbours allowed the territorial dispute to interfere with negotiations towards a treaty over joint gas-fields’ development in the area, the first round of which had started less than two months earlier. The diplomatic row started with Tokyo’s detention of a Chinese fishing boat captain in the islands, who was said to be operating without permission in waters that Japan considers to be its exclusive economic zone. Soon thereafter, China imposed an informal ban on exports of rare-earth minerals to Japan—and, later, to the United States and European countries—thereby causing severe unrest in industrial and government circles in those countries, which heavily depend on exports from China to supply these natural resources.48 Striking about these events was both Beijing’s apparent readiness to use a strategic economic commodity as a political tool,49 as well as Tokyo’s vulnerability and faltering tactics in response to Chinese policies. A subsequent dispute over the islands in autumn 2012 once again illustrated how the issue can negatively impact on both economic and diplomatic relations and stir nationalism in both countries.50 As economic security came to be discussed in China from 1997 onwards, the ‘friendship diplomacy’ framework that had characterized ­Sino-Japanese

47 See, for example, Kent E. Calder, ‘China and Japan’s Simmering Rivalry’, Foreign Affairs, vol. 85, no. 2, 2006, pp. 129–139; and Shin Kawashima, ‘Rekishi no naka no Nit-Chu kankei’ [Japan–China Relations throughout History], Gaikō Forum, July 2005. 48 These minerals are crucial for advanced manufacturing, such as in next-generation vehicles and nuclear plants. 49 Amid rising tensions, Chinese authorities also detained four Japanese employees of a construction company on ambiguous charges of entering a military zone in Hebei Province without authorization and videotaping military targets. To Beijing’s credit, the Chinese government in July 2010 had announced plans to cut rare-earth export quotas for the second half of 2010. 50 Following the nationalization by the Japanese government of three of the five Senkaku islands in September 2012, China cancelled events to commemorate 40 years of diplomatic relations with Japan and downgraded its delegation attending the annual IMF gathering held in Tokyo. On the economic front, many Japanese-affiliated businesses in China suffered material damage inflicted by Chinese protesters and trade and investment dropped. Sales of Japanese automobiles including Toyota, Honda and Nissan were negatively affected for several months.

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japan’s economic diplomacy environment and establishment 65 relations after 1972 ended, and a sense of competitiveness between the two regional powers strengthened. Although the formal rhetoric is still that of engagement, Japan seeks to dilute Chinese power in multilateral frameworks and economic cooperation in the region.51 The driving forces of regional cooperation in East Asia thus involve a complex mix of defensive regionalism, economic interdependence and intra-regional competitive dynamics.52 Accordingly, in order to place itself better in this newly competitive dynamism, Japanese policies shift, slowly but steadily, from an emphasis on the ‘business end’ of economic diplomacy towards more visible power play.53 Another important feature of the context shaping Japanese economic diplomacy that emerges from the literature is energy security. Here, as well, Japan is adjusting its policies in response to the rise of China.54 Concerns over the security of the supply of raw materials not only form the basis of Japan’s comprehensive security, as discussed earlier, but were also one of three triggers for the ‘Green Aid Plan’, which was launched by Japan’s Ministry of International Trade and Industry (MITI, now the Ministry of Economy, Trade and Industry [METI]) in 199155 and of the Eurasian Diplomacy and Silk Road Diplomacy, which was initiated by Prime Minister Hashimoto in the late 1990s. Summing up, the ongoing power shift in the East Asian region— especially China’s strengthening of its economic, political and military capabilities—and the role of the United States therein, plays a fundamental part in Japan’s strategic reorientation. This is not to deny, however, that Tokyo and Washington see regional threats and the tasks before the

51 Christopher W. Hughes, Japan’s Remilitarization (London: Routledge, 2009). The more engaging stance is apparent also in global forums, where Japan has relatively less influence compared with regional institutions. The Japanese government was, for example, publicly supportive of China’s accession to the WTO, stating that it was ‘important in creating a stronger and more universal multilateral trading system, as well as in making China a more constructive partner in the international community’; see MOFA, Diplomatic Bluebook 2000, chapter II, section 2. 52 Naoko Munakata, The Impact of the Rise of China and Regional Economic Integration in Asia: A Japanese Perspective, Statement before the US–China Economic and Security Commission, 4 December 2003. 53 More on this in chapters four and five. 54 Reinhard Drifte, Japan’s Eurasian Diplomacy: Power Politics, Resource Diplomacy or Romanticism (London: Routledge, 2004). 55 Peter C. Evans, ‘Japan’s Green Aid Plan: The Limits of State-led Technology Transfer’, Asian Survey, vol. 39, no. 6, 1999, pp. 825–844.

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US–Japan alliance in increasingly different ways.56 Indeed, ongoing policy shifts illustrate how the Japanese government adjusts to the new reality where the hegemonic presence of the United States will be a more negotiated system that will entail a more pluralistic organization of power and influence.57 Uncertainty and anxiety about the US commitment to the alliance as well as China’s future course are thus drivers of a more powerbased approach to economic diplomacy on the part of Tokyo. Chapter four on the ‘power-play end’ of Japan’s economic diplomacy details this by discussing Japanese policies in the context of the North Korean threat. Theatres What regions has Japan targeted, in which organizations has it employed economic diplomacy most forcefully, and (how) has this focus evolved in the post-war period? These questions are mainly addressed in studies that are concerned with structures and institutions in international relations, often from the IPE field of study. Writing in this field includes studies concerned with one or more strands of economic diplomacy and on the interplay between public and private actors, in specific countries or economic diplomacy expressions. In conformity with findings of the previous paragraph, a review of this literature also suggests that alliance politics and the China factor have been, and continue to be, the chief drivers of continuity and change in Japan’s economic diplomacy. In the early post-war period, Japan’s economic diplomacy activities focused on the East Asian region. Its role has been characterized as that of a ‘network power’,58 in reference to the private–public link between keiretsu networks and the Japanese government. As the (South-)East Asian region developed and the challenge of China’s rising economic, political and military capabilities expanded, the Japanese government broadened its economic diplomacy activities to other regions, including Africa, Latin America, and Central and South Asia. This involved a refocus of development/economic cooperation efforts towards Africa and India—

56 Motoshi Suzuki, ‘The Politics of Coordination and Miscoordination in the Post-Cold War United States–Japan Alliance: From a Japanese Perspective’, International Relations of the Asia-Pacific, vol. 10, no. 3, 2010, pp. 491–514. 57 On the changing US hegemony and role in East Asia and the interaction between subsystems of economics and security therein, see John G. Ikenberry and Takashi ­Inoguchi, ‘Introduction’, International Relations of the Asia-Pacific, vol. 10, no. 3, 2010, pp. 383–388. 58 Peter J. Katzenstein and Takashi Shiriashi, Network Power: Japan and Asia (Ithaca, NY: Cornell University Press, 1997).

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japan’s economic diplomacy environment and establishment 67 regions where competition with China about political influence and energy resources is fierce. The Japanese government is also reaching out with official development aid (ODA) and economic cooperation projects to countries such as Bolivia, Chile and Kazakhstan, which are growing in strategic importance because of their role as suppliers of the rare minerals that are required for Japan’s high-technology sectors. Turning to international institutions, the Japanese government traditionally invested heavily in cooperation with the United Nations, mainly through financial contributions. This is institutionalized as the second of its three foreign policy pillars, mentioned almost every year in MOFA’s annual Diplomatic Bluebook since 1957: international cooperation. Within the institution of the United Nations, however, the Japanese government has been relatively unwilling to follow the negative economic diplomacy of sanctions, commonly initiated by Western countries. Japan’s relationships with the World Bank and the International Monetary Fund (IMF) have also been somewhat ambiguous. In an attempt to garner support for the Asian growth model, the Japanese government in the early 1990s sponsored a study that highlighted the successes of this approach.59 It failed to gain real recognition, however. Similarly, amid the Asian countries’ frustration with the ‘one-size-fits-all-approach’ of the IMF during the Asian financial crisis (AFC) of 1997–1998, Japan suggested the creation of an Asian Monetary Fund—which failed because of opposition from the United States and China. The Japanese government thereafter took the lead in the Asian Development Bank and the Chiang Mai Initiative, but is slowly but steadily losing ground to China in these forums. The conclusion that Japanese economic diplomacy has been relatively more targeted at—and successful in—bilateral relationships, rather than in the multilateral setting,60 is thus hardly surprising.

59 World Bank, The East Asian Miracle: Economic Growth and Public Policy (New York: Oxford University Press, 1993). For a critical review, see Albert E. Fishlow et al., Miracle or Design? Lessons from the East Asian Experience (Washington, DC: Overseas Development Council, 1994). 60 See, for example, Akiko Fukushima, ‘The Uses of Institutions: The United Nations for Legitimacy’, in John G. Ikenberry and Takashi Inoguchi (eds), The Uses of Institutions: The US, Japan and Governance in East Asia (New York: Palgrave Macmillan, 2007), pp. 153–186.

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Processes The third key element of economic diplomacy concerns the ways and motivations of agents who practise economic diplomacy—that is, the relationships themselves. These processes that shape economic diplomacy are addressed in most detail in studies on how negotiations proceed in different modes and environments (such as in summits, and bilateral, regional and multilateral institutions), which tactics are used towards what strategic ends, as well as the motivations and the interests of the actors involved. The picture that emerges from the literature is that the processes of Japan’s economic diplomacy have changed only in so far as the government sees a direct need to do so in light of its core concerns—again, alliance politics and a strengthening role of China in the region and on the world stage. Characterizations of Japan’s ways of going about foreign policy point to a ‘hybrid approach’, with one study addressing multilateral assistance and finding a mix of proactivism, acquiescent activism, defensive activism, and anticipatory activism.61 Other scholars posit that Japan’s international relations can be compared with the practice of aikidō (‘the way of harmony’), because of its emphasis on economic matters, most importantly a preference for using economic statecraft positively rather than military statecraft negatively.62 Yet another study argues that Japan pursues its interests within the given room for manoeuvring, determined by both the global system and domestic factors.63 Japan is said to be responsive to US pressure, but the responsiveness is a result of choice rather than Japan’s inability to act. The key question is, of course, which of these characterizations most adequately captures Japanese (economic) diplomacy. Here, it is useful to distinguish different periods in Japanese foreign policy. The main trigger for change in Japan’s economic diplomacy came with the start of economic reform in China in the late 1980s, followed by the dramatic 61 Dennis T. Yasutomo, The New Multilateralism in Japan’s Foreign Policy (New York: St Martin’s Press, 1995). 62 Glenn D. Hook, Julie Gilson, Christopher W. Hughes and Hugo Dobson, ‘Japan and the East Asian Financial Crisis: Patterns, Motivations and Instrumentalization of Japanese Regional Economic Diplomacy’, European Journal of East Asian Studies, vol. 1, no. 2, 2002, pp. 177–197. If this characterization was apt before, chapter four on Japan’s relations with North Korea suggests that it has evolved to include also the use of economic diplomacy in a negative way. 63 Akitoshi Miyashita and Yōichirō Sato, Japanese Foreign Policy in Asia and the Pacific: Domestic Interests, American Pressure and Regional Integration (New York: Palgrave, 2001).

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japan’s economic diplomacy environment and establishment 69 experience of the Gulf War of the early 1990s. These events ended Tokyo’s emphasis on so-called ‘chequebook diplomacy’, in reference to Japan’s provision of cash but failure to contribute manpower to international peacekeeping and military operations.64 Realizing the limits of its (publicly) passive diplomatic stance and in response to foreign criticism of this one-sided approach, the Japanese government slowly changed course since the mid-1990s. As the following chapters will show, this involves a refocus of commercial diplomacy and economic cooperation policies, and an increasingly more outspoken element of ‘power-play’ on Tokyo’s part. Tools While analysis of the context, theatres and processes elucidates the ways by which Japanese actors try to optimize economic diplomacy, it says little about the variety and efficacy of the instruments that are used. Such a focus on the tools of economic diplomacy is regularly found in the work of (political) economists. In the case of Japan, detailed studies of economic diplomacy tools—even if often not characterized as such by the author—have focused on development/economic cooperation, negotiations towards trade agreements, sanctions, trade and investment promotion and business advocacy, summitry, and regional financial cooperation. These instruments were pragmatically linked when politico-strategic goals could largely be subordinated to economic/commercial objectives (as was the case until the early 1990s), making for a sophisticated and comprehensive economic diplomacy policy of the Japanese government in cooperation with the business sector. Each of these tools will be discussed below. In the months leading up to the Pacific War, Japan had experienced the inter-linkage of various economic diplomacy tools and the power of these instruments in international relations in the most destructive way possible. As noted by Miller, the financial sanctions that were imposed by the United States against Japan in July 1941 (indirectly) triggered Japan’s attack on Pearl Harbor.65 The security guarantee that was provided to 64 See, for example, Courtney Purrington and ‘A.K’., ‘Tokyo’s Policy Responses during the Gulf Crisis’, Asian Survey, vol. 31, no. 4, 1991, pp. 307–323. Although Japan had contributed US$ 13 billion in cash to the Second Gulf War, it was not mentioned in a full-page advertisement taken out by the Kuwait government in the Washington Post, thanking all of the countries that had helped to liberate it. 65 Edward S. Miller, Bankrupting the Enemy: The US Financial Siege of Japan Before Pearl Harbor (Annapolis, MD: Naval Institute Press, 2007).

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Japan by the United States from the 1950s facilitated a positive approach to Japanese economic diplomacy. ODA came to be used as a tool to improve relations with the East Asian region—also serving as compensation for wrongdoings during the Pacific War and the colonial period— in accordance with Japanese business interests. Following the 1985 Plaza Accord, ODA was used for restructuring Japanese industry.66 Later, as (South-)East Asian countries developed, the Japanese government placed growing emphasis on the environment67—again fundamentally altering this strand of Japan’s economic diplomacy. In full force from the 1990s, the new strategy increasingly comprises a joint economic cooperation effort by the Japanese government and the private sector involving ‘green’ energy and environmental technology.68 Japan’s economic diplomacy in the field of trade has been mixed at best. A study on free-trade agreements and (official development) assistance points to a remarkable degree of policy activism in the employment of these economic diplomacy tools.69 This activism is said to be representative of Japan’s attempt to respond strategically to common challenges—the domestic economic recession and international pressure for policy convergence and competition with China—although in both areas, domestic politics have interfered with the Japanese government’s attempts to embark on policy changes. At the same time, however, the government is criticized for being slow in forging free-trade agreements (FTAs, or Economic Partnership Agreements, as the Japanese prefer to call them). Japan is also said to be a mere follower to China’s lead, rather than having a proactive strategy of its own. As a sign of impending change in Japan’s trade diplomacy, voices for an East Asian-wide FTA have been growing in recent years, attuned to domestic structural and economic reform.70 Attempts are being made to overcome the resistance 66 Marie Söderberg (ed.), The Business of Japanese Foreign Aid: Five Case Studies from Asia (London and New York: Routledge 1996), p. 72. 67 Elizabeth Wishnick, ‘Competition and Cooperative Practices in Sino–Japanese Energy and Environmental Relations: Towards an Energy Security “Risk Community”?’, The Pacific Review, vol. 22, no. 4, 2009, p. 415. 68 Chapter three elaborates on this in great detail. See also MOFA,  Japan’s New Approach for Accelerating Public Private Partnership, presentation by Shigeru Ushio, 14 December 2010, http://www.mofa.go.jp/region/asia-paci/mekong/fppp1012/pdfs/usio.pdf. 69 Mireya Solís and Shujirō Urata, ‘Japan’s New Foreign Economic Policy: A Shift Towards a Strategic and Activist Model?’, Asian Economic Policy, vol. 2, no. 2, 2007, pp. 227–245. 70 See, for example, Kenichi Takayasu, ‘Tai-Ajia keizai gaikō seisaku no sai-kōchiku wo isoge’ [Make Haste with the Reconfiguration of the Policy on Economic Diplomacy in East Asia], Japan Research Review, December 2003.

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japan’s economic diplomacy environment and establishment 71 of the strong agricultural lobby to reform this highly inefficient sector and thereby to open new possibilities for more far-reaching trade agreements that are needed in the strategic rivalry with China for influence in the region.71 In the financial field, Japanese policies appear to move in the opposite direction—that is, from activism to an impasse. Japan’s supportive policy towards the US dollar shifted in the late 1990s as the Japanese government began to address the region’s heavy dependence on the dollar, which was regarded as one of the causes of the 1997 AFC.72 As mentioned earlier, Tokyo also took the lead—albeit belatedly—in initiatives towards regional monetary cooperation in the aftermath of the AFC, by proposing an Asian Monetary Fund, and regional monetary cooperation grew steadily with the rise of bilateral currency swaps, which were multilateralized in the Chiang Mai Initiative in 2010. As illustrated by the dispute over who could be the biggest contributor to the fund, however, by that time China was posing a clear challenge to Japan’s lead in this field.73 The instruments of trade and investment promotion and business advocacy—that is, comprehensive cooperative efforts by the Japanese government and private sector to sell technologies in which businesses have a strong competitive advantage—have long been defining elements of Japan’s economic diplomacy activities at large. Indeed, Porter noted many years ago that there is a unique ability in Japan for the determinants of national advantage in an industry to function as a system.74 This is facilitated by the integrated structure of (semi-)government organizations and institutions involved in Japan’s economic diplomacy. But Japan’s commercial diplomacy—as this strand of economic diplomacy is also called— is not without its critics: foreign scholars have noted that, while on the surface enviable (well-funded, broad support, many programmes), there is evidence of waste, inefficiency and duplication. Partly for this reason, the cooperative effort has come under increasing scrutiny (also domestically), and reforms seeking to decrease the role and influence of the Japanese ministries over the agencies have been implemented in the 2000s. This restructuring has been far from unidirectional, however.75 71 More on this in chapter five on Japan’s new economic diplomacy. 72 Saori N. Katada, ‘From a Supporter to a Challenger? Japan’s Currency Leadership in Dollar-denominated East Asia’, Review of International Political Economy, vol. 15, no. 3, 2008, pp. 399–417. 73 This is elaborated upon in chapter five. 74 Michael E. Porter, The Competitive Advantage of Nations (London: Palgrave, 1998 [1990]). 75 For more on this, see the following section.

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A relatively new instrument (or, better, mode) in Japan’s economic diplomacy toolkit concerns summitry and business representatives joining high-level politicians on official visits abroad. Perhaps surprisingly, this practice has been more common in Western countries than in the East, with Japanese bureaucrats expressing hesitancy to embark on such efforts because of ‘the need to separate the public and private spheres’.76 Amid intensifying competition—not least from South Korea and China— Japan is now following the Western example. DPJ heavyweight Maehara, for example, visited the United States and Vietnam for railway pitches. In Hanoi in May 2010, together with (then) National Policy Minister Sengoku Yoshito, Maehara tried to secure package deals by linking pitches for railroad and nuclear projects, and offering economic assistance and cooperation.77 Changing Role of the State Developments within the four economic diplomacy dimensions show that Japan’s economic diplomacy has been in constant flux and been moving in different directions, especially since the early 1990s. A closer look at the (evolving) role of the state enhances our understanding of these complex dynamics and the ways in which the analytical lenses interrelate. After all, and notwithstanding the fact that the definition of economic diplomacy adopted here regards the state as the primary—although not as an undifferentiated unitary—actor, many other players have a say in the making of foreign and economic policy. Actors Economic diplomacy is framed and undertaken by a variety of actors, including domestic politicians, the private sector, and other interest groups.78 As discussed earlier, Putnam’s two-level game theory79 facilitates insight into how the government negotiates with other governments—bargaining for (tentative) agreements on a range of economic issues, such as trade 76 Author’s interviews with MOFA and METI officials, June 2010 and April 2011. 77 This is addressed in detail in chapter three on Japan’s ‘green’ economic diplomacy. 78 Stephen Woolcock, ‘State and Non-state Actors’, in Nicholas Bayne and Stephen Woolcock, The New Economic Diplomacy: Decision-Making and Negotiation in International Economic Relations (Hampshire: Ashgate, 2007 [2003]). 79 Robert D. Putnam, ‘Diplomacy and Domestic Politics: The Logic of Two-level Games’, International Organization, vol. 42, no. 3, 1988, pp. 427–460.

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japan’s economic diplomacy environment and establishment 73 and monetary agreements and development assistance—while at the same time discussing with various domestic interest groups in attempts to persuade them to ratify or support these (tentative) agreements. In this context, the insights of constructivism provide a newer set of intellectual tools that seem particularly well suited to the long-standing focus of Japanese foreign and economic policy studies on the interaction between foreign pressure (gaiatsu) and domestic resistance and accommodation.80 While it is often said that greater (international) economic interdependence creates an incentive for active foreign policy engagement domestically, a study addressing the fields of trade and finance found that this is not so in the case of Japan.81 Rather, the rationale for mobilization and lobbying capacity are marked as essential elements in understanding the domestic demand for significant foreign policy departures. At the same time, however, it has been argued that, since the late 1990s, particularistic spending (on roads, bridges, agricultural projects, etc.) steadily lost ground to more programmatic outlays on social welfare, science and technology, and public order.82 The Hashimoto government of 1996–1998 initiated this shift, while Prime Minister Koizumi Jun’ichirō steadily implemented it. Importantly, these domestic reforms also facilitated adjustments in Japan’s economic diplomacy, including a shift towards broader trade agreements against the background of a weakening agricultural lobby. Organization and Institutions Steering and controlling the many organizations and public–private partnerships that form, influence and cooperate with the state is a substantial challenge of modern governance. This goes for Japan’s economic ­diplomacy as well, in which a diverse group of (semi-)government organizations and institutions is involved. Rivalry and turf battles between organizations exacerbate their differences. This is clearly seen in trade negotiations, where representatives from MOFA, METI and the Ministry of Agriculture, Forestry and Fisheries (MAFF) openly clash when ­representing Japan in

80 Yōichirō Sato and Keiko Hirata (eds), Norms, Interests and Power in Japanese Foreign Policy (New York: Palgrave Macmillan, 2008). 81 Saori N. Katada and Mireya Solis, ‘Domestic Sources of Japanese Foreign Policy Activism: Loss Avoidance and Demand Coherence’, International Relations of the AsiaPacific, vol. 10, no. 1, 2010, pp. 129–157. 82 Gregory Noble, ‘The Decline of Particularism in Japanese Politics’, Journal of East Asian Studies, vol. 10, 2010, pp. 239–273.

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negotiations with other countries.83 With the reforms in the 2000s that sought to strengthen the administrative leadership of Japan’s Cabinet and Prime Minister, the Cabinet Office became another player vying for influence over Japan’s economic diplomacy strategy and activities.84 The institutional structure of the (semi-)government organizations involved in the tools that have traditionally dominated in Japan’s economic diplomacy—trade and investment promotion and development assistance—provides useful insights into the policy-making and execution of Tokyo’s economic diplomacy. Primary responsibility to develop ODA policy lies with MOFA, while bilateral assistance is implemented by the New Japan International Cooperation Agency (New JICA, which was established in 2008; its predecessor JICA—responsible for technical cooperation—was established in 1974).85 Complementing the efforts of this independent administrative agency are more than a dozen government bodies with responsibility for administering aid.86 Policy-making and policy execution of Japan’s trade and investment promotion activities are organized in a similar fashion: primary responsibility for policymaking lies with METI, and implementation is undertaken by the Japan External Trade Organization (JETRO), which was established in 1958 with 72 overseas offices in 55 countries. JETRO’s original focus on exports was complemented by outgoing investment promotion and, especially in the mid-2000s, promoting foreign direct investment in Japan.87 More recently, however, a focus on outgoing trade and investment has returned. The Institute for Development Economics (IDE–JETRO, a research institution affiliated with JETRO) provides vital support by disseminating specialized, locally grounded information on markets and political developments in (developing) countries.

83 Interview with Professor Urata Shujirō, Tokyo, June 2010. 84 For more details, see, for example, Tomohito Shinoda, Koizumi Diplomacy: Japan’s Kantei Approach to Foreign and Defense Affairs (Seattle, WA: University of Washington Press, 2007). 85 Although the agency is now officially called ‘New JICA’, it is still commonly referred to as JICA—even on the agency’s own website. For this reason, the (old) name ‘JICA’ shall be used throughout this book. 86 Peter Dauvergne, ‘The Rise of an Environmental Superpower? Evaluating Japanese Environmental Aid to Southeast Asia’, in Syed Yaved Maswood (ed.), Japan and East Asian Regionalism (London: Routledge, 2001), p. 6. 87 See also Masako Suginohara, ‘The Politics of Economic Nationalism in Japan: Backlash against Inward Foreign Direct Investment?’, Asian Survey, vol. 48, no. 5, pp. 839–859.

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JETRO: trade and investment

Japanese EMBASSIES

JBIC: monetary facilitator

NEXI

JICA: technical cooperation, infrastructure

NEDO

**JETRO: the Japan External Trade Organization **JBIC: the Japan Bank for International Cooperation **JICA: the Japan International Cooperation Agency **NEXI: the Nippon Export and Investment Insurance **NEDO: the New Energy and Industrial Technology Development Organization

Figure 4. The ‘3 or 4 Js Pyramid’ and Other Specialized Agencies Involved in Japan’s Economic Diplomacy. Source: author’s interviews with (semi)government officials.

The Japan Bank for International Cooperation (JBIC, formerly the Export– Import Bank of Japan) complements this public–private effort, providing financial schemes for various ODA and commercial projects. JICA, JETRO and JBIC thereby form the core of a network that is referred to as the ‘3 or 4 Js’—of which Japanese embassies abroad are also part.88 This is illustrated in Figure 4. JICA aims to facilitate development and JETRO acts on the side—helping Japanese private business to take opportunities to create new markets.89 Government efforts are thus supplemented by private activities, and the two are to reinforce one another. In recent years, efforts have been made towards enhanced cooperation abroad among the various organizations involved. Other administrative agencies involved in Japan’s economic diplomacy include METI’s Nippon Export and Investment Insurance (NEXI), which covers losses incurred from political risks as well as commercial risks, and the New Energy and Industrial Technology Development Organization

88 In August 2010 (then) Foreign Minister Okada Katsuya even proposed enhancing the role of the embassies by ‘bundling in’ JICA, JBIC and JETRO with other embassy functions. Joel Rathus, ‘Japan’s Foreign Ministry Reforms: Shifting Priorities?’, East Asia Forum, 4 September 2010. 89 Interview with Hiroshi Kobayashi, JETRO, 4 February 2010.

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(NEDO). One of METI’s biggest administrative agencies, NEDO undertakes the promotion of environmentally friendly and energy technology. This technological base strengthens the domestic private sector, and is subsequently the object and subject of Japan’s economic diplomacy. It should come as no surprise that perspectives on the desirable direction of economic diplomacy vary among institutions. Generally, MOFA is seen to be the most Washington-focused ministry, with METI next in line—making for relatively progressive views on economic diplomacy policies. The Ministry of Finance (MOF) is seen as the most East Asia-focused, followed by the Bank of Japan. These differences are also reflected in regional organizations wherein the various institutions represent Japan, such as the Asia-Pacific-oriented Asia-Pacific Economic Forum (APEC) and the East Asia Summit, versus the Asians-only ASEAN plus Three (APT).90 Finally, thematic expertise and activism on specific economic diplomacy issues lies primarily with the line ministries. The Ministry of the Environment (MOE) and the Ministry of Land, Infrastructure, Transport and Tourism (MLIT), for example, play substantial roles in the ‘business end’ of Japan’s economic diplomacy, while Japan’s Ministry of Defense is more closely involved in the ‘power-play end’. Returning to trade and investment promotion, generic efforts are complemented by the activities of specialized trade-supporting offices, established within various ministries to help companies win infrastructure and other construction contracts abroad. In 2009 such offices were created at METI and MLIT to assist the high-speed railway, water business and nuclear power industries. Furthermore, offices to promote the sale of infrastructure abroad were created at MOFA and the Cabinet Office in late 2010, while a Plant and Infrastructure Business Support Division was established at JETRO to work for and with METI’s promotion and strategy offices, which are active in various ‘green’ sectors.91 These developments are (re)shaping Japan’s economic diplomacy in the fields of ODA, trade and investment promotion, energy security and summitry. Private sector and non-profit entities also have a role to play in the formulation and execution of Japan’s economic diplomacy. Business is most strongly represented by Nippon Keidanren, Japan’s largest business 90 The Association of South-East Asian Nations (ASEAN), plus China, Japan and South Korea. See Malcolm Cook, ‘At the Pointy End of the Triangle’, Japanese Studies, vol. 29, no. 3, 2009, pp. 433–442. 91 See websites of the various government agencies, as well as the author’s interviews with officials.

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japan’s economic diplomacy environment and establishment 77 federation, which emerged in 2002 with the amalgamation of Keidanren and Nikkeiren. Nippon Keidanren plays a profound role in the formation of Japan’s economic diplomacy, through its frequent policy advice and direct links with politicians. While it has traditionally had strong links with the LDP and relations with the DPJ were characterized by mutual distrust in the early days of the new government, the two developed good working relations more recently. Next to Keidanren, many smaller, sectoral lobby groups try to exert influence over the government’s economic diplomacy. Illustrative of the ‘environmental momentum’ is the corporate network Japan Climate Leaders’ Partnership. Established in 2009, this group aims to realize sustainable low-carbon society from a business perspective. Non-governmental interest groups are also playing an increasing role in certain economic diplomacy activities. Active at the ‘business end’ of Japan’s economic diplomacy, for example, is the Innovation Network Corporation of Japan. Launched in 2009, this fund—in which the Japanese government holds a stake of nearly 90 per cent—aims to revitalize the economy, to promote research and development by providing risk money, and to rejuvenate industries. At the ‘power-play end’, the Association of Families of Victims Kidnapped by North Korea (Kazokukai) successfully kept the abduction by Pyongyang of Japanese nationals prominent in the media’s and public’s mind,92 thereby contributing to Japan’s negative economic diplomacy towards North Korea. Kan–min Relationships The close and sometimes untransparent links between Japanese government and business (kan–min) have been the subject of much debate since the 1980s, as foreign countries grew increasingly critical of Japan’s ‘mercantilist practices’. The large-scale administrative reform effort that was initiated in the early 2000s by Koizumi can be interpreted as partly addressing this criticism. JICA, JETRO and NEDO were among a group of organizations that were transformed from ‘special administrative agencies’ (tokushu-gyōsei-hōjin) into ‘independent administrative agencies’ (dokuritsu-gyōsei-hōjin). Whether the reforms successfully decreased the role and influence of the ministry over the agency is questionable, however. Actual changes have reportedly been minimal, even if the ministry’s 92 James L. Schoff, Political Fences and Bad Neighbors: North Korean Policy-Making in Japan and Implications for the United States (Cambridge, MA: Institute for Foreign Policy Analysis, 2006).

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formal approval is no longer needed for every decision.93 While the DPJ during its time in power from September 2009 until December 2012 attempted to restructure and reduce further the number of administrative agencies for research development, its efforts to reduce the bureaucracy were by no means unequivocal. This is illustrated, among other things, by the establishment in August 2010 of a METI panel, involving the public and private sectors, to study ways to gain infrastructure-related business orders abroad. At least in part, the overhaul thus appears to involve an altering of formal appearances rather than the abolishment of the system, and is thereby evidence of the continuing relevance of the ‘economic cooperation’ framework and ‘the attending “holy trinity” (san mi–ittai) of trade, aid and investment’.94 Although regulatory reform and restructuring has entered a new phase in Japan, past experience shows that, even as Japan introduces rules that appear more similar or even identical to those in the United States and Europe, ‘interpretation and implementation will differ [. . .] as a result of different heritage that took many centuries to develop’.95 At the same time, Japan’s ‘permeable isolation represents a step toward convergence with global (or American) economic practices’, meaning that the Japanese government and firms seek to carve out niches of stability for themselves in an increasingly globalized economy, while obeying the rules of international organizations and the discipline of international markets.96 Such adaptation and innovation conforms with the observations above on Japanese economic diplomacy activities, which evolve in different directions. The global economic crisis of the late 2000s, which was seen by many in Japan as exposing the shortcomings of ‘market fundamentalism and financial capitalism’, added a new dimension to these debates.97 In many

93 Author’s interviews with representatives from JICA, JETRO and NEDO, January– February 2010. 94 Christopher B. Johnstone, ‘How Much Bang for the Buck? Japan’s Commercial Diplomacy in Asia’, in Jeffrey Garten, Robert Zoellick and James Shinn (eds), Riding the Tigers: American Commercial Diplomacy in Asia (New York: Council on Foreign Relations, 1998). 95 Kurt W. Radtke, ‘Public Versus Private: Governance in East Asia in the Age of Globalization’, in Alex E. Fernández and Barbara Hogenboom (eds), Big Business and Economic Development (London and New York: Routledge, 2007), p. 34. 96 Schaede and Grimes add that these activities are more likely to contribute to continuing friction with Japan’s main trading and political partners, especially the United States and Europe. See Ulrike Schaede and William Grimes (eds), Japan’s Managed Globalization: Adapting to the Twenty-first Century (London: M.E. Sharpe, 2003), p. 252. 97 Yukio Hatoyama, ‘A New Path for Japan’, New York Times, 26 August 2009.

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japan’s economic diplomacy environment and establishment 79 countries, including Japan, the crisis reinforced the trend towards a return of the state. Japan’s corporate leaders were strengthened in their desire ‘to reject [foreign] pressure from what they see as short-term interests to concentrate on more sustainable returns’.98 Other than from the Lehman Brothers shock, which triggered the global financial crisis and gave a strong rationale for restoring government intervention, the rejuvenation of so-called industrial policy or industry-specific policy in Asia is said to stem from China’s growing influence.99 Ideas about the role of government have been evolving since before the crisis, however. This is particularly prevalent in the ‘green’ environmental and energy business, as will be detailed in the next chapter. To summarize, the links between Japanese big business and government evolved in recent years in response to gaiatsu but, unlike in earlier periods, the pressure is now indirect,100 from a different source, and the shift is in the opposite direction—that is, towards a narrowing of the relationship. The application of foreign pressure was rather straightforward in the 1980s, characterized by intensifying competition and frequent trade disputes between Japan and the United States—with the United States accusing Japan of mercantilist practices. Pressure on Japan is generally more subtle nowadays, with Washington trying to steer its ally towards becoming a ‘normal’ country, against a background of increased ­competition from China for both the United States and Japan. In the field of economic diplomacy the Chinese challenge spurs a reconfiguration of ties between the public and private sectors, generally resulting in closer ties between the two.

98 Yumiko Nishitani, ‘Analysis—Japan Inc.: Back to Basics as US Model Discredited’, Reuters, 16 July 2009. 99 Heizō Takenaka, ‘Speech at the IISS Geo-Economic Strategy Summit’, The Bahrain Global Forum, Manama, 14 May 2010, available online at http://www.iiss.org/conferences/ bahrain-global-forum/speeches/first-plenary-session/first-plenary-session-dr-heizotakenaka/. 100 The role of gaiatsu has been studied extensively, including in the fields of agriculture and official development assistance. On foreign pressure in US–Japan relations, see, for example, Leonard J. Schoppa, ‘Two-level Games and Bargaining Outcomes: Why Gaiatsu Succeeds in Japan in Some Cases but Not Others’, International Organization, vol. 47, no. 3, 1993, pp. 353–386.

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This concise review of the literature and recent developments in Japan’s economic diplomacy shows that Japanese policies are shaped by a large variety of historically grown factors, mutually reinforcing policies, and a range of (new) actors and institutions that are repositioning themselves and their relationship to one another. Two findings that emerge from the review and analysis are that: (1) alliance politics remain an important pillar of Japan’s economic diplomacy; and (2) the challenges posed by a rising China create the biggest adjustments in Japan’s economic diplomacy. Building on this, the proposition presents itself that while Japanese tactics and policies are evolving, Japan’s strategy appears not to have changed accordingly—an issue that is tackled in the following chapters. The analytical framework applied in this chapter, which distinguishes between contextual factors, theatres, processes and tools, unveils many mutually reinforcing trends, while analysis of the main players, as well as the ideational context of Japanese capitalism, provides further insights into Japan’s evolving economic diplomacy practice. The discussion of the most relevant (non-)governmental actors and their interrelationships, shows that—even if a state-centric approach is adopted—an increasingly diverse group of players influences policies in the various economic diplomacy strands. Finally, Japan’s style of capitalism and the resulting relationships between public and private sectors still play an important role in shaping the processes and outcomes of Japan’s economic diplomacy. Japan today is thus hardly conforming to the Anglo-Saxon model. What is more, it is not unlikely that future studies will show that the current trend is actually heading in the opposite direction—with Western countries following Japanese practices by strengthening their economic diplomacy activities and organization.

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CHAPTER THREE

THE ‘BUSINESS END’ OF JAPAN’S ECONOMIC DIPLOMACY: PROMOTING ENVIRONMENTAL AND ENERGY TECHNOLOGY ABROAD Introduction* ♣ The reconfiguration of power and the global challenges of natural resource scarcity and climate change are encouraging governments all over the world to reassess the effectiveness of their domestic and foreign policies. This is also the case for Japan. The Japanese are directly affected by both the relative decline of the United States and the growing economic and political strength of China. Moreover, the country has long grappled with a lack of energy supplies and natural calamities. A concerted government effort to position Japan as a world leader in green, environmentally friendly technology was developed from the late 1980s to tackle these challenges. This involved refocusing industrial policy and revamping Japan’s economic diplomacy strategy, which served both ends of the balance of national interests: economic prosperity and political stability. Considering also the important role played by the private sector, activities in the field of ‘green’ environmental and energy technology represent a useful case to assess continuity and change on the business end of Japan’s economic diplomacy. The questions addressed in this chapter are how and why Japan’s industrial policy efforts were channelled in a way that made the promotion of ‘green’ technologies a defining element of Japan’s economic diplomacy.1 * This chapter is slightly adjusted from ‘Japan’s “Green” Economic Diplomacy: Environmental and Energy Technology and Foreign Relations’, The Pacific Review, vol. 25, no. 3, 2012, pp. 339–364. ♣ The main research for this chapter was undertaken before the triple disaster of earthquake, tsunami and nuclear crisis hit Japan on 11 March 2011. While it is still difficult to gauge the long term impact of these events on Japan’s (green) economic diplomacy, especially in the nuclear field, some observations are made on how the crisis may affect Japan’s ability to accomplish its goals in this arena. 1 Throughout this book, the adjective ‘green’ refers to all mitigation and adaptation strategies for coping with environmental challenges and the (predicted) effects of climate change. It is put between inverted commas since it includes policies and technologies that harm the environmental in certain ways and technologies that are not new. For a

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This practice is by no means singular to Japan; European and Chinese governments have similar policies. Nevertheless, Japan stands out for the extent to which its domestic industrial policy in this field is linked to the political and commercial goals of foreign policy and for the integrated and coordinated way by which efforts are organized. The policies and their successes and failures need to be clearly delineated lest we misunderstand their motives, purposes and new directions. A cost–benefit or moral evaluation of policies is not an aim of this chapter. The goal here is to expose and prioritize multiple ways and purposes by which Japan pursues ‘green’ environmental and energy policies. The conceptual framework established in chapter one is used for this purpose, drawing attention to linkages across issues. After all, while government efforts to position Japan as a world leader in environmentally friendly technology can first of all be regarded as activism on the ‘business-end’ of economic diplomacy, a closer look quickly reveals that such commercial diplomacy cannot be seen separate from other expressions of economic diplomacy, including in the field of development cooperation. At a conceptual level, this chapter thereby contributes to a better understanding of the comprehensive use of economic diplomacy and the perceived balance of national interests, as well as of the continued importance of industrial policy. The findings also inform our understanding of countries’ ‘green’ policies more generally, at both a practical and conceptual level. This chapter consists of three main parts. The first discusses the context and objectives of Japan’s international environmental politics. The second section shows how considerations of climate change and the environment have gained prominence in Japan since the early 1990s, and how these efforts were enhanced with the ‘Cool Earth 50’ proposal and other new initiatives since 2007. The third section presents an industry-specific analysis of recent developments in Japan’s ‘green’ economic diplomacy in the railway, nuclear power generation, water business, and next-generation automobile industries. The chapter concludes with an analysis of how the balance of national interests is perceived and prioritized by Japanese policymakers—that is, with an examination on the relative balance between the commercial and strategic goals of Japan’s ‘green’ economic diplomacy. different view, see Meguri Aoyama, Kankyō Bijinesu no Tāgetto ha Chūgoku, Kyōdai Shijō [The Target of Eco-Business is China, Giant Market] (Tokyo: Nikkan Kōgyō Shimbunsha, 2003). For more on renewables, see Christopher M. Dent, ‘Renewable Energy and East Asia’s New Developmentalism: Towards a Low Carbon Future?’, Pacific Review, vol. 25, no. 5, 2012, pp. 561–587.

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It is argued that the quest for new markets abroad, resource security, and securing cooperative relations with other countries are the main policy drivers—although inevitably, the former two may interfere with the latter by leading to competitive rather than cooperative patterns of relations. Adjustment to the changing balance of power, domestic politics, and climate change challenges also play a role, while ‘hard’ security issues are barely considered. In other words, the importance also of politico-strategic considerations notwithstanding, Japan’s ‘green’ economic diplomacy should primarily be regarded as an example of economic diplomacy practice on the ‘business end’ of the spectre. Economics and Security in Japan As detailed in the previous chapter, economic diplomacy has been an important instrument in Japan’s quest for economic prosperity and national security throughout the post-war period. Japanese policies in this field entered a new phase in 1988, when Prime Minister Takeshita Noboru of the Liberal Democratic Party (LDP) placed climate change high on his political agenda. In full force from the 1990s, Japan’s renewed economic diplomacy strategy increasingly comprised a joint economic cooperation effort by the government and the private sector, involving ‘green’ energy and environmental technology. ODA had been used as a tool for restructuring Japanese industry following the 1985 Plaza Accord,2 and as (South-)East Asian countries developed, environmental and energy technologies became an increasingly important part in assistance efforts. This is not to say that participation in ODA programmes constitutes the bulk of activities for private companies operating in these sectors; the point is that the government’s efforts in the environmental and energy fields have increased, aiming to create a favourable business environment. For example, Tokyo provides (bilateral and multilateral) financial and technical assistance to the Mekong region countries in a wide range of areas, including the environment, climate change, and infrastructure. An upcoming revision of the ODA charter is to institutionalize this development by including as a priority area the promotion of sustainable growth and increasing aid for infrastructure projects that would also contribute

2 Marie Söderberg (ed.), The Business of Japanese Foreign Aid: Five Case Studies from Asia (London and New York: Routledge, 1996), p. 72.

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to spurring Japanese economic growth through technology exports.3 The global economic crisis of the late 2000s, which was seen by many in Japan as exposing the shortcomings of ‘market fundamentalism and financial capitalism’, reinforced this trend.4 Japan’s corporate leaders were strengthened in their desire ‘to reject [foreign] pressure from what they see as short-term interests to concentrate on more sustainable returns’.5 Earlier studies of Japanese ‘green’ policies have pointed to a variety of domestic and international, and commercial and politico-strategic goals. Japan’s ‘green’ assistance to China, for example, is said to be motivated by the direct effect on Japan of pollution that is generated in China, a sense of responsibility for contributing to improving the environment, and a desire to achieve its own obligations of emission reduction by helping other countries to do so.6 Engaging China and finding new markets also played a role. Furthermore, the timing of Japan’s policy change suggests that the shift to ‘green’ was strategically motivated—responding to the regional and global changing balance of power, looming challenges of climate change and resource scarcity, and foreign pressure (mainly from Washington) to enhance its international involvement in a way that was commensurate with its economic power. According to this argument, the Japanese government’s efforts are driven by the potential to strengthen Japan’s international profile and leadership.7 Domestic and foreign energy use is another consideration: environmental and energy assistance to third countries improves energy efficiency, which can reduce pressure in the competition for natural resources. Furthermore, Japanese companies’ success in creating and penetrating foreign markets creates a favourable political environment for importing raw materials. Domestic political and economic factors that played a role in Tokyo’s policy change include Japan’s own pollution control experiences (and its hope to share these with other countries) and a desire to sustain its role as a technology leader and to foster the development of Japan’s own environmental industries.8 3 Ministry of Foreign Affairs of Japan, Enhancing Enlightened National Interest: ODA Review Final Report, June 2010. 4 Yukio Hatoyama, ‘A New Path for Japan’, New York Times, 26 August 2009. 5 Yumiko Nishitani, ‘Analysis—Japan Inc.: Back to Basics as US Model Discredited’, Reuters, 16 July 2009. 6 Reinhard Drifte, ‘The End of Japan’s ODA Yen Loan Programme to China in 2008 and its Repercussions’, Japan Aktuell (Hamburg: GIGA, 2008). 7 Jeff Graham, ‘Japan’s Regional Environmental Leadership’, Asian Studies Review, vol. 28, no. 3, 2004, pp. 294–302. 8 Soyeun Kim, ‘Translating Sustainable Development: The Greening of Japan’s Bilateral International Cooperation’, Global Environmental Politics, vol. 9, no. 2, 2009, pp. 24–51;

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Moreover, an emphasis on environmental protection may enhance the (progressive) image and relative position of government institutions.9 Each of these policy drivers can be placed somewhere along the continuum that is represented in the conceptual framework of economic diplomacy, introduced in chapter one. An assessment of the relative importance of these goals, however, and of whether Japan’s ‘green’ economic diplomacy is primarily concerned with commercial or strategic goals requires an understanding of relevant institutions and specific industries. The discussion now turns to this. Gearing to ‘Green’ As discussed in the previous chapter, cooperative efforts by the Japanese government and private sector to sell technologies in which Japanese businesses have a strong competitive advantage are nothing new. Indeed, trade and investment promotion and development assistance have long been two defining elements of Japan’s economic diplomacy, even if the structures and institutions facilitating this have been scrutinized and reformed since the early 2000s. Indicative of policy evolution in this field, however, is the fact that the three policy-implementation agencies JICA (for bilateral assistance), JETRO (for export promotion) and JBIC (for financing schemes) have focused a significant part of their attentions on ‘green’ initiatives in recent years. In 2009, for example, JBIC unveiled the Leading Investment to Future Environment (LIFE) Initiative to support environmental investments and address long-term goals of the infrastructure sector in Asian and other developing countries. Thematic expertise on environmental issues lies primarily with the Ministry of the Environment (MOE). Due to its small size, short history and the fact that it lacks an implementing agency such as JICA or JETRO, MOE’s influential power is relatively limited. Other administrative agencies involved in Japan’s ‘green’ economic diplomacy include METI’s New Energy and Industrial Technology Development Organization (NEDO) and Nippon Export and Investment Insurance (NEXI). While NEXI and Shouchuan (Jusen) Asuka-Zhang, ‘Transfer of Environmentally Sound Technologies from Japan to China’, Environmental Impact Assessment Review, vol. 19, nos. 5–6, 1999, pp. 553–567. 9 Mark Elder, ‘METI and Industrial Policy in Japan: Change and Continuity’, in Ulrike Schaede and William Grimes (eds),  Japan’s Managed Globalization: Adapting to the Twentyfirst Century (London: M.E. Sharpe, 2003).

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covers losses incurred from political risks as well as commercial risks—for both strategic and commercial reasons—NEDO promotes environmentally friendly and energy technology. Further illustrative of renewed government efforts and the ‘environmental momentum’ are the Innovation Network Corporation of Japan (INCJ) and the corporate network Japan Climate Leaders’ Partnership. Both established in 2009, INCJ oversees a fund that aims to revitalize the economy, to promote research and development (R&D) by providing risk money, and to rejuvenate industries, while the Japan Climate Leaders’ Partnership aims to realize a sustainable low-carbon society from a business perspective. From the late 1980s, this system set out to develop environmental and energy technologies. Importantly, such know-how is not only used domestically, but is also directly transferable to other countries. The strength of Japanese industries may thus serve the private sector’s commercial goals (generating profit by creating and penetrating new markets) as well as the government’s foreign policy goals (adding to political stability by building and maintaining cooperative relations with other countries). Several initiatives were undertaken from the 1990s to spur ‘green’ policies and technology in the domestic and international contexts. In 1992, METI (then MITI) initiated the so-called Green Aid Plan to provide technological and financial support to developing countries in the Asian region for the purpose of environmental protection and energy conservation. Specific activities included the dispatch of environmental experts and low-interest funding for the introduction of environmental technologies appropriate for a particular country. Five years later, in 1997, the Cabinet-level Action Plan for the Reform and Creation of Economic Structure designated fifteen areas of industry for promotion.10 The selected industries fitted well with other government efforts to address important social problems, such as the ageing society and urban life, but most importantly these industries were all thought to have potential for high growth, and to form a base for future employment. Two of the fifteen targeted areas—the environment, and the new energy and energy conservation industries—have shaped Japan’s ‘green’ economic diplomacy. In contrast with some other countries that tended to see environmental protection as harmful to business, Japan in general and METI in

10 Cabinet Office, Government of Japan, Keizai kōzō no henkaku to sōzō no tame no kōdō keikaku: Dai ikkai fuoroappu [Action Plan for the Change and Creation of Economic Structure: First Follow-up], Cabinet Decision, 24 December 1997.

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particular saw opportunities in making environmental protection an important feature of industrial policy. The ‘Okuda Vision’, which was introduced in 2003 by Japan business federation Nippon Keidanren, illustrates this. It called upon the Japanese government to make the worldwide spread of environmental and energy-saving technology of Japanese business a pillar of Japan’s diplomacy and commerce policy. METI soon thereafter introduced its ‘Declaration of Commitment to Development of an EcoOriented Nation’.11 By 2007, total R&D intensity in Japan stood at 3.4 per cent of GDP— not only the highest among G7 countries but also the most specialized in environment patents.12 Tokyo also attaches great importance to environmental technology in its aid policies and is by far the largest donor of climate change-related ODA, providing more than one-third of the total amount spent in this field by members of the OECD Development Assistance Committee between 2005–2007.13 The (semi-)public sector primarily stimulates cooperative efforts, however, and Keidanren—in its policy proposal ‘Achieving Growth through Green Innovation’—lamented that ‘the proportion of government spending in Japan’s overall R&D investment compares unfavorably’ to other countries.14 Cool Earth 50 The link between METI’s industrial policy and economic diplomacy is demarcated in the three-pronged workings of Japan’s Cool Earth initiatives, which are made up of domestic, multilateral and bilateral schemes. ‘Cool Earth 50’ was launched as a Cabinet initiative by (then) Japanese Prime Minister Abe Shinzō in May 2007 as a long-term strategy that aimed to reduce global carbon dioxide emissions by 50 percent by 2050 and to achieve Japan’s Kyoto Protocol target. In order to advance these goals, (then) Prime Minister Fukuda Yasuo in early 2008 introduced the

11 See Aoyama, Kankyō Bijinesu no Tāgetto ha Chūgoku, Kyōdai Shijō. 12 Organization for Economic Cooperation and Development (OECD), OECD Science, Technology and Industry Scoreboard 2009: Japan Highlights, 2009, available online at http:// www.oecd.org/sti/ind/oecdsciencetechnologyandindustryscoreboard2009­japanhighlights .htm. 13 OECD, Aid Targeting the Objective of the United Nations Framework Convention on Climate Change (Paris: OECD, November 2009), available online at http://www.oecd.org/ environment/cc/43574284.pdf. 14 Nippon Keidanren, Achieving Growth through Green Innovation: Proposals for Japan’s New Growth Strategy and Other Initiatives in the Environmental Sector, 16 March 2010.

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‘Cool Earth Promotion Programme’.15 Its domestic pillar, the ‘Cool Earth– Innovative Energy Technology Program’, aims to create a low-carbon economy through the increased use of new energy sources by focusing on 21 innovative energy industries.16 The technological know-how gained through this industrial policy is employed in Japan’s foreign policy: at the bilateral level, Cool Earth partnerships provide aid to developing countries, aiming to achieve both greenhouse gas emissions’ reductions and economic growth.17 At the multilateral level, climate change and the coexistence of the natural environment and humankind became the focus of Japan’s diplomatic efforts at the G8 summit in Hokkaido in July 2008. The chairmanship of the Asia-Pacific Economic Cooperation (APEC) in 2010 was also used to put environmental issues high on the agenda. After the DPJ gained power in September 2009, policies continued along these same lines. The new strategy for economic growth— unveiled in December 2009 under the title ‘Towards a Radiant Japan’ (with slight modifications also incorporated in the DPJ Manifesto of June 2010)—included the aim of becoming an environment and energy power through ‘green innovation’ and public–private cooperation for overseas projects.18 The ‘Hatoyama Initiative’, which was announced that same month, was essentially a continuation of the bilateral pillar of Cool Earth 50, tentatively renamed ‘Fast-Start Financing for Developing Countries up to 2012’ by (then) Prime Minister Kan Naoto.19 Keidanren responded to the ‘green’ policies of the DPJ with a document presenting its ideas on achieving growth through ‘green’ innovation. Outlining the contours of Japan’s ‘green’ economic diplomacy in a nutshell, this proposal emphasized the importance of public–private cooperation in both innovation and sales pitches, the strategic use of various economic diplomacy instruments—trade agreements, ODA and other official flows—and a proactive policy dialogue with developing countries in particular.20

15 Cabinet Office, Government of Japan, Prime Minister Attends the Annual Meeting of the World Economic Forum, 26 January 2008. 16 Ministry of Economy, Trade and Industry of Japan, Cool Earth-Innovative Energy Technology Program, March 2008. 17 Ministry of Foreign Affairs of Japan, Special Address by H.E. Mr Yasuo Fukuda, Prime Minister of Japan, on the Occasion of the Annual Meeting of the World Economic Forum, Congress Centre, Davos, Switzerland, 26 January 2008. 18 Cabinet Office, Government of Japan, Shin-seichō senryaku: Kihon hōshin [New Growth Strategy: Basic Policies], Cabinet Decision, 30 December 2009, pp. 5–6. 19 Author’s interview with MOFA official, Tokyo, 6 July 2010. 20 Keidanren, Achieving Growth through Green Innovation.

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Taken together, these documents—the new growth strategy, Cool Earth 50 (and its successors) and Keidanren’s proposals—illustrate Japan’s intentions in the field of ‘green’ economic diplomacy. They signify a commitment to a domestic industrial strategy in which the public and private sectors collaborate, and to promoting the widespread use of Japan’s advanced technology in other countries. These are not temporary commitments of the DPJ government or of a particular LDP faction, but constitute a consistent effort, the importance of which is recognized across the political spectrum. ‘Green’ Economic Diplomacy in Practice The analysis of Japan’s ‘green’ economic diplomacy in this chapter focuses on a selection of industries that illustrate the Japanese government’s longterm efforts to promote the sales of environment and energy technology abroad. These are the railway, nuclear power generation, next-generation automobile, and water industries. Cases were selected on the basis of their applicability to relations with both emerging and developed countries, and whether they clarify the issues at hand. The former three contribute to the reduction of greenhouse gas emissions and aim to prevent the progression of climate change (mitigation), while water business can facilitate adjustment to the effects of climate change (adaptation). The railway, nuclear power generation and water industries are at the core of the ¥ 10 trillion fund that is to support exporters of infrastructure technology as they bid for contracts abroad.21 These are public works providing public goods. They differ from the next-generation automobile industry, which makes products available for consumers and where local or national governments need not make an initial investment or play an oversight role. Industrial policy is particularly strong in the automobile industry. This is evident from METI’s ‘Cool Earth–Innovative Energy Technology Program’, wherein two of 21 targeted innovative energy technologies deal with next-generation cars.22 Advanced nuclear power generation technology is also prioritized in METI’s programme. Water business technology forms part of several initiatives, but is not adopted as a stand-alone programme in the Cool Earth initiative, while the railway industry is not 21 Leo Lewis, ‘Too Late, Japan Wakes Up to the World’, The Times, 30 April 2010. 22 Ministry of Economy, Trade and Industry of Japan, Cool Earth-Innovative Energy Technology Program, March 2008.

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mentioned at all.23 The emphasis in METI’s programme is indicative of the varying intensity of industrial policies in the different industries. At the same time it illustrates that, while innovation and targeted industrial policy are certainly no requirement of ‘green’ economic diplomacy, the two often go hand in hand. The bilateral and multilateral activities under the ‘Cool Earth’ flag, which form the framework of Japan’s ‘green’ economic diplomacy more broadly, are complemented by industry-specific initiatives. Agencies have been created to strengthen cooperation between Japanese public and private sectors in order to promote the sales of technology in all four industries. The international Nuclear Energy Cooperation Council (kokusai-genshiryoku-kyōryoku-kyōgikai) was created at METI in June 2009, followed in September 2009 by the Office of Global Strategy for Railways Development (tetsudō-kokusai-senryakushitu) at the Ministry of Land, Infrastructure, Transport and Tourism (MLIT), and the Water Business International Infrastructure Promotion Office (mizu-bijinesu-kokusaiinfurashisutemu-suishinshitsu) at METI. Efforts in the next-generation automobile sector resulted in April 2010 in a 42-page strategy document by a METI research group. Several pages of the report are devoted to international issues, involving standardization, tariffs, support for private companies through resource surveys and providing risk money, and ‘securing stable supply of rare metals’ by forming ‘mutually beneficial relationships’ with resource-producing countries.24 International activities by Japanese companies in the nuclear and water industries are of relatively recent origin. Only in the 1990s did the Japanese nuclear industry start to look at export possibilities and international collaboration; companies including Hitachi, Mitsubishi and Toshiba formed alliances internationally or took over major foreign nuclear companies. Three trends were particularly prevalent, the first being the new directions of government policy. The 2006 ‘New National Energy Policy’ aimed to turn Japan into a ‘nuclear state’ (genshiryoku rikkoku), and the proportion of nucleargenerated electricity was to rise steadily to between 30 and 40 per cent

23 The government does, however, facilitate technology development in the railway industry—overseen by the railway strategy office. In fiscal year 2010, about ¥ 950 million was budgeted for this purpose; author’s communication with MLIT official Kamite Kenji, May 2010. 24 Ministry of Economy, Trade and Industry of Japan, Jisedai-jidōsha-senryaku 2010 [Next-Generation Vehicle Strategy 2010], 12 April 2010, esp. pp. 23–24 and pp. 33–35.

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by 203025—a goal that was explicitly posited in the context of climate change policy two years later. The government also set out to increase domestic and international cooperation between public and private actors and academia, and to reorganize the nuclear power industry with the aim of enhancing (international) competitiveness—involving domestic and international acquisitions and alliances, and a push into fuel procurement, operations and maintenance. The nuclear crisis that hit Japan in March 2011 following the earthquake and tsunami dealt a serious blow to these policies. Amid calls for a (worldwide) review of nuclear safety, the narrow links between the various actors involved—particularly METI, the Nuclear and Industrial Safety Commission (NISA) and the nuclear industry—came under severe criticism. Also, popular support for the domestic use of nuclear power dwindled. While vowing a thorough policy review with renewable energy and conservation as new pillars, in May 2011 government officials announced that atomic power will remain part of Japan’s energy policy. At the same time, it appears unlikely that Japan will abandon foreign activism in this field. Like in Japan, developing countries’ economic growth will—at least in the short to medium term— be severely compromised without nuclear power securing (their growing) energy needs and environmental goals. So while the announced freeze or delay of nuclear projects by countries including China, Thailand and the Philippines decreases export opportunities in the short term, the crisis in Japan is unlikely to lead ‘determined’ (developing) countries such as China, Korea and Vietnam to abandon their nuclear programmes altogether. Concerted cooperative efforts by the Japanese private and public sectors in the field of water management came amid growing concerns that domestic water manufacturers lag far behind their overseas counterparts in terms of overall market share. Top-level technologies notwithstanding, Japanese sales disappoint because of domestic organization, wherein local public entities manage the water supply and sewerage in Japan.26 In both the nuclear and water industries, the structure is lacking to provide the lump package of equipment supply, maintenance and management— respectively ‘hard’ and ‘soft’ infrastructure. This situation, together with a lack of price competitiveness, are seen as two major reasons for lost 25 Ministry of Economy, Trade and Industry of Japan, Shin Kokka Enerugī Senryaku [New National Energy Strategy], May 2006. 26 Hiroko Nakata, ‘Japan Water, Solar Tech High, Global Share Low’, Japan Times, 28 November 2009.

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chapter three Economic diplomacy ( foreign policy)

Industrial policy (domestic)

more Nuclear power

High-speed railroad

Water business more

less Next-generation vehicles

less

Figure 5. Government Policy in Four Sectors. Source: compilation by the author.

nuclear power plant bids in the United Arab Emirates against South Korea (December 2009) and in Vietnam against Russia (February 2010). They served as a wake-up call for the sector and stepped up reorganization efforts and government involvement—triggering the creation in September 2010 of a ‘Ministerial Meeting for the Development of Package Infrastructure Overseas’ and of a support office at MOFA the following month. Clearly, active domestic policies in each of the four industries studied here do not necessarily go hand in hand with a proactive government role in foreign affairs, and vice versa. This is schematically illustrated in Figure 5. While the railway, water business and nuclear power industries involve active economic diplomacy policies, mostly in the form of sales promotion and standardization, the government takes no such role in the automobile industry. It does, however, play a supporting role in improving and securing the supply of natural resources that are required for nextgeneration vehicles. Differences between Targeted Countries Japan’s ‘green’ economic diplomacy is pursued with different policies, tools and institutions in developing and developed countries. For example, the construction of a water purification facility in a developing country may be undertaken under the flag of development assistance—with Japanese private companies playing a role in economic or technology cooperation overseen by government. The same activities in an advanced developing or industrialized country qualify not as ODA but as commercial diplomacy;

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they are undertaken under commercial conditions, with no government involvement after a sales deal is agreed. In biddings between industrialized countries, national governments play a limited, facilitating role as private companies sign commercial contracts and through export financing. In relations with developing countries, however, official agreements that are concluded between governments are more directive, and development assistance activities and private-sector business may reinforce one another. As an example of how this works in practice, consider the 10-year plan for promoting strategic partnerships in such areas as trade and investment, infrastructure development, connectivity, human resources development and technology transfers that Japan and the ASEAN countries launched in August 2011. Separately, METI’s Nuclear Energy Cooperation Council, focuses on newcomer countries (such as Vietnam, Jordan and Indonesia), while advanced developing and developed countries (China and India, the United States and the countries of the European Union) are not its primary concern.27 Another example of extensive government involvement in stimulating development is the Japan–India statement, wherein leaders reached the ‘common recognition that meaningful progress in the areas of energy security and the environment should be made through individual and collective efforts’.28 Differences between targeted countries are not just about government involvement and policies, but also about the activities of administrative agencies. JICA plays an important role in countries to which Japan provides assistance, whereas it is not represented in industrialized countries. JICA cannot be directly involved on the ground in all sectors, however: OECD guidelines stipulate that ODA cannot be used for nuclear power. Nevertheless, JICA is a member of the Nuclear Energy Cooperation Council—wherein JBIC and NEXI have observer status. JBIC’s involvement used to depend on the target country (with loans only made available for projects in developing countries), but recent expansion of its right to lend funds for projects in developed countries blurs this distinction. State loans for bids for high-speed train projects in developed countries will assist Japanese companies that hope to benefit from the ­opportunities offered

27 Author’s interview with METI official, Tokyo, 29 June 2010. 28 Ministry of Foreign Affairs of Japan, Joint Statement by Japan and the Republic of India on the Enhancement of the Cooperation on Environmental Protection and Energy Security, 22 August 2007.

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by new infrastructure development, for example in the United States following President Obama’s ‘New Green Deal’ announced in 2009. Last but not least, JETRO is active in both emerging and developed countries. It is particularly strong in developing countries where the other two agencies are also active. In Vietnam, for example, JETRO has a strong position and often acts as the primary actor, while in the United States it is not as strong (because it is less political) and China is ‘somewhere in between’. In India, JICA aims to facilitate development in the Delhi–Mumbai corridor by building infrastructure and railroads, while JETRO helps Japanese private businesses to seize the opportunity to create new markets.29 These examples illustrate how the activities of JICA, JETRO and JBIC can reinforce each another and how the ‘3 or 4 Js pyramid’ (see Figure 4, chapter 2) operates in practice. Policy and institutional differences between targeted countries also stem from variations in objectives, such as mitigation and adaptation efforts. The main dividing line here is between developing and advanced developing countries. In the words of one of the lead actors behind Cool Earth 50, Ambassador Tsuruoka Kōji, Japan looked at what countries it could ‘constructively deal with’ in specific areas. Based on this logic, mitigation measures are addressed through the Clean Development Mechanism (CDM) and by using commercial loans, since ‘these have more effect in the fastest developing economies, where money [alone] is going to have no effect’. Indeed, commercial loans are available in the nuclear and, more recently, in the railroad sectors, while the Japanese government mounted a diplomatic offensive to have nuclear power generation recognized under the CDM. If this was a controversial idea to begin with, running counter to views about nuclear power in many European countries, the recent nuclear fallout in Japan makes it highly unlikely that it can be realized in the foreseeable future. Government involvement in adaptation measures—here, the water business—is more intense and proactive, since these are ‘more serious and more costly’. This helps to explain why water-related ODA projects have grown substantially in the past decade. Japan’s request-based ODA system was even changed so that assistance can be given to countries that ‘basically agree with Japan’s policy’.30

29 Author’s interview with JETRO official Kobayashi Hiroshi, Tokyo, 4 February 2010. 30 Author’s interview with MOFA official Tsuruoka Kōji, Tokyo, 9 July 2010. All quotes in this paragraph are from this source.

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One example of policy practice in and towards advanced developing countries is China.31 Upon the announcement in 2005 that Japan would end loan aid to China, it was said that economic cooperation would enter a new stage that ‘will utilize private sector investment to China, and [wherein] Japan will also continue to extend assistance, mainly for environmental projects and poverty eradication projects in the inland area’.32 The Japanese private sector thereby (indirectly) benefits from government loans—leaving in place much of the ongoing environmental and energy cooperation, even after the ODA ‘loan aid’ label disappeared. Indeed, ‘green economy’ topped the list of five areas discussed under the heading of mutually beneficial cooperation during the Japan–China high-level economic dialogue in 2010. Objectives Initial observations can now be made about the domestic and foreign policy objectives of Japan’s ‘green’ economic diplomacy in the industries reviewed here. The conceptual framework of economic diplomacy introduced in chapter one, which categorizes multiple expressions and policy considerations, is used as a guide. Although Japan’s strategy involves a similar set of objectives in every sector, the relative importance of policy aims—as well as motivations—varies with the opportunities that the particular industry offers to maximize certain benefits. Towards a Strong Economy Government efforts in promoting the sales of the Japanese high-speed railway, nuclear energy and water industries have expanded rapidly in recent years.33 Public–private partnerships, specialized offices, and semigovernment institutions aim to revitalize industries and spur reorganization. The INCJ, for example, provides support for nuclear power business overseas to a newly established company in which several Japanese power 31 See also Elizabeth Wishnick, ‘Competition and Cooperative Practices in Sino-Japanese Energy and Environmental Relations: Towards an Energy Security “Risk Community”?’, The Pacific Review, vol. 22, no. 4, 2009, pp. 401–428. 32 Ministry of Foreign Affairs of Japan, Press Conference, 18 March 2005. 33 See, for example, Ministry of Land, Infrastructure, Transport and Tourism, Minkanrenkei no moto de wa-ga-koku-tetsudō-shistusemu no kaigai hatten wo sekkyoku-teki ni suishin [Actively Promoting Overseas Development of our Railway System Based on PublicPrivate Cooperation], 28 August 2009.

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companies and plant manufacturers cooperate.34 Indeed, intra-industry cooperation is increasing, especially in the water and nuclear industries. While some Japanese commentators and practitioners are critical of the trend towards greater government involvement and question the costeffectiveness of activities, the DPJ seemed intent on strengthening these efforts—referring to the need to revitalize the economy. Whether and how government should support the sales of next-generation vehicles is a different question, however, since buyers are primarily individual consumers. Government incentives for eco-friendly cars have been criticized by foreign auto-makers, and strict norms for emission that have been set by the Hatoyama government may prove to be the preferred stimulus for developing the sector. The comprehensive approach to ‘green’ economic diplomacy, which emphasizes commercial considerations and the development of technological know-how, is also seen in other Asian countries. For example, China follows a ‘three “pillar” strategy of creating market, financing RD&D and building infrastructure’.35 Although it emphasizes wind and solar rather than (other) high-tech industries, the conceptualization and practice of the two neighbours’ environmental and energy economic diplomacy strategies are similar in many respects. Interestingly, while the Chinese government is now criticized for having overly protectionist policies, the Japanese government is off the hook. This cannot be seen separately from broader geo-political developments—that is, the fact that the economic, political and military rise of China now poses the greatest challenge to US global hegemony and Japanese influence in East Asia. Enhancing Japan’s Status In the early 2000s Japan’s ‘international environmental diplomacy’ was said to involve much less political ‘fanfare’ than it did in the early 1990s.36 This is consistent with the slow but steady increase in bilateral environmental, energy and infrastructure projects throughout the past decade. While the Japanese government actively participates in multilateral negotiations towards international environmental treaties, it has not made 34 ‘Nuclear Energy 1: Can Japan Sell Nuclear Power to the Middle East?’, Asahi Shimbun Globe, 21 August 2010. 35 Julian L. Wong, ‘The Challenge of China’s Green Technology Policy and Ohio’s Response’ (written testimony in US Congress Hearing), US–China Economic and Security Review Commission, 14 July 2010. 36 Graham, ‘Japan’s Regional Environmental Leadership’, p. 287.

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such talks its primary focus in addressing climate change. Instead, the emphasis is on local projects and bilateral agreements with foreign governments. International exposure is thus less than optimal if the primary goal is to enhance the country’s international posture and show leadership. Policies such as Cool Earth 50 and the words of MOFA official Tsuruoka, quoted earlier, also portray a picture of a country that wants to assist developing countries through a pragmatic approach and persuasion, instead of by multilateral negotiation and binding agreements. Hatoyama’s public and bold pledge in September 2009 to reduce Japan’s greenhouse gas emissions by 25 per cent by 2020 from its 1990 levels was a rare attempt to appeal to global audiences before a domestic (public– private) consensus was reached. It can also be interpreted as a message to the domestic public that the DPJ government wanted to break with the old LDP system. This approach is more commonly practised by European governments, which emphasize environmental and climate challenges, and spend relatively more effort on the negotiation of multilateral environmental treaties than setting an example through practical solutions. Addressing Climate Change ‘Green’ economic diplomacy is used to address both domestic and overseas/international challenges of climate change. That is, overseas activities may contribute primarily to Japan’s own targets—most clearly expressed in the pledge to reduce greenhouse gas emissions under the Kyoto Protocol (KP)—or contribute to sustainable development in other countries. Any overlap between these goals notwithstanding, projects that fall under the three market-based mechanisms of the KP (emissions trading, CDM and joint implementation) are also politically self-serving, in the sense that they allow a country to showcase itself as adhering to KP norms. Therefore, projects that fall under the Protocol are understood here as more politically motivated, while all other projects mainly serve relatively wider purposes. According to statistics of the United Nations Framework Convention on Climate Change (UNFCCC) in August 2010, Japan ranks fourth in the world in terms of registered CDM projects, which include hydropower, wind power, biomass, and waste heat projects. Other than certain water projects, the industries studied here do not contribute to the CDM for now. Like nuclear power, railways are not allowed under the CDM, even if they have garnered attention from policy-makers in numerous countries

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because of their low carbon dioxide emissions as compared to other forms of transportation.37 These industries involve investments in infrastructure that may (also) cause environmental damage and contribute to global warming, and do not necessarily involve new or innovative application of clean technologies. Similarly, hydropower is excluded from a ranking of country sales in clean energy technology.38 The fact that the Japanese public and private sectors nevertheless undertake substantial efforts suggests that climate change in the narrow political or ecological sense is not a primary aim of Tokyo’s ‘green’ economic diplomacy. Rather, the goal seems to be to offer practical solutions that offer commercial opportunities and address climate change issues from a human security perspective—the latter having been designed (among other things) to ensure protection of the global environment and the eradication of poverty. The fact that the government moved beyond request-based ODA in the environmental field confirms this, and signals a proactive stance by Japanese actors. Supply of Natural Resources The importance of natural resources in Japan’s ‘green’ economic diplomacy is of a dual character, and concerns the import of energy resources and security for the supply of the rare earth metals and minerals that are needed for electric cars and nuclear plants. The former mainly targets Middle Eastern countries, while the latter involves a number of countries in Latin America and Africa. In both cases, the Japanese government aims for a dual win, whereby deals to import raw materials go hand in hand with projects that benefit Japan’s exporting industries. By providing water and nuclear infrastructure to Middle Eastern countries, for example, Japan aims to improve security for the supply of crude oil.39 As markets are growing especially in oil-rich Arab countries as well as in South-East Asia, the Japanese government’s domestic efforts to strengthen the water and nuclear power generation industries thus serve multiple goals. Security for the supply of the natural resources that are required for nuclear power generation and the upgrading of technology and the

37 Author’s interview with MLIT official Akimoto Ryoichi, Tokyo, 7 July 2010. 38 Roland Berger Strategy Consultants, Clean Economy, Living Planet: Building Strong Clean Technology Industries (Zeist: WWF–Netherlands, 2010). 39 Ministry of Foreign Affairs of Japan, Japan’s ODA White Paper 2009: Japan’s International Cooperation (Tokyo: MOFA, 2010).

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production of next-generation vehicles have become salient features of Japanese policy towards various countries. In early 2010, for example, Japan and Kazakhstan signed an intergovernmental agreement, wherein Kazakhstan boosts its uranium exports to Japan in return for nuclear power technologies. The generous aid package that Tokyo offered to Bolivia, the single-largest holder of lithium reserves, should also be seen in this context. In return for a secure supply of the metal, Japan in 2010 offered (among other things) significant funds towards the construction of a geothermal power plant. Again, such agreements—which have also been concluded with other countries including Vietnam, India and Mongolia—kill two birds with one stone: serving domestic industrial interests; and the interests of Japanese companies abroad. The strategic importance of these agreements and the diversification of imports for the Japanese business sector were underscored in a territorial and political dispute over Tokyo’s detention of a Chinese trawler captain in the Senkaku/Diaoyutai Islands in autumn 2010. Although the Chinese government denied that any formal ban had been imposed, exports of rare earth minerals to Japan—and later, to the United States and European countries—suddenly stopped.40 This constituted a severe blow to the Japanese manufacturing sector, which at the time largely depended on China for imports of rare earth minerals. Other Security Concerns Security is, of course, a very broad concept that encompasses regional and food security. Typical of the security-oriented approach to the environment, energy and climate is the United States, where policies focus on defence measures and means—ranging from the clean-up of military bases, to linkage between instability and conflict, and environmental degradation and scarcity.41 Although the Japanese government hardly refers to security challenges directly, investment in the spread of water technology may also be seen in this regard. An unconventional effort by late LDP politician Nakagawa Shōichi resulted in the ‘Final Report Relating to the Security of Water’ (Mizu no anzen-hoshō ni kan suru saishū hōkoku), which was published by the LDP in July 2009. The argument is made for

40 For a more detailed discussion, see the paragraph ‘International Context’ of chapter two. 41 Rita Floyd, Security and the Environment: Securitization Theory and US Environmental Security Policy (Cambridge: Cambridge University Press, 2010).

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a comprehensive security approach, including food and regional security, and for enhanced cooperation among actors. As possible negative effects on food supply suggest themselves through a shortage of ‘virtual water’ (that is, water used in the production of goods and services) and ‘water wars’,42 advancement in water technologies is connected to preventing conflict over water in Asia and elsewhere. For example, the damming by China of the Sutley, Salween, Brahmaputra and Mekong rivers is affecting millions of people in South and South-East Asian countries, whose livelihood depends on the availability of fresh water for agriculture and daily life. The Japanese government addresses such concerns and contributes to sustainable water management through the Asia-Pacific Water Forum (APWF), which was established in 2006, and which offers a very visible, political contribution. Moreover, water projects have become an increasingly important part of Japan’s ODA in recent years. The Environmental Conservation Initiative for Sustainable Development was adopted in 2002 to extend assistance to developing countries that face various environmental challenges, including water pollution.43 Water is also one of four sectors to be targeted in JBIC’s 2009 LIFE Initiative. A cumbersome security challenge for the Japanese government lies in the nuclear power generation industry. If anything, the 2011 nuclear crisis only exacerbated this. The nuclear posturing of some countries necessitates a trade-off between the interests of the nuclear industry and foreign policy objectives. As a matter of principle, Japan refuses to make nuclear technology available to countries that are not a signatory to the NonProliferation Treaty—of which India is one. As India concluded commercial deals with other countries, however, the Japanese government was under significant pressure from the domestic, US and French nuclear industries to access the Indian market. This led in June 2010 to the opening of negotiations with India about a bilateral agreement to allow for the export of nuclear technology, which for (then) Foreign Minister Katsuya Okada was ‘one of the toughest decisions he ever had to make’.44 Indeed, this breakthrough in the precarious trade-off between commercial and

42 See also Kazunari Yoshimura, Mizu Bijinesu: 110-cho-en mizu-shijō no kōbō [Water Business: Battle for the 110 Billion Yen Water Market] (Tokyo: Kadokawa Shoten, 2009). 43 Ministry of Foreign Affairs of Japan, Japan’s ODA White Paper 2009: Japan’s International Cooperation (Tokyo: MOFA, 2010). 44 BBC, ‘Japan and India in Nuclear Cooperation Talks’, 22 August 2010 (online).

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politico-security concerns conflicts with Japan’s image as a staunch proponent of nuclear disarmament and non-proliferation. Domestic Politics Two observations about recent developments in ‘green’ economic diplomacy in relation to domestic politics are warranted. First, ‘green’ policies have a long history in Japan and even the recent establishment of strategy and promotion offices predates DPJ governments. Seen in the context of the DPJ’s pledge to reduce bureaucracy and to give power to the politicians, the great visibility given by the DPJ to the initiatives, as well as the strong personal commitment of individual politicians, thereby also serve a public relations purpose.45 As well as party politics, the benefits of emphasizing environmental protection—for example, enhancing the (progressive) image and relative position of government institutions or individual politicians—play a role in institutional infighting. The former was the case with METI’s activities in the early 2000s,46 and the overlap of new institutions and the speed by which these are created further illustrates this. In August 2010 MLIT—at the initiative of (then) Minister Maehara Seiji—announced the creation of an ‘international bureau’ to help companies win infrastructure and other construction contracts abroad, just one week after METI set up a panel for similar purposes. As foreign minister, Maehara was also a typical example of DPJ politicians sparing little effort to secure deals abroad—and to gain personally in doing so. Other than creating a task force to promote diplomacy for economic means at the foreign ministry, Maehara visited the United States and Vietnam for railway pitches—and even linked railroad and nuclear projects when in Hanoi in May 2010, together with (then) National Policy Minister Sengoku Yoshito. Clearly, the ‘green’ label is beneficial not only in foreign relations but also domestically. Challenges Ahead It has been said of Japan’s ‘green’ economic diplomacy that ‘Nobody does technology better. Nobody sells it so badly’.47 In today’s changing 45 Author’s interviews with academics and representatives of METI, MOFA, MLIT, JICA, JETRO and NEDO in February and June–July 2010. 46 Elder, ‘METI and Industrial Policy’, p. 186. 47 Lewis, ‘Too Late, Japan Wakes Up’.

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environment, the main challenges facing the Japanese government and private sector are threefold: linkage between industries (offerings of socalled ‘package deals’); the organization of industries; and the ‘soft’ service element of foreign investment.48 New players are introducing competitive pressure, and Japanese actors are learning to deal with the fact that technological superiority and good bilateral relations—whether as an ODA provider or as an ally—are insufficient to push sales. While Tokyo has occasionally been successful in linking economic cooperation packages with sales of environmentally friendly technology, its position is weakening as other newly developed (Asian) countries put forward competing offers. Foreign governments wanting to invest in a certain industry increasingly have a choice in what technology to buy, and may prefer the somewhat lower technology that is offered at competitive prices by South Korean, Chinese and other companies. This is apparent in the railway, water business and nuclear generation industries. Vietnam is a case in point, as Japan is to build a high-speed line there and at the same time is trying to secure the participation of Japanese companies in plans to build nuclear power plants. The shift away from mere competition on technology is also prevalent in the widely held view that the traditional focus of Japanese companies on ‘hard investments’, such as roads and airports, needs to be complemented by ‘soft investments’, such as the maintenance and operation of facilities.49 This latter function also involves technology transfer. Japanese players have shown a clear preference for science and technology agreements with developed countries: a mere 17 per cent of concluded agreements are with developing nations in Asia, Latin America, and Africa—compared to close to 50 per cent in the United States and France.50 This conservative approach may become untenable as aid-receiving countries are in a better position to ask more of donors, as emerging donors quietly offer alternatives to aid-receiving countries. A related challenge concerns the inclusion by some countries of a military component to a package deal. Russia reportedly offered Vietnam a submarine as part of its broader package, while South Korea included

48 See also Keizai Kōhō, ‘Ajia kigyō no kyōsōryoku’ [Competitive Power of Asian Business], August 2010. 49 Keizai Kōhō, ‘Ajia kigyō no kyōsōryoku’. See also the interview with Urata Shujirō, Tokyo, June 2010. 50 Taizō Yakushiji, ‘Why Japan Needs Science and Technology Diplomacy’, AJISS Commentary no. 70, 2009.

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military protection (troops) in its offer of a nuclear plant to the United Arab Emirates.51 Legal and moral limitations of such sales on the part of Japan present a challenge to public and private actors that will not easily be solved. The relatively large number of Japanese companies that are involved in negotiations in different sectors presents another disadvantage when compared to countries where large, state-owned companies negotiate deals. Recognition of this problem motivated fresh efforts by Japan towards more intra-industry cooperation, especially in the water and nuclear industries. Companies also need to adapt to foreign standards and show flexibility in what they offer. US Transportation Secretary Ray LaHood’s comment that the ‘all-Japan’ sales pitch in the railway industry had not really worked until now is a case in point.52 Balancing National Interests: Business and Power Play As demonstrated by the discussion above, Japan’s ‘green’ economic diplomacy involves a variety of tools and expressions that are relatively more economic or more political in character. Policymakers thus seek to secure a balance of national interests comprising both economic prosperity and considerations about political stability. Applying the conceptual framework that places policy objectives somewhere between the ‘business end’ and the ‘power-play end’, Japan’s ‘green’ economic diplomacy efforts appear on all parts of the continuum. This is schematically illustrated in Figure 6. Policy motivations that were found to be of primary importance are highlighted in dark colour in this figure. This in turn shows that, while politico-strategic considerations do play a role, the primary objectives of Japan’s ‘green’ economic diplomacy are generally on the ‘business end’ of the spectre. ‘Green’ activities are undertaken in two strands of economic diplomacy wherein the Japanese government has long been active: commercial diplomacy and economic cooperation. What is more, commercial diplomacy takes many forms—including trade and investment ­promotion, business

51 Sankei Shimbun, ‘Betonamu genpatsu-juchū de Nihonzei-haitai, shunō-gaikō fukume senryaku minaoshi mo’ [Japanese Group Loses Vietnam Power Plant Bid, Review of Strategy, including Summitry], 9 February 2010; and Japan Times, ‘Infrastructure Abroad Key Focus’, 28 July 2010. 52 Japan Times, ‘Railways’ Pitches to US Differ’, 15 May 2010.

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primary goal: political

tool: political

‘power play-end’ ** stability **

enhance Japan’s status, military security & domestic politics climate change (ecological sense) maintain cooperative relations secure supply of natural resources tool: economic economic cooperation

trade agreements strengthen domestic economy ‘business-end’ ** prosperity **

primary goal: economic

Source: Modified from Figure 1 (chapter one).

Figure 6. Japan’s ‘Green’ Economic Diplomacy—The Conceptual Continuum. Source: Modified from Figure 1 (chapter one).

advocacy and (international) cooperation in science and technology. At the same time, non-traditional security goals that relate to the stable supply of natural resources and regional stability—rather than to military security—are important considerations. The focus of government policies is thus on strengthening the domestic economy, resource security, and securing cooperative relations with other countries. The Japanese government largely refrains from (negative) ‘power play’, and prioritizes benefits that relate to Japan’s domestic economy, rather than larger strategic goals. Consider, for example, Japan’s relations with Iran. Until China gained a foothold in Iran in recent years, Japan was Iran’s third-largest trading partner and the leading consumer of Iranian oil. Tokyo maintained relatively cordial relations with Iran and exercised restraint about joining sanctions against Iran as tensions rose from the mid-2000s, while warning that Tehran’s refusal to abide by UN resolutions would lead to stronger action. As a way of contributing to a solution for the tension surrounding Iran’s nuclear programme, Japan offered to construct (and pay for) five nuclear plants and to ship highly enriched uranium to Iran. This characterizes Japan’s integrated approach to economics and security, and the ‘green’ flavour of policies. When considering these findings in more detail, clear differences are found in objectives and tools in developing and industrialized countries. In essence, ‘green’ economic diplomacy activities in developed countries facilitate commercial transactions. These are closer to the ‘business end’ of economic diplomacy, since cost–benefit calculations largely follow an

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economic logic and maximizing business opportunities is the main driver behind activities. Activities in developing countries involve more strategic incentives and may thus be categorized relatively closer to the ‘power-play end’ of economic diplomacy. That is, enhancing Japan’s status and developing cooperative relations so as to influence (regional) political relations in a way that supports political stability and benefits Japan are policy drivers, next to commercial opportunities. This should not be taken to mean that commercial goals are in absolute terms less important in relations with these countries; rather, it points to the fact that the Japanese government has more levers in relations with developing countries. Indeed, when compared with European countries and the United States, Japan’s ODA is on the whole relatively less politico-strategic and more commercial in character. That is, it aims to enhance the economic strength of the aid recipient (and itself ) through trade and investment, rather than to promote good governance, democracy and human rights. Seen in this perspective, it may be unsurprising that Japan’s ‘green’ economic diplomacy efforts focus on Asian countries—where strategic interests are the largest, and the potential negative consequences of climate change impact on Japan directly. Figure 7 illustrates schematically the variations in policy objectives towards emerging and developed countries for the sectors studied here. The categorization is an attempt to make sense of policies and motivations, based on a reasonable judgement as to the primary goal or basis of a particular industry, as seen from a Japanese perspective. This is not to deny that activities in a specific industry involve multiple goals, or that the distinction between the ends is fluid. Target next generation vehicles water business

nuclear power

commercial

high-speed railroad

Objective

developing countries

strategic

developed countries

Figure 7. Targets and Objectives of Japan’s ‘Green’ Economic Diplomacy. Source: compilation by the author.

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While sales of high-speed railways to developing countries are part of Japan’s ODA loan schemes, they do not enhance Japan’s energy security, nor do they improve regional stability in the way that water businesses and nuclear power generation may. This explains why the railway industry is farthest at the commercial end of the spectrum—in both emerging and developed countries. Water businesses and, to a lesser extent, nuclear power industries involve relatively more strategic objectives, for example in the field of climate change, international leadership, and regional stability and power balances. Sales promotion is not a goal of outwardoriented government involvement in next-generation vehicle industry, since buyers are consumers rather than governments. Through cooperative agreements with developing countries, Japanese diplomats look after the interests of their automobile makers by contributing to the security of supply for raw materials, which—from the government’s perspective—is not a commercial but a strategic goal. Conclusion In the midst of a booming Japanese economy and the peak in criticism of its ‘mercantilist’ policies, the Japanese government from the 1980s adjusted its industrial policy and economic diplomacy strategies. The Japanese government saw opportunities in making environmental protection an important feature of industrial policy. It successfully reframed the international debate and started to emphasize ‘green’ activities that were placed in the context of an effort towards a more sustainable economy. Several factors—indigenous and exogenous to Japan’s policies—may explain why the role of government has gone largely unnoticed. First, the green label created a benign image that made government involvement tolerable and a far cry from the continuation of the policies of old. Moreover, much of the criticism of ‘mercantilist’ policies had shifted to the ‘next Asian giant’: China. This relates to the final point, that the substantial role played by the Chinese government in the economy has become a reason for other governments—including but not limited to Japan—to pursue similar policies. The trend towards more government involvement started when the Cold War ended—rendering the comfortable distinction between economics and security no longer tenable53—and was reinforced 53 Michael Mastanduno, ‘Economics and Security in Statecraft and Scholarship’, International Organization, vol. 52, no. 4, autumn 1998, pp. 825–854.

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by the global financial and economic crisis of recent years. Newcomers and critics of old, including South Korea, China, France, the United States and even the Netherlands started to pursue similar strategies, and are out-competing Japan on certain fronts. Research and development in ‘green’ environmental and energy technologies was promoted, not just to reinforce Japan’s domestic economy and to move to a more sustainable economy that is less dependent on energy imports, but also to generate levers that may be used in foreign policy. Broader and stronger relations with (advanced) developing countries, in particular, enhance Japan’s status and strengthen its position vis-à-vis its main competitor, China. Japan’s ‘green’ economic diplomacy combines elements of economic development cooperation (positive incentives) and trade and investment promotion (commercial diplomacy) in order to strengthen relations with both emerging and developed countries. In line with the concept of comprehensive security, these policies serve commercial as well as strategic objectives, thus contributing to the balance of national interests both in terms of economic prosperity and political stability. Activities in the railway, nuclear power generation, water business, and next-generation automobile industries provide insight into the prioritization of such objectives. Most important are the strengthening of the domestic economy, securing of natural resources, and maintenance of cooperative relations with other countries. Of secondary importance are the needs to adjust to the changing balance of power, domestic politics, and climate change challenges. While not denying the potential of (military) conflict as a result of environmental and energy challenges, Japan’s ‘green’ economic diplomacy hardly considers this point. Japan’s ‘green’ strategy out-competes others in terms of technological endowments, institutional cooperation and integrated policy-making, but the government is struggling to redefine its role in an increasingly competitive international environment. On both fronts, Japan’s ‘green’ economic diplomacy illustrates new trends in the theory and practice of industrial policy and economic diplomacy.

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CHAPTER FOUR

THE ‘POWER-PLAY END’ OF JAPAN’S ECONOMIC DIPLOMACY: RELATIONS WITH NORTH KOREA Introduction*♣ In recent years trade between Japan and North Korea1 has been virtually frozen and Japanese sanctions on North Korea have been tightened. The Japanese government has shown little interest in providing any bilateral or multilateral economic or humanitarian assistance to North Korea and is taking a tough stance in the main negotiating forum, the Six-Party Talks (SPT),2 by putting the alleged abduction of some seventeen Japanese nationals from Japan by North Korea in the 1970s and 1980s before other nuclear and economic issues.3 This chapter considers these ­policies * This chapter is a slightly revised and updated version of a text that previously appeared as ‘Troubled Neighbours: Japan’s Negative Economic Diplomacy towards North Korea’, European Journal of East Asian Studies, vol. 9 no. 2, 2010, pp. 363–394. ♣ This chapter focuses on developments in relations between Japan and North Korea under LDP rule and until the suspension of the Six-Party Talks in December 2008, while happenings in subsequent years are briefly touched upon mainly in the closing paragraphs. This focus seems justified even today because: (1) bilaterally, DPJ foreign policy under the Hatoyama and successive Kan and Noda Cabinets paid little attention to North Korea; (2) as the Six-Party Talks have been stalled, little new developments have occurred in the multilateral context as well. Increased activity between various members of the Six-Party Talks, including Japan, in late 2011 seemed to point to a possible restart of negotiations, but it is unclear what will be the effects of Kim Jong-il’s death on 17 December 2011. His third son and successor Kim Jong-un created new Special Economic Zones close to China and called upon the North Korean citizens to actively do business with that country, but did not show concrete signs of willingness liberalize the economy or to reform social and political structures. Regional tensions hightened once again from December 2012 as North Korea launched a rocket, followed by a nuclear test in February 2013. 1 North Korea’s official name is the Democratic People’s Republic of Korea. 2 Since 2003 the Six-Party Talks have brought together North Korea, the United States, China, Japan, South Korea and Russia in comprehensive negotiations around the issue of North Korea’s nuclear weapons programme. The ‘Six-Party Talks’ is referred to in Japanese in several different ways, namely ‘rokushakaigou’, ‘rokusha-kaigi’, ‘rokkakoku-kaigi’. Since South Korea and North Korea still strive for reunification, however, the use of ‘Six-Country Talks’ is undesirable and can be said even to hold a political bias. 3 Of the seventeen (allegedly) abducted citizens, five returned to Japan in 2004. North Korea asserts that eight abductees died and that it has no knowledge of the four others. The Japanese government continues investigations into other cases, in which abduction is not ruled out.

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from the viewpoint of economic diplomacy and argues that Japan’s approach is characterized by the deliberate avoidance of positive actions. Thus, if the depiction of Japan’s international relations as aikidō4 was apt before, the underlying analysis of Japan’s dealings with North Korea of the past decade points to a shift in this approach, which emphasized a preference of using economic statecraft positively rather than military statecraft negatively. Indeed, Japan has for several years emphasized a negative approach to economic diplomacy in relations with its belligerent neighbour. Its relations with North Korea are therefore a useful case to gauge continuity and change especially on the power-play end of Japan’s economic diplomacy. The Japanese government had tried economic engagement in various ways until the early 1990s, but Tokyo seems to have come to the conclusion that North Korean rulers are more willing to preserve the status quo than some wish to believe. Consequently, Japanese policy-makers practised a mix of obstructionist, punitive and conditional politico-economic policies towards their authoritarian neighbour from late 2002 until at least mid-2007. This approach is remarkable not only when put in a historical context, but also when compared to China’s and South Korea’s increased willingness to do business with the closed country.5 It was largely facilitated by Washington’s confrontational stance towards North Korea and became more difficult to sustain when other parties proceeded towards an agreement. This partly explains why Japanese policy-makers tried to change course in early 2008, when the United States entered a new round of talks. Change was short-lived, however, as international tensions rose again from the following year. Japan’s economic diplomacy towards North Korea needs to be understood as part of its national security policy and its strategy towards East Asia at large, in particular China. There is no denying that the single most pressing issue at stake in discussions with North Korea is Pyongyang’s nuclear and missile programme, and that the United States plays a key role in these negotiations. This explains the general focus of researchers with an interest in power politics on the Korean Peninsula on security and

4 Glenn D. Hook, Julie Gilson, Christopher W. Hughes and Hugo Dobson, ‘Japan and the East Asian Financial Crisis: Patterns, Motivations and Instrumentalization of Japanese Regional Economic Diplomacy’, European Journal of East Asian Studies, vol. 1, no. 2, 2002, pp. 177–197. For a more detailed discussion, see the paragraph ‘Processes’ in chapter two. 5 South Korea gradually hardened its policy under President Lee Myung-bak, who took office in February 2008.

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nuclear issues.6 Japan has made clear that North Korea poses the greatest threat to its national security7 and is stepping up its national defence, deploying anti-ballistic missile units in Tokyo and testing its missile interceptor system. Considering the substantial threat posed by North Korea, it may be puzzling at first that Japan is publicly prioritizing a bilateral issue—the abductees—before its national and regional security. It is argued here that to understand Japan’s strategy, Tokyo’s stance on the abductees’ issue, normalization, economic relations and sanctions, and the multilateral process need to be analysed integrally. Put differently, in order to make sense of how Japanese policymakers perceive the balance of national interests, one has to consider as a comprehensive whole the diversity of issues at hand—that is, a variety of economic diplomacy strands. After all, each of these issues involves an economic component— the direct and indirect promise and withholding of economic benefits— and is of importance in comprehensive negotiations with North Korea as well. As will be shown, Tokyo’s relations with Pyongyang have revolved around an active policy of negative economic diplomacy. Because, while Pyongyang’s nuclear and missile programmes pose a direct security threat, they simultaneously provide Japan with an opportunity to enhance its regional posture and strengthen its military capabilities. A growing body of literature points to the importance of economic issues of negotiations with North Korea in a comprehensive multilateral and bilateral context8 and earlier research found that Tokyo has been exercising economic power in the multilateral talks on North Korea.9 This chapter takes this debate a step further by introducing the concept of ‘negative economic diplomacy’ and using this in an analysis of Japan’s bilateral and multilateral relations with North Korea. In doing so, it contributes to the study of economic instruments in foreign policy in general, as well as to a better understanding of the concept of power held by actors 6 For example: Yōichi Funabashi, The Peninsula Question: A Chronicle of the Second Korean Nuclear Crisis (Washington, DC: Brookings Institution Press: 2007), Masao Okonogi (ed.), Kiki no Chōsen Hantō (The Korean Peninsula in Crisis), Contemporary East Asia and Japan Series, no. 3 (Tokyo: Keiō Gijuku Daigaku Shuppankai: 2006). Okonogi’s edited volume is representative of the outstanding research and extensive knowledge in Japan about North Korea, and at the same time reflects the shortage of writings on bilateral relations. 7 See Ministry of Foreign Affairs of Japan, Diplomatic Bluebook (various issues); Ministry of Defence of Japan (before 2007, Defence Agency), Defence of Japan (various issues). 8 Asia Society, ‘North Korea Inside Out: The Case for Economic Engagement’, October 2009; and Andrei Lankov, ‘Changing North Korea’, The New York Times, 14 October 2009. 9 Linus Hagström, ‘Supporter, Nuisance, or Wielder of Power in the North Korean Nuclear Talks?’, Asian Survey, vol. 49, no. 5, 2009, pp. 831–851.

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furthering Japan’s policy. Finally, the analysis presented here may serve as a guide for the usefulness of economic tools to bring about change in North Korea. The chapter is structured as follows. First, the policy context of Japan’s economic diplomacy towards North Korea is introduced. The next section reviews how the Japanese government used economic instruments, focusing on developments from the 1990s and especially the period from 2002 until mid-2007. It draws on anecdotal evidence in three policy areas: negotiations on normalization and single-issue politics; trade and investment, sanctions and humanitarian aid; and multilateral and regional diplomacy. This unveils the economic levers that the Japanese government holds, and how they have been used as influence attempts. The third section analyses Japan’s economic diplomacy practice by application of the conceptual framework, and addresses the underlying political rationale of Japan’s negative economic diplomacy—the China factor and global developments10—as well as the ramifications of Japan’s policy. It is argued that Japan’s economic diplomacy towards North Korea is by and large an example of economic diplomacy practice on the ‘power play-end’ of the spectre. Finally, the chapter touches upon developments under the rule of the DPJ11 and concludes with observations on the mixed blessings for Japan of Pyongyang’s nuclear and missile programmes. The Context: Japanese Action and Inaction Economic diplomacy is about the pragmatic linking of politics and economics in foreign policy. In this context, it may be only natural that the vast majority of studies in this field focuses on actual happenings, such as trade negotiations, sanctions implemented, and aid given. Japan’s policies towards North Korea, however, illustrate the need to also consider inaction in economic diplomacy. After all, a focus on actual events tends to overlook the fact that economic levers may also be used to prevent certain things from happening, and that negotiations may be deliberately postponed or blocked for the same purpose. That is to say, while analysis

10 Strategic considerations informing Japan’s policy towards North Korea primarily stem from the rise of its giant neighbour China. Considerations with regard to South Korea are hardly comparable in this respect and will therefore not be discussed in detail. 11   This chapter focuses on policies under LDP rule. See also the general note at the beginning of this chapter.

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of actual policies and actions is of importance, it is equally important for researchers to recognize and study inaction—instances where one would have expected action—and deliberate avoidance of positive steps. These occurrences have to be interpreted as a way of projecting power since, in the words of Stephen Lukes, ‘there is no good reason for excluding failures to act from the scope of power on principle’.12 The concept of ‘negative economic diplomacy’ is here introduced to refer to (a combination of) punitive, conditional, postponing and obstructionist behaviour. It deserves to be emphasized that, to speak of a ‘negative approach’ is not to pass judgement on whether this policy is ‘good or bad’, ‘intelligent’ or ‘successful’. Rather, it represents different ways by which a country may pursue certain political, economical or strategic goals. An important point made in this chapter is that negative economic diplomacy also needs to be considered as a way by which strategic considerations that form part of the perceived balance of national interests can be pursued. Useful in our analysis is the distinction between the targets or domain of an influence attempt (who is to be influenced) and the objectives or scope of an attempt (in what ways to try to influence).13 This helps us to distinguish the primary, secondary, and perhaps even tertiary goals and targets of a given influence attempt. While targets and scope are defined one-sidedly by the state that is utilizing economic diplomacy, the effectiveness of a policy needs to be measured with reference to others. This derives from the ‘relational nature of the concept of power’, a point also emphasized by Baldwin. Joseph Nye follows this line of thinking in his approach to soft power, when he emphasizes that power always depends on the context in which the relationship exists.14 Thus, the fact that Japan employs instruments with a clear economic dimension as attempts to influence North Korea says little about whether or not Japan is successful in doing so. As indicated earlier, the primary aim of this chapter is to

12 Stephen Lukes, ‘Power and the Battle for Hearts and Minds’, Millennium, vol. 33, no. 3, 2005, pp. 477–493. Implicitly, Lukes equates failures to act with negative actions. He asserts that ‘whether the absence of action should be counted as action depends on the judgement as to whether such action has significant causal consequences and on whether we are disposed to regard the actor who fails to act as responsible, in one or another sense, for so failing’—in other words, whether the inaction should be regarded as ­deliberate or not. 13 Baldwin, Economic Statecraft, pp. 15–18 14 Joseph S. Nye Jr, Soft Power: The Means to Success in World Politics (New York: PublicAffairs, 2004), p. 2.

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assess in detail the former point: the fact that the Japanese government actively employs economic instruments for strategic purposes. The rationality and effectiveness of this policy is a different issue, which is only addressed briefly in the last two sections. Targets and Objectives of Japan’s Policy Japan’s relations with North Korea revolve around an array of international, regional, bilateral and domestic issues. This is illustrated by the following paragraph of the Pyongyang Declaration of 17 September 2002, signed by the leaders of both countries at the time, Prime Minister of Japan Koizumi Jun’ichirō and North Korean Chairman Kim Jong-il: Both leaders [confirm] the shared recognition that establishing a fruitful political, economic and cultural relationship between Japan and the DPRK through the settlement of [the] unfortunate past between them and the outstanding issues of concern would be consistent with the fundamental interests of both sides, and would greatly contribute to the peace and stability of the region.15

Four long-term targets and objectives of Japan’s economic diplomacy towards North Korea can be discerned from this paragraph.16 The prioritization of these goals is, in turn, illustrative of the perceived balance of national interests by Japanese policymakers. Mentioned first in the Pyongyang declaration is the improvement of ties with North Korea through the normalization and broadening of relations. Better relations are of importance in a multilateral context as well, as they will stimulate the integration of North Korea in the regional and global order. The settlement of war history is another stated objective, of clear significance both bilaterally and to Japan’s relations with countries in East Asia. North Korea is the last country in the region with which Japan has not settled its colonial and war history. Although an official agreement is unlikely to end all discussion about Japan’s aggression in Asia, it would certainly relieve the burden of the past. The third objective recognized in the Pyongyang Declaration is the settlement of issues of mutual concern. This includes the abduction of Japanese nationals by North Korea. As will be shown, ­decisions

15 Ministry of Foreign Affairs of Japan, Japan–DPRK Pyongyang Declaration, 17 September 2002. 16 The 1990 preliminary meetings to normalize diplomatic relations had a similar fourpoint agenda. See Ministry of Foreign Affairs of Japan, Diplomatic Bluebook 1991, Chapter IV, pp. 2–3 (3).

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by politicians and government officials to (de)emphasize such issues can bring about major breakthroughs or setbacks in the bilateral relationship. Lastly, relations between North Korea and Japan are recognized to be of importance to peace and stability in the East Asian region. That is, the bilateral relationship has direct implications for Japan’s national security in a multilateral context. This implies that considerations related to national military capabilities and the management of relations with China, the United States and other countries inform Japan’s policy. The multidimensional objectives of Japan’s policy towards North Korea provide clues as to the main targets of Tokyo’s policy. The direct target is, of course, the regime in Pyongyang. The scope of Japan’s policy, however, is significantly wider and includes countries in the East Asian region as well as the Japanese public, Korean residents in Japan, and the United States. As perceptions and prioritizations of interests shift, Japanese ­policy-makers’ policy change their approach. This is exactly what happened after the signing of the Pyongyang Declaration. Japan’s Economic Diplomacy towards North Korea This section reconstructs Japan’s policies toward North Korea in three policy areas: (1) negotiations on normalization and single-issue politics; (2) trade and investment, sanctions and humanitarian aid; and (3) multi­ lateral and regional diplomacy. These fields match the four long-term objectives stated in the Pyongyang Declaration. Taken together, developments in these areas demonstrate that Tokyo’s (in)action stretched from the ‘business end’ to ‘power-play end’ (and in between)—making for a sophisticated negative economic diplomacy. Towards Official Diplomatic Relations The first policy area in which we recognize Japan’s use of economic instruments is the talks towards normalization of relations between Japan and North Korea. An important feature of these negotiations concerns the funds that Japan is to provide to North Korea as settlement for Japanese wrongdoings during the colonial period and Pacific War history of the first half of the twentieth century.17 Financial compensation or, as the Japanese

17 A formula based on the amount that South Korea received with the normalization of relations in 1965 (adjusted to present times) calculates roughly the amount that Pyongyang

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insist, ‘economic assistance’ will provide the North Korean regime with huge funds relative to its economy’s size and could give a major impulse to the ailing North Korean economy. The provision or postponement of these funds is thereby a lever of the Japanese government in negotiations with Pyongyang. In the multilateral context, the financial stimulus to be provided by Japan constitutes a welcome ‘carrot’ to lure North Korea into a comprehensive deal. Indeed, the establishment of official diplomatic relations between Tokyo and Pyongyang is a stated goal in the two major agreements that were adopted in the six-party framework in September 2005 and February 2007. During one of the SPT sessions, North Korea implied that economic aid from Japan (and South Korea) would be needed for ultimate settlement of its nuclear programme.18 The prospect of normalization thereby gives Japan a strong diplomatic card in bilateral as well as multilateral negotiations. Rather than taking a positive approach, in recent years Tokyo has used this card to obstruct negotiations indirectly. A parallel can be drawn between the normalization of diplomatic relations between Tokyo and Beijing, which took place in 1972, and of Tokyo and Pyongyang. In the early 1970s the United States and Japan were on the verge of opening a new era in relations with China. The allies coordinated their approach to a certain extent, but took individual action when deemed to be to their own benefit. The surprise visit of (then) US President Nixon to China—bringing about the infamous ‘Nixon shocks’— illustrates this. These happenings have an analogy in the ‘Bush shocks’ that engulfed Japan in mid-2007. The United States then indicated several times that it would proceed with taking North Korea off the terrorism list (which it did in October 2008) without consulting Japan or paying full attention to Japanese interests, mainly the abduction issue. Intense debate and diverging opinions about the relative importance of security, political and trade interests make for a comprehensive political puzzle— domestically, between the two allies, and towards China and North Korea respectively.

would receive. Estimates of the amount of the settlement range between US$ 3.4 and US$ 20 billion. Mark E. Manyin, Japan–North Korea Relations: Selected Issues, CRS Report for Congress (Congressional Research Service), updated 18 April 2003, p. 9. 18 Kuniko Ashizawa, ‘Tokyo’s Quandary, Beijing’s Moment in the Six-Party Talks: A Regional Multilateral Approach to Resolve the DPRK’s Nuclear Problem’, Pacific Affairs, vol. 79, no. 3, 2006, pp. 411–432.

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Negotiating Normalization: 1991 to the Present A warming of relations between South and North Korea in the late 1980s prompted the start of bilateral negotiations towards normalizing diplomatic relations between Japan and North Korea in January 1991. Until the 1990s, individual politicians—mostly of the opposition Japan Socialist Party—played a mediating role through a number of friendly organizations that aimed to facilitate trade and strengthen economic ties.19 The Japanese government arguably wanted to preserve this pipe as a guarantee for Japanese companies that were active in North Korea.20 As the prospects for improved bilateral relations—and thus economic projects— increased in the early 1990s, politicians of the ruling Liberal Democratic Party (LDP) started to become involved. This period of engagement was short-lived, however. In early 1993 North Korea announced its intention to withdraw from the Non-Proliferation Treaty. Pyongyang’s missile test in May 1993 and confrontation over its suspected nuclear missile programme in 1994 heralded the beginning of a more critical assessment of North Korea by Japanese politicians and the public. Organizations with a friendly attitude towards North Korea became marginalized and replaced by groups considering ways to contain Pyongyang.21 On the surface, Japan followed the US engagement after Washington and Pyongyang signed the Agreed Framework in October 1994. In 1995 Japan provided humanitarian assistance and a Japanese political delegation visited North Korea. From 1997, Japan participated in and provided considerable funds to the KEDO project (Korean Peninsula Energy Development Organization). Furthermore, the government agreed to resume

19   The most influential organizations were the Japan–North Korea Association (Nicchō Kyōkai, since 1955), the Japan–North Korea Trade Association (Nicchō Bōeki-kai, since 1972) and the Japan–North Korea Diet Members’ Friendship League (Nicchō Yūkō Giinrenmei, since 1971). The Trade Association merged with the East Asia Trade Study Group (Higashi Ajia Bōeki Kenkyūkai) in July 1993 and continued its operations under the latter name. 20 Jong-hua Shin, ‘Chōsen Hantō Seisaku wo Meguru Nihon no Kokunai Seiji’ [Japan’s Domestic Politics with regard to its Korean Peninsula Policy], Hōgaku Seijigaku Ronkyū, vol. 35, December 1997, pp. 60–61. 21   Examples include the inter-party Diet Members’ Alliance for the Early Rescue of Japanese Kidnapped by North Korea, and the LDP Council to Consider Diplomatic Cards against North Korea and the Special Committee on the Abductees Problem Policy. The establishment of the inter-party Diet Members’ League for the Promotion of Normalization of Diplomatic Relations between Japan and North Korea in May 2008 signaled a shift away from the one-sided hardline position, paralleling the softer approach pursued by Japan’s Prime Minister Fukuda from late 2007.

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negotiations on restarting normalization talks. The re-engagement in the mid-1990s came to an end with the test-firing by North Korea of a ­Taepodong-1 ballistic missile over Japanese airspace in August 1998. This confirmed mounting Japanese suspicions about North Korea and deepened feelings of distrust. Tokyo responded by refusing to provide final financing for KEDO and freezing the negotiations that aimed to restart normalization talks. Security considerations started to play a role in bilateral negotiations and received growing media attention. The missile launches and cases of North Korean spy boats entering Japan’s territorial waters induced the Japanese government to reconsider its defence strategy. The Chinese nuclear tests of 1995 also played an important role in this development.22 Japan was once again persuaded to relive its participation in the KEDO project, to lift sanctions and to restart normalization negotiations in 2000 following the North–South Summit earlier in 2000. A delegation led by Murayama Tomiichi of the Social Democratic Party (SDP) visited Pyongyang in late 1999. Undeniably, however, the seeds for a confrontational policy by Japan were planted. Single-Issue Politics: The Abductees’ Issue Ad hoc issues with a strong national security component that involve the well-being of individual citizens abroad (hereafter, consular issues) have framed Japan’s relations with North Korea for decades. In 1992 negotiations on diplomatic normalization were stalled by a North Korean commando’s confession of the abduction of a Japanese woman by the Korean name of Lee Eun-hye. Conversely, the opening of these talks in 1990 had heavily depended on a breakthrough in a consular case concerning the release of the captain and crew of the Fujisan Maru, who had been detained in North Korea since 1983 when North Korea found a defecting soldier aboard the cargo ship. Other issues concern the return of Japanese wives who moved to North Korea with their Korean husbands in the late 1950s-early 1960s, and the Japanese hijackers of the Yodogō JAL airplane who had been in asylum in North Korea since 1970. In all of these cases, individual politicians played an important mediating role.

22 Japan was furthermore reminded that, despite not sharing a land border with North Korea, refugees are a concern bilaterally as well as in a broader sense. The widely published intrusion of five North Koreans into its consulate-general in Shenyang, north-east China, in May 2002 exemplified this.

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Vastly aware of the domestic political value of the funds that would become available with official bilateral relations, they took an engaging stance as both countries moved towards normalization in the early 1990s. More recently, Japanese politicians have ridden the wave of media attention by playing tough on Pyongyang. Breakthroughs in ad hoc issues directly involving individual citizens appear to be in an inverse relationship to the state of the North’s economy. Pyongyang does not concede on such issues when the state of its economy is (relatively) stable, while it shows a more conciliatory stance when facing an economic crisis. Such was the case in 1997 when Pyongyang allowed Japanese wives of Korean husbands to visit Japan, in 2002 when Kim Jong-il confessed to the abduction of Japanese nationals, and in May 2008 when North Korea showed willingness to make progress in the Yodogō and abductees’ issues. Changes in the broader strategic context reinforce this link between the state of the North Korean economy and its stance towards Japan.23 Geostrategic changes in 1991 prompted North Korea to be more open to communication with Japan. Pyongyang saw the need to engage Tokyo, as its traditional allies—Russia and China— increasingly interacted with old foes. When North Korea’s relationship with the United States was at a low early in the new millennium, Kim Jong-il also saw benefits in improved ties with Tokyo. The link between developments in consular issues and the state of North Korea’s economy and its geostrategic position suggests that Pyongyang’s moves are largely governed by factors beyond Tokyo’s control. In this context it is not surprising that certain Japanese politicians would employ relations with North Korea for strategic purposes that transcend the bilateral relationship between Tokyo and Pyongyang, such as an expansion of Japan’s military capabilities. For example, LDP politician Abe Shinzō employed the abductees’ issue to reinforce Japan’s negative economic diplomacy. Paradoxically, the abductees’ issue took the limelight following an active policy of engagement initiated by Japanese Prime Minister ­Koizumi. Secret negotiations with Pyongyang resulted in the first bilateral summit in history in September 2002, when Kim Jong-il confessed to and apologized for a number of abductions by North Korea. However, against a background of perceived unwillingness of North Korea to cooperate further

23 This also goes for North Korea’s negotiations in the multilateral context, as exemplified by ‘Will fiscal woes force DPRK back to N-talks?’, Yomiuri Shimbun, 14 February 2010.

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on the issue and a confrontational politics by Washington, Japan adopted an increasingly tough stance.24 In the second North Korea-Japan summit in Pyongyang in May 2004, Koizumi stated that Japan would not invoke sanctions as long as the Pyongyang Declaration was observed.25 Although positively formulated, this was a clear hint that Japan might change to a conditional or punitive approach to economic diplomacy. Following this meeting the media and public adopted an increasingly critical stance towards North Korea26 and lacking further progress on the abductees’ issue, the Japanese government turned away from its engaging policy. Koizumi’s Chief Cabinet Secretary Abe Shinzō became the personification of the confrontational domestic forces and the Association of Families of Victims Kidnapped by North Korea (Kazokukai) successfully kept the issue prominent in the media’s and public’s mind.27 Although commitments in the Six-Party Talks drew Japan back to the negotiating table, the stalemate in normalization negotiations continued as no real progress has been made in the abductees’ issue.28 Abe successfully used the abduction issue to rise quickly to power. From September 2006 (by then Prime Minister) he pursued a confrontational 24 Assistant Secretary of State James Kelly in October 2002 confronted North Korea with alleged evidence of the North’s covert uranium program, making clear that ‘Washington did not want talks: The North had to stop, or else.’ Furthermore, the Pyongyang Declaration was criticized for not including a single ‘agreement’ between the parties and for sidestepping important issues such as nuclear proliferation and the abductees’ issue. Leon V. Sigal, ‘Negotiating with the North’, Bulletin of the Atomic Scientists, vol. 59, no. 6, 2003, p. 19 25 Ministry of Foreign Affairs of Japan, Press Conference by Prime Minister Koizumi after the Japan–North Korea Meeting, 22 May 2004. 26 Television and other forms of media directed the public into a relatively constricted range of views on North Korea through narrow, biased saturation coverage focused on the abductees’ issue. Lynn Kyung Gu, ‘Vicarious Traumas: Television and Public Opinion in Japan’s North Korea Policy’, Pacific Affairs, vol. 79, no. 3, 2006, pp. 483–510. From 2008, it appeared that the public had become somewhat saturated and the media reported less on the issue. 27 James L. Schoff, Political Fences and Bad Neighbors: North Korea Policy-Making in Japan and Implications for the United States (Cambridge, MA: Institute for Foreign Policy Analysis, June 2006), p. 6. The Kazokukai seems to be less effective since mid-2007, however. The association was established in 1997 and its members are families of (alleged) abduction victims. Two other interest groups working for the abductees’ purpose are the Diet Members’ Alliance for the Early Rescue of Japanese Kidnapped by North Korea (the Abduction League) and the National Association for the Rescue of Japanese Kidnapped by North Korea (Sukuukai). These groups play a more marginal role in the policy-making process. 28 Opinion polls conducted from 2002 reveal that the abductees’ issue has consistently been the Japanese people’s primary concern in relations with North Korea. Japan Cabinet Office, Public Opinion Polls 2002–2007, available online at http://www8.cao.go.jp/survey/.

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policy, cooperating with other parties to the extent that Tokyo would not be regarded as merely blocking the SPT process. By making normalization conditional upon progress in the abduction issue, Japan simultaneously secured greater international interest and maintained a powerful tool to punish North Korea for lack of progress. The domestic constraint that resulted from Abe’s policy, however, frustrated Japanese policy-makers already back in 2004.29 Strong public support for the hardline policy left little room for manoeuvre. Clearly, the single-issue politics served Abe well in terms of political power domestically. On the one hand, this suggests that narrow domestic interests prevail over broader strategic purposes. More broadly, however, Abe’s policy can be seen as a realist stance that recognizes that the North Korean regime is primarily interested in negotiations with the United States while Tokyo is generally relegated to the sidelines. The aim is therefore to secure multiple (national) interests—strategic goals as well as votes. With little to lose bilaterally and lots to gain domestically, Abe adopted a negative approach that ensured that multilateral engagement would not move too fast without real concessions from Pyongyang. A major flaw in Abe’s policy, however, was failure to anticipate that the United States might change to a more conciliatory approach. Thus, renewed engagement between Washington and Pyongyang from spring 2008 put Japanese policy-makers on high alert again.30 By the time of Abe’s resignation in September 2007, the abductees’ issue had acquired such a high profile that a policy change was virtually impossible in Japan. The ‘Bush shocks’ had made it clear, however, that Japan should prepare for a more engaging policy by Washington towards North Korea, which might be pursued without taking fully into account Japanese concerns. Abe’s successor, Prime Minister Fukuda Yasuo strongly hinted of a desire for a more conciliatory approach.31 He attempted to gear the public and politicians towards a more engaging policy, ­including 29 John S. Park, ‘Inside Multilateralism: The Six-Party Talks’, The Washington Quarterly, vol. 28, no. 4, 2005, pp. 86 and 91. 30 The Japanese confrontational forces seemed to believe that earlier statements from Washington in support of the abductees’ issue—for example in 2000 by the US State Department and in the 2003 annual report on terrorism—were absolute. Michael Green and James Prystup, ‘The Abductee Issue is a Test of America’s Strategic Credibility’, PacNet 45, 15 November 2007; and Larry Niksch and Raphael Pearl, North Korea: Terrorism List Removal (CRS Report for Congress (Congressional Research Service), 14 January 2008. 31   In an interview, Japanese Prime Minister Fukuda indicated that he regarded the nuclear and missile threat from Pyongyang as a more important issue; see Financial Times, 12 November 2007.

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on economic diplomacy, but was extremely careful to avoid upsetting the Japanese public.32 While Asō Tarō during his premiership—lasting only from September 2008 to August 2009—was less outspoken, the desire to change policy was apparent again in the early days of DPJ Prime Minister Hatoyama. This overview shows that negotiations on the normalization of relations between Japan and North Korea evolved from an array of political, economic and strategic considerations. On the one hand, the funds that are to become available as settlement for the past are an (economic) instrument of Japan’s policy. This money makes Japan’s cooperation in multilateral negotiations significant to North Korea and other parties, and are thereby a lever in bilateral as well as multilateral negotiations. On the other hand, the abductees’ issue is a (political) instrument in normalization negotiations. By making progress on this issue a precondition for the normalization of diplomatic relations, the Japanese government effectively employed the abductees’ issue as justification for its negative approach to economic diplomacy. Push and Pull: Traditional Tools of Economic Diplomacy Japan’s economic diplomacy is also practiced in its economic relations with North Korea—that is, in areas of trade and investment and economic and humanitarian assistance. Tokyo’s economic policy towards the authoritarian country is guided by the understanding that Japan does not have the power to transform North Korea but that change in the country needs to come from within.33 Lacking signs of willingness in Pyongyang to allow real economic development, Japanese policy-makers were strengthened

32 One indication of Fukuda’s desire to shift policy came with the (unconfirmed) news that the Japanese government had requested of South Korea to arrange a meeting between the parents of abducted Yokota Megumi and their daughter’s husband and grandchild. ‘Yokota-san fusai, magomusume to Kankoku de menkaian: Seifu ga Lee-seiken ni chūkai yōsei’ [Mr and Mrs Yokota to Meet Granddaughter in South Korea: Government Requests Mediation to Lee Government], Yomiuri Shimbun (online), 9 May 2008. 33 For North Korean leaders, economic development is a double-edged sword. On the one hand, economic stability is a prerequisite for Kim’s primary objective: regime survival. On the other hand, development poses a threat to the authority and legitimacy of the North Korean regime. James A. Foley, ‘Fail-Safe: North Korea’s Stability Paradox’, Jane’s Intelligence Review 19 October 2007, pp. 33–34. This dilemma informed Pyongyang’s decision to develop nuclear weapons as a strong deterrent against attack and a bargaining tool—to obtain economic and humanitarian aid—in multilateral negotiations. At the same time, it suggests that denuclearization is neither logical nor beneficial from Pyongyang’s perspective.

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in their belief that North Korea is more useful for indirect rather than direct foreign policy objectives. From this perspective, Japan is served by the status quo, which can be prolonged by championing the abductees’ cause. Withholding economic aid and humanitarian assistance, and sanctioning trade and investment were other means to the same end. Bilateral Trade and Investment Economic linkages that developed mostly during the 1970s were an important factor driving relations between Japan and North Korea until the 1990s. In contrast to Japanese foreign trade and investment in other countries, trade was led not by big businesses (ōte-gaisha), but by smalland medium sized companies (SMEs).34 These SMEs were mostly led by Japanese of Korean origin, with ideological affinity to Pyongyang and membership of the General Association of Korean Residents in Japan (Chōsen Sōren).35 Japanese parliamentarians in the early 1970s displayed significant interest in economic relations and established the Friendship League and Trade Association. Even LDP politicians were conscious of the opportunities that North Korea could provide for domestic politics. A special committee was formed to survey the substantial ‘aid and ­development’ programmes that would become available with the normalization of relations and to open lucrative business opportunities for core factions of the LDP and their associates in the construction industry.36 The vast natural resources that North Korea harbours also attracted the attention of Japanese policy-makers and traders. In the early 1990s bilateral relations between Japan and North Korea improved, with the start of official negotiations on diplomatic relations and increased potential for Japanese trade and investment in North 34 Throughout the 1990s until trade collapsed because of sanctions, North Korea was running a trade surplus with Japan thanks to its exports of textiles and high-cost agricultural products, mainly matsutake (mushrooms). Illicit trade via third countries is now the greatest concern of the Japanese government. These statistics are from Japan’s Ministry of Foreign Affairs and Trade and from JETRO, see Country Report (Tokyo: Sekai Keizai Jōhō Sābisu, 2006), accessed on 15 November 2006, http://www.jetro.go.jp. 35 For many decades, Chōsen Sōren was the most important political pipe for communication between Japan and North Korea. However, the role of this interest group has diminished during the last decade because of the increasingly tough stance of the Japanese government and declining membership and funds of the group. Christopher W. Hughes, Japan’s Economic Power and Security: Japan and North Korea (London: Routledge, 1999), p. 184. 36 Gavan McCormack and Wada Haruki, ‘The Strange Record of Fifteen Years of Japan– North Korea Negotiations’, Japan Focus, 2 September 2004, p. 4.

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Korea. Pyongyang tried to lure Japanese business with economic reforms and opening, and, for geographical reasons, the Special Economic Zone of Rajin-Sonbong and Wonsan proved promising.37 Pyongyang’s efforts seemed to pay off when a group of representatives from big Japanese companies undertook a trade mission to North Korea in 1992.38 In 1991 the Japan Travel Bureau had started organizing tours to North Korea39 and in August 1992 the ‘North-East Asia Economic Committee’ (Hokutō Ajia Keizai Iinkai) was established.40 The interest of big businesses in North Korea constituted a promising change in economic relations and a break with earlier times. A negative spiral in relations, however, started with North Korea’s firing of a missile in 1993 and the first nuclear crisis in 1994. The death of North Korea’s Great Leader Kim Il-sung in July 1994 deepened uncertainty about the political future and stability of North Korea. In the economic field the promise of reforms and opening proved false. As a result, both smaller companies run by Japanese of Korean ethnicity and big Japanese companies lost interest and became more anxious about North Korea’s outstanding debt.41 By 2006 the total trade volume between Japan and North Korea had declined to only one-third of its 2002 level, from roughly US$ 370 to 120 million. In 2007 only US$ 9 million in exports was left. Although bilateral trade, even at its peak, never comprised more than 0.1 per cent of

37 The Rajin-Sonbong Free Economic and Trade Zone—created in 1991—is part of the Tumen River Area Development Programme (TRADP), spearheaded by the UN to integrate and further develop the economies of North Korea, the Russian Far East and northeast China. The city of Wonsan was connected to Niigata in Japan through the regular Mangyongbong-92 ferry link, which has been suspended as part of the sanctions that were enacted following Pyongyang’s missile test in July 2006. 38 ‘Kitachōsen ni ōgata keizai shisetsudan, nicchō bōekikai nado 13-nichi haken: Kaihatsu yūnyū de shōdan’ [Big Economic Mission to North Korea, Japan–North Korea Economic Committee Dispatched on the 13th: Business Discussions on Development Import], Nihon Keizai Shimbun, 9 July 1992. 39 Atsuhito Isozaki, ‘Kitachōsen no Tainichi Inbaundo Seisaku’ [North Korea’s Inbound Policy towards Japan], Kokusai Jōhō, vol. 77, 2007, p. 103. 40 This group included major companies such as Nomura Securities, Tokyo Bank, Marubeni, Nissho Iwai, Tokyo Maruichi Shōji, Nippon Yūsen and Komatsu. See ‘Tomanko kaihatsu ato-oshi, Nihon 16 kigyō: dantai ga senmonan’ [Tumen Delta River Development Backed: 16 Japanese Companies Form Special Plan], Nihon Keizai Shimbun, 20 August 1992. 41   This debt already constituted 80 billion yen in 1992. Nihon Keizai Shimbun, 9 July 1992. Although North Korea’s debt is now with the Japanese government, which acted as a guarantor, Japanese companies have written off but obviously not forgotten North Korea’s external debt.

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Japan’s total trade, this amount was substantial for North Korea.42 Meanwhile, the decline in Japan’s trade with North Korea stands in sharp contrast with growing South Korean and Chinese willingness to do business with the North.43 North Korea’s trade with China more than doubled between 2002 and 2006.44 While Japan’s leverage thus diminished because of the lower intensity of its economic relations, Japan is also losing out to other countries and depriving itself of access opportunities to North Korea’s raw materials. The falling trade figures illustrate the effect of sanctions, which were steadily implemented from 2004. Financial flows also decreased as the Japanese government hardened its policy towards Chōsen Sōren and pachinko (gambling parlours), which are believed to have provided the North with significant sums of cash.45 This restricting or easing of indirect help by supporters of Pyongyang in Japan—mainly through financial flows—is part of a policy of punitive economic diplomacy by the Japanese government. Koizumi explicitly mentioned this in his meeting with Kim Jong-il in Pyongyang in 2004.46 Big businesses aligned with the Japanese government’s hardline position towards North Korea, and soon after the North Korean nuclear test in October 2006, Keidanren Chairman Mitarai Fujio indicated that traderestricting measures were necessary.47 The actual impact of the missile and nuclear test and subsequent sanctions on economic relations between Japan and North Korea became clear in the months thereafter. Japanese

42 Illustrative of the difference is the observation that the power of the North Korean economy is less significant than that of large Japanese companies, while its national budget is smaller than the net profit of, for example, Toyota. Toshimitsu Shigemura, Chōsen Hantō ‘Kaku’ Gaikō: Kitachōsen no Senjutsu to Keizairyoku [Korean Peninsula ‘Nuclear’ Diplomacy’: North Korea’s Strategy and Economic Power] (Tokyo: Kōdansha: 2006), p. 98. US intelligence (CIA World Factbook 2008) has estimated North Korea’s GDP in terms of purchasing power parity at US$ 40 billion a year for the past three years, compared to US$ 20.9 billion estimate for 2006 of the Bank of Korea (of South Korea). 43 Despite the even greater challenges facing companies from outside the region, a few western funds are investing in North Korea; see ‘Opening Up: Doing Business in North Korea’, Financial Times, 21 January 2008. 44 Data compiled from United Nations Statistics Division (COMTRADE) and the Ministry of Unification of South Korea. 45 Asahi Shimbun, 10 February 2004. 46 MOFA, Press Conference by Prime Minister Koizumi. 47 Nippon Keidanren, Chairman Mitarai’s comment at the press conference, 10 October 2006, accessed on 20 January 2009 at http://www.keidanren.or.jp/japanese/speech/kaiken/2006/1010.html.

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companies effectively terminated all business, including car exports and imports of hard (stone) coal.48 Missing out on access to cheap natural resources is for now not a substantial enough concern for the Japanese government to change its economic diplomacy. Obstacles to trade and investment are larger than the concern that by staying away, economic influence in North Korea is conceded to China and South Korea in the short term.49 The political risk of regime collapse and ensuing instability of the economy are reasons for companies to stay away, while the harsh domestic criticism that private businesses would confront if they were to invest also constitutes a ­barrier.50 From a purely economic perspective, North Korea is not promising because it has no advantage other than cheap labour, a domestic market is lacking, and exporting to the United States and China is not possible. Unilateral and Multilateral Sanctions Japanese economic sanctions against North Korea are of fairly recent origin and involve a relatively straightforward legal framework. While the United States has imposed sanctions since 1950, laws for unilaterally implementing sanctions were not in place in Japan until 2004. Serious discussion on the establishment of a legal framework for sanctions started in Japan only after the firing of the Taepodong missile in 1998. North Korea is presently the state under the heaviest sanctions imposed by Japanese law and international regulations.51 This is remarkable as Japan is commonly known to shy away from using sanctions—a rather blunt instrument at the ‘power-play end’ of economic diplomacy. Broadly speaking, motivations have been threefold: the long-term purpose of sanctions is the maintenance of peace and safety in Japan;52 second, sanctions are imposed to express disapproval of hostile acts, such as the launch of missiles or the nuclear test; and third, sanctions have been implemented

48 ‘Tai-kita bijinesu shukushō no ugoki: Nissan ga torihiki teishi’ [Reducing Business with North Korea: Nissan Stops Trade], Yomiuri Shimbun, 11 October 2006. 49 Schoff, Political Fences, p. 23. 50 Furthermore, Pyongyang’s refusal to allow entry to Japanese nationals since mid2006 is obviously not helpful. Interview with a METI official in Tokyo, 23 April 2008. 51   Sanctions have been either unilaterally imposed under the FEFTCL and LSMCIPESS, or passed in conformation with UN resolutions (Security Council Resolutions 1540, 1695 and 1718). 52 See also Satoru Miyamoto, ‘Economic Sanctions by Japan against North Korea: Consideration of the Legislation Process for FEFTCL (February 2004) and LSMCIPESS (June 2004)’, International Journal of Korean Unification Studies, vol. 15, no. 2, 2006, pp. 21–46.

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in response to delayed progress in the human rights situation, including the abductees’ problem. Complementing official sanctions, the Japanese government has imposed restrictions on trade and dealings with North Korea that could be qualified as sanctions. Examples are tightening supervision of Chōsen Sōren and affiliated credit unions; labelling food products as products of North Korean origin; and support for North Korean asylum seekers.53 These measures serve to demonize North Korea and to restrict the trade and activities of North Korea(ns) in Japan, and are examples of Japan’s approach to economic diplomacy that aims to pressure Pyongyang economically and politically. The measures and sanctions that Japan has progressively imposed, especially since late 2006, are an expression of Japan’s increasingly hardline policy and an important explanatory factor for the sharp decrease in trade in recent years.54 The run-up to the third extension of Japan’s unilateral economic sanctions in April 2008 indicated, however, the desire of Japanese Prime Minister Fukuda’s government to soften Japan’s ­policy.55 As no breakthrough came, sanctions were extended. Nevertheless, the path towards this decision was remarkably different from before and exhibited readiness on the part of the Japanese government for greater engagement with North Korea. Economic and Humanitarian Assistance Setbacks in bilateral relations did not keep the Japanese government from providing humanitarian assistance when North Korea faced a food crisis in the mid-1990s. At a rare North Korean request, Tokyo in 1995 provided rice and medical supplies, and similar assistance was given in 1997. Tokyo 53 Christopher W. Hughes, ‘The Political Economy of Japanese Sanctions towards North Korea’, Pacific Affairs, vol. 79, no. 3, 2006, pp. 464–465. 54 Japanese sanctions were implemented after the North Korean missile launch and nuclear test in October 2006 and most recently renewed for a full year on 9 April 2010. 55 In several announcements in March and April 2008, Prime Minister Fukuda, as well as Chief Cabinet Secretary Machimura Nobutaka, stated that sanctions would not necessarily be extended. See, for example, ‘Kitachōsen e no keizai-seizai no enchō shimesu: Machimura Kanbōchōkan “Kazokukai” no yōsei ni’ [Signalling Extension of Economic Sanctions towards North Korea: Chief Cabinet Secretary Machimura Follows Request of ‘Kazokukai’], Yomiuri Shimbun, 16 March 2008. In April 2011 sanctions were extended to include a total ban on North Korean port calls in Japan. Six months later, the government decided not to impose further sanctions in light of improving prospects for dialogue between Pyongyang and other governments. ‘Noda holds fire on North sanctions’, Japan Times, 19 September 2011.

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suspended all help following the launch of the Taepodong missile over Japanese territory in 1998, but again pledged humanitarian assistance in 2000 and provided help in 2004. More recently, the Japanese government adopted a hardline stance towards Pyongyang on economic and humanitarian assistance, linking aid to the abductees’ issue. Japan’s (then) Foreign Minister Asō Tarō in 2007 went as far as to state bluntly that Japan ‘will not pay even one yen’ in assistance until the abduction issue is solved.56 Despite such tough talk in public, several examples of a simultaneous but little noted softer government stance on economic assistance exist. These occurrences did not arouse much public response even if the media reported them. A first example concerns the discussion on energy that was generated about the Russian island of Sakhalin. With the help of soft loans provided by the Japan Bank of International Cooperation (JBIC), the Japanese government and private companies since the 1970s heavily invested in the exploration of oil fields. In mid-2004 the possibility of oil produced at Sakhalin going not only to Japan but also to North Korea became real.57 The net effect would be, of course, that energy generated with Japanese taxpayers’ money would flow towards North Korea. This is hardly compatible with Japan’s strong rejection of aid to North Korea and its dire need for energy sources. A second accommodating decision by the Japanese government towards North Korea concerns the announcement in December 2007 that Japan was effectively to shoulder the Japanese expenses for KEDO.58 This assistance, provided through JBIC and amounting to approximately US$ 420 million, was provided to and to be returned by KEDO in five years starting from 2008. Although the Japanese Foreign Ministry officially stated that this debt was to be repaid by North Korea, the government admitted that the possibility of North Korea being able to repay was virtually nil. ­Indirect though it was, this writing-off of North Korean debt can in

56 Japanese Foreign Minister Asō Tarō in a speech in Fukuoka on 3 March 2007; see ‘Japan to Press Pyongyang for Abduction Probe’, Japan Times (online), 4 March 2007. 57 ‘Taikita ene-shien Roshia ni “ri”? Rokusha-kyōgi, Bei ni yoninron’ [Energy Support to North Korea Advantage for Russia ? Six-Party Talks, US Gives Consent], Asahi Shimbun, 25 June 2004. 58 ‘Kitachōsen no keisuiro kensetsuhi saimu, Nihon ga jitsujō “katakari” ’ [Japan to Shoulder Debt for Construction of Light-Water Reactor for North Korea], Yomiuri Shimbun, 22 December 2007.

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effect be regarded as assistance to North Korea.59 Like the Sakhalin case, however, the issue went largely unnoticed by the media and the public. The lack of public criticism on these issues illustrates the one-sided focus of the Japanese public on the abductees’ issue. While this single issue has made for an extremely negative view of Pyongyang, the North Korean question at large is hardly considered. At the same time, the examples of a softer stance towards North Korea provide insight into the broader considerations of the Japanese government, for which the public hardline stance is being used as a cover. As Japanese politicians and the public paid little attention to anything other than the abductees, humanitarian assistance became a political tool. The Japanese government refused to cooperate in energy and humanitarian assistance, to which the SPT-countries committed in February 2007.60 Even as North Korea faced food shortages from 2008, the Japanese government refused to provide relief, taking a substantially different stance from the United States, which continues to provide humanitarian aid. While prospective economic and humanitarian assistance are still levers in Japan’s relations with North Korea, Japan’s actual leverage declined with the sharp downturn in trade relations throughout the past decade. Its influencing power diminished not only in the bilateral but also in the international context. Seen from this perspective, it may be surprising that the Japanese government continued a negative economic diplomacy that involved several substantial downsides. The explanation may be twofold. First, Japanese policy-makers were satisfied with the attempts at influence through the withholding of prospective economic assistance and trade that would follow the normalization of relations. This stems from the conviction that North Korea cannot really start its road towards development without Japanese help—that is, money, technical assistance and investment. Second, Japanese policy-makers’ objectives actually have less to do with North Korea as such, but instead serve broader national and regional interests. This is in line with findings presented earlier in this chapter.

59 Indeed, this sum will most likely be deducted from the economic assistance / ODA scheme that becomes available with the normalization of diplomatic relations. 60 ‘Japan to Press Pyongyang for Abduction Probe’, Japan Times (on-line), 4 March 2007.

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The Multilateral Effort and Regional Diplomacy Japan’s economic diplomacy towards North Korea is not only practised through its policy on normalization and economic issues, but also in multilateral and regional diplomacy that involves economic policy questions. Since their establishment in 2003, the SPT have been the most important multilateral framework for comprehensive negotiations with North Korea. For the Japanese government the talks are a valuable ‘pipe’ for communication and at the same time a forum where economic instruments can be used for influence attempts in a multilateral setting. Japan’s attempts to influence Pyongyang’s position in the region are a expression of economic diplomacy at the ‘power-play end’. Here, too, the Japanese government practised an obstructionist policy. Tokyo opposed North Korean membership of economic and financial institutions, including regional and multilateral institutions such as the Asian Development Bank (ABD), the International Monetary Fund (IMF) and the World Bank. Japan’s obstructionist and postponing economic diplomacy in the regional context provides further insights into the broad objectives and targets that shaped Japan’s attitude towards North Korea. Six-Party Talks61 Tokyo put forward the idea for a six-way approach for negotiations with North Korea in 1998. The Japanese government was driven by fear of being left out in multilateral negotiations on an issue of great importance to Japan’s national security. Ever since the six-party process materialized in August 2003, Japan’s role has been constrained, however. Its policy is two-sided: Tokyo plays a largely circumstantial role in the practical sense; and is a powerful spoiler in a broader, strategic way. Its role is circumstantial because its leeway is framed by US initiatives, South Korean consent and Chinese brokering. It comes as no surprise, then, that Japan’s actual contributions have been minimal. This is true in proposals and suggestions for progress, actions to restart negotiations when talks were deadlocked, or outlining a medium- and long-term vision of the SPT process in the context of future relations in and around the Korean Peninsula.62 More critical, 61   This paragraph draws on Maaike Okano-Heijmans, ‘Keizai-ryoku no tōsha: Rokushakaidan ni okeru Nihon no yakuwari’ [Projecting Economic Power: Japan’s Role in the SixParty Talks], Tōyō Bunka Kenkyū, no. 13, 2011, pp. 369–383. 62 Ashizawa, ‘Tokyo’s Quandary’, pp. 420–421.

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perhaps, was Japan’s postponing and obstructing behaviour, which— beyond merely slowing negotiations—put the process as a whole at risk. The Japanese government employed economic and political instruments in two working groups that were established by the 2007 SPT Agreement.63 These are the Working Groups on economy and energy cooperation and on the normalization of North Korea–Japan relations. By making progress on the abductees’ issue conditional on the normalization of relations and provision of assistance, Japan effectively postponed progress in both fields. Moreover, the Japanese government refused to provide energy assistance, to which the parties committed in February 2007.64 Although energy assistance was progressing even without Japan’s cooperation, negotiations on normalization and economic cooperation lag behind. Tokyo clearly did not feel the need to comply with all of the provisions of SPT agreements and its commitment to the deal is half-hearted at best. From a US perspective, Japan’s participation in the SPT constitutes a critical paradox, particularly since Washington recently adopted a more engaging stance towards Pyongyang. On the one hand, US officials admit that a deal with North Korea will need the full backing of Japan. The substantial Japanese economic aid that would become available with the normalization of relations is a key component of a comprehensive agreement with Pyongyang.65 At the same time, however, Washington has made it clear that it will move ahead even without an immediate solution to the abductees’ issue. In an attempt to break the deadlock and avoid having to upset its ally when moving ahead, the United States pressed North Korea—in bilateral as well as multilateral meetings—to address the abductees’ issue with Japan. The situation is complicated by the crucial difference in threat perception between the United States and Japan. The two countries share concerns of nuclear and missile development and the export of ­weapons 63 Initial Actions for the Implementation of the Joint Statement, Beijing Agreement of 13 February 2007, part III. 64 In October 2008 Japan agreed to a US move to ask other countries—the United States, Russia and Australia have been mentioned—to replace Japan’s share of energy aid being provided to North Korea. At the same time, Japan agreed to provide technical assistance and shoulder costs for disabling nuclear facilities, indicating that its negative approach to economic diplomacy is not absolute and—to the extent that it is directly related to the abductees’ issue—symbolic. See ‘US Eyes Oil Aid Sources for North Korea/Replacements Sought for Japan Assistance’, Yomiuri Shimbun Online, 22 October 2008. 65 Schoff, Political Fences, p. 19; and Stephan Haggard and Marcus Noland, A Security and Peace Mechanism for Northeast Asia: The Economic Dimension (Washington, DC: Peterson Institute for International Economics, 2008).

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of mass destruction. Nevertheless, geographic proximity makes the threat more real for Tokyo than for Washington because Japan is in reach of North Korean missiles, nuclear devices and refugee flows. Anything less than complete denuclearization of the Korean Peninsula is hence unacceptable to the Japanese government. This explains Japan’s rather lukewarm response to the February 2007 SPT agreement, which includes a timeframe and monitoring mechanism for the declaration of nuclear programmes and disablement of existing nuclear facilities, but addresses denuclearization only in vague terms.66 Against this background, Japan’s hawkish Prime Minister Abe adopted the only strategy whereby Japan could maintain some control. His hardline approach included mentioning the abductees’ cause in the multilateral context whenever possible, and delaying the normalization of relations, while other parties struggled to achieve a multilateral agreement. This stance triggered criticism of Japan for ‘hijacking’ the SPT, because in the eyes of many—Japanese and non-Japanese—North Korea has conceded on the abductees’ issue in many ways. Even so, Abe’s actions suggested that he acted from the premise that, sooner or later, Japan would get what it wants because Japanese money is required for a successful conclusion of negotiations with North Korea in the SPT. Simultaneously, the multilateral talks serve as a welcome context for the Japanese government to meet with North Korea while not seeming weak. The reopening of consultations towards official negotiations in 2006 was desirable in order to confine tension and to appeal on the abductees’ issue bilaterally.67 The same can be said of efforts in late 2009early 2010 by the United States and China to reopen the Six-Party Talks. If and when this occurs, the government will have the opportunity to negotiate with North Korea and make progress without seeming weak. Until recently, however, and like in its bilateral policy, the Japanese government adopted an obstructionist approach involving the negation of political–economic means.

66 Tanaka Hitoshi, ‘Five Myths about Dealing with North Korea: A Japanese Perspective’, East Asia Insights: Toward Community Building (Tokyo: Japan Center for International Exchange), vol. 2, no. 3, 2007, p. 3. 67 Schoff, Political Fences, p. 21.

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North Korea’s Integration in the Region Japan’s diplomacy in the region with regard to North Korean membership of multilateral economic and financial institutions is a further expression of Japan’s negative economic diplomacy. Again we find that Tokyo employs negotiations on economic policy questions for strategic means. In 2000 North Korea was welcomed for the first time in the ASEAN Regional Forum (ARF), the organization whereby ASEAN member states and twelve countries in the Asia–Pacific region—including Japan, China, South Korea, the United States and Australia—discuss security issues. North Korea even signed ASEAN’s so-called ‘non-aggression pact’ by joining the Treaty of Amity and Cooperation in July 2008. While North Korea thus participates in multilateral forums that address regional security, it has until now not been granted membership of financial institutions. The Asian Development Bank (ADB) rejected Pyongyang’s membership application three times, mainly because of resistance from Japan and the United States. Opposition by Japan—in conjunction with the United States—to Pyongyang’s entry in the ABD, the International Monetary Fund (IMF) and the World Bank effectively hampers North Korean trade relations and blocks its access to financial funds that could stimulate the North Korean economy. Pressure on Japan to accept North Korean membership of international financial institutions, however, increased in October 2007 when North Korea’s speedy accession to the IMF and the World Bank was proposed at the IMF and World Bank annual meeting.68 Japan’s obstructing power diminished further after Washington removed North Korea from the list of terrorism-sponsoring states. In the meantime, North Korea attempts to move forwards on the issue by directly linking membership of international financial institutions to the nuclear issue. In August 2008 North Korea asked the United States to support it joining the ADB and IMF, in return offering to accept a USproposed protocol aimed at examining North Korea’s declared nuclear programmes.69 Although the United States will not give in lightly to North Korean requests, it is clear that Japan needs to consider the actual leverage of its 68 ‘Kankoku fuku-shushō: IMF ha Kitachōsen kamei-junbi wo’ [South Korean Vice-PM Says IMF Should Prepare for North Korea’s Membership], Nihon Keizai Shimbun, 23 October 2007. 69 ‘Pyongyang Seeks Membership in International Lenders’, Korea Times, 18 August 2008.

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negative approach—and the ramifications of failing to adjust promptly— when other parties move on these issues. The United States’ position is of particular importance in this regard, as the interrelatedness of the nuclear, economic and abductees’ issues makes for a threesome of interdependency among the United States, North Korea and Japan. As mentioned earlier, Japan’s obstructionist policy in the SPT and in other multilateral forums was facilitated by the United States hindering Pyongyang’s (economic) relations with other countries by including North Korea on the terror list. It is therefore doubtful whether Japan can maintain its hardline policy since the United States removed North Korea from the list of State Sponsors of Terrorism. At the very least, it is safe to say that Japan’s obstructive power is at least less effective when not backed—officially and unofficially—by its alliance partner. In light of these developments, the Japanese government may give greater consideration to the consequences of its negative approach to the North Korea question on its position in the region if and when other parties turn towards more engaging policies. As outlined earlier, the government did not mind too much the fact that it is considered as sidelined in the SPT. However, for Japan to be left out in discussions on a multilateral, cooperative framework that may grow from the six-party process may be more problematic. Proposals for the establishment of a more institutionalized North-East Asian cooperative forum are increasingly heard. Discussions include the question of whether such a framework is to grow from the SPT or from an expanded ASEAN framework.70 The Japanese government, however, does not seem to be seriously engaged in debates on this issue—domestically or internationally—although its regional diplomacy and the redefining of its role in East Asia will be seriously undermined if Tokyo is neither part of nor taken seriously in these talks. Even if discussion on these issues seems premature at this stage from a Japanese point of view, Tokyo needs to make sure that its ideas and interests are known and addressed.

70 A ‘North-East Asia Peace and Security Mechanism’ Working Group was established with the 2007 SPT Agreement. See also Ruediger Frank, ‘Integrating North Korea into Regional Framework’ The Korea Herald, 21 May 2008.

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Policy Drivers What are the main policy drivers of Japan’s policy towards North Korea and how is the balance of national interests perceived (differently) by Japanese policymakers? Answers to these questions can be obtained by placing the findings on what motivates Japanese policies towards North Korea in the conceptual continuum put forward in chapter one. This is schematically illustrated in Figure 8, wherein the main goals of Tokyo’s policies are highlighted in dark colour. Applying the conceptual framework accordingly leaves little doubt that Japan’s policies of recent years are found primarily on the ‘power play-end’ of economic diplomacy rather than on the ‘business end’. The three policy tools that the Japanese government has emphasized in recent years—that is, unilateral and multilateral sanctions, (negative) regional diplomacy and, albeit hesitantly, the Six-Party Talks—all appear at the ‘power play-end’ of the continuum. On the other hand, Tokyo has largely avoided action on economic diplomacy’s ‘business end’. This includes the promotion of bilateral trade and investment, investment in the normalization of relations—which might also further economic assistance and trade diplomacy—and humanitarian assistance. In sum, Japan’s policies towards North Korea are a clear example of economic diplomacy wherein power play has the upper hand.

primary goal: political

‘power play-end’ ** stability **

unilateral and multilateral sanctions (ODA) regional diplomacy Six Party Talks humanitarian assistance

tool: political

normalization of relations bilateral trade and investment ‘business-end’ ** prosperity **

tool: economic

economic assistance

primary goal: economic

Source: Modified from Figure 1 (chapter one).

Figure 8. Japan’s Economic Diplomacy towards North Korea—The Conceptual Continuum. Source: Modified from Figure 1 (chapter one).

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Realizing that (negative) economic diplomacy is a defining factor of Japan’s policy towards North Korea is one thing; understanding why the Japanese government chooses to adopt such a policy is quite another. Japan’s policy can only be understood when placed against global developments and the bilateral relationship between Japan and China, which is the most important and one of the most volatile of all inter-state relations in East Asia. Tokyo and Beijing recognize the significance of stable relations and simultaneously compete for political influence in the region. Compared to this strategic competition, bilateral relations with North Korea are not very important to Japan. Moreover, preparations in the United States in 2002 for the invasion of Iraq and a tough stance of the Bush administration towards North Korea, made rapprochement between Japan and North Korea difficult. This, then, largely explains Tokyo’s negative approach to economic ­diplomacy and its role as spoiler in the SPT; Pyongyang’s belligerency creates leeway to pursue a more proactive military policy and to create more offensive capabilities for broader (collective) defence purposes in the light of an increasingly strong China and mounting uncertainty about the alliance with the United States. Although the Japanese government wants a denuclearized Korean Peninsula and a stable neighbour, an SPT ­solution was not an immediate priority. Rather than working actively to improve the bilateral relationship with North Korea, Tokyo prioritized the advantages that an obstructionist stance offers in the multilateral and domestic sphere—that is, retaining the status quo internationally and winning votes domestically. In adopting an obstructionist policy, Japan has furthermore been assured that China—chair of the SPT—is not granted foreign policy success. The obstructionist approach appears, however, unlikely to serve Japan’s interests in terms of its repositioning in the region and strategic rivalry with China. After all, an assessment of how Japan’s negative policy impacts on China’s standing in the region should be based on more than China’s current role in the six-party process. Beijing’s role in a multilateral cooperative framework that may succeed the SPT and its economic strength and influence in North Korea need to be considered as well. Japan may rightly be confident that its funds and technology are essential for true economic development in North Korea—if and when Pyongyang is ready for change. Even so, Chinese advancement into North Korea goes against Tokyo’s long-term economic interests on the Korean Peninsula. The observation by a Japanese official that China already regards North Korea as its fourth north-east province makes this issue all the more

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pressing.71 Furthermore, the Japanese government misses out on a chance to be (seen as) proactively involved in the region. Assuming that Japan believes that a regional security and economic framework not dominated by China serves its interests,72 an ASEAN-based forum may have important benefits over an SPT-based mechanism. Japan’s obstructionist stance thus not only frustrates short- and medium-term success that would partly be credited to China, but—and more fundamentally—it also undermines Japan’s potential to contribute proactively to the region’s stability and prosperity. This latter effect is obviously at odds with Japan’s long-term interests, overall foreign policy and potential to exert influence in the region. Conclusion Considering Japan’s involvement and concerns at the international, regional, bilateral and domestic levels, it is clear that there are few issues in its relationship with Pyongyang over which Tokyo has real control. The Japanese government holds powerful cards vis-à-vis North Korea, but the effectiveness of its influence attempts is constricted because of the context in which relations exist. Economic diplomacy is a potentially powerful instrument in the bilateral and multilateral environment, and many Japanese officials and politicians have for years propagated a negative approach to economic diplomacy. They acted from the premise that as long as little change should be expected from Pyongyang, the slowing of bilateral and multilateral negotiations by taking an unaccommodating stance was to the benefit of Japan’s balance of national interests. By projecting rather than exercising power through a one-sided policy, these individuals aimed to enhance Japan’s national security at large, thus prioritizing political stability rather than economic prosperity in their pursuit of the balance of national interests. This eventually resulted in a hardline 71   Interview by the author with a METI official, Tokyo, April 2008. This refers to the north-east region’s recovery policy of China’s central government, which aims—among other things—to develop the region and increase regional cooperation. Officially, it covers the provinces of Liaoning, Jilin (with the Yanbian Korean Autonomous Area and Changbai Korean Autonomous County as two of its four ethnic minorities’ areas) and Heilongjiang, as well as four of the easternmost leagues of Inner Mongolia. 72 One is led to believe that Japan would consider its interests to be better served in a framework that includes the United States and possibly other non-Asian countries, considering Japan’s long support for the broader East Asia Summit over an ‘Asian-only’ ASEAN+X framework.

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approach that constricted the Japanese government’s policy agenda and options towards Pyongyang. Japan’s policy involves (in)actions at the ‘business end’ as well as at the ‘power-play end’ of economic diplomacy. It is exercised through the (in)direct promise, provision, withholding and sanctioning of economic benefits, and is largely practised in the bilateral and multilateral context. Domestic policies such as the tightening or easing of indirect help for Pyongyang by supporters of North Korea in Japan (mainly financial flows) supports Japan’s economic diplomacy. As trade relations between Japan and North Korea are virtually non-existent at present, Tokyo’s strongest economic cards lie (hidden) in the fact that vast sums will become available with normalization of relations and that Japan’s aid is necessary for a comprehensive, multilateral solution to the North Korean nuclear crisis. The economic implications of the normalization of relations and the prospect of economic and humanitarian assistance give Japan important levers in the short to medium term. Furthermore, by making progress on the abductees’ issue a precondition for the normalization of diplomatic relations, the Japanese government effectively employed this issue as justification for its negative approach to economic diplomacy—that is, the postponement of normalization and economic aid. Although the regime in Pyongyang is the direct target, the Japanese government’s broader policy goals prevail. While Japan officially aims to cooperate with the North Korean government in order to settle issues of concern to both states, its actions from late 2002 until mid-2007 suggest that Tokyo sought to maintain the status quo. Improving bilateral relations appeared to be a secondary or even tertiary concern. Several factors explain this. First, Japanese politicians such as Abe Shinzō assessed that— on the economic front—North Korea has relatively more to gain from improved relations. That is, the economic ‘opportunities lost’ incurred by North Korea from Japan’s negative economic diplomacy outweigh the benefits lost on the Japanese side. Such reasoning was confirmed right by the recognition of others—including the United States and North Korea—that only Japan can provide the funds that are needed for a comprehensive SPT agreement. Although the nuclear issue precedes economic issues in multilateral negotiations, a peaceful and stable Korean Peninsula is hardly conceivable without progress in the economic field. And while China and South Korea now outrank Japan in terms of trade with North Korea, it is only with Japanese money, technology and investments that the North Koreans can really start to rebuild their economy. Accurate or not, these considerations appear to have informed ­policy-makers’

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d­ ecisions and resulted in an emphasis on power play to secure the balance of national interests. Japan obviously has more to gain from an obstructionist policy than only making sure that North Korea does not obtain economic benefits without real concessions. Pyongyang’s nuclear and missile programmes pose a direct security threat, but at the same time provide Japan with an opportunity to strengthen its military capabilities. Tokyo can enhance its regional posture without reference to its broader concerns. In other words, the North Korean threat creates a favourable environment for stepping up missile defence and increasing the role of the Self-Defence Forces in areas surrounding Japan, thereby improving Japan’s national security at large. Thus, from a regional perspective, the North Korean threat is a welcome justification to improve military capacities and Japan’s relative position without having to refer to China’s rise. On the domestic front, the negative approach to economic diplomacy served politicians’ personal and partywide purposes against the background of a very critical public opinion towards North Korea. The winning of votes by Japanese parliamentarians playing tough on North Korea should, however, not be regarded as the primary goal of Japan’s policy; the costs of Japan’s negative economic diplomacy are too substantial to validate such a claim. Winning votes by demonizing North Korea can furthermore be seen as a secondary or even tertiary, rather than a primary, goal because it strengthens policy-makers who aim for an obstructionist approach more than it is a political goal in itself. Last but not least, it may be recalled that the confrontational stance was originally a default option of the Japanese government—suggesting that the current stalemate is more a result of a realistic response to a situation that is largely beyond the control of Japanese actors, than of intrinsic motivation. Recent Policies and Future Expectations It gradually became apparent that little change should be expected from the DPJ, which was in power from September 2009 until December 2012. As Washington, Beijing and Pyongyang tried to make progress in the multi­lateral framework, the party’s initial aim seemed to be for a facesaving way to break the impasse and soften Japan’s negative approach to economic diplomacy.73 As international tensions increased again in 73 Following an escalation of tensions in April–July 2009—when Pyongyang conducted a second nuclear test, launched several missiles and left the Six-Party Talks, and the UN

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spring 2010, however, little progress was sought in any of the key issues of bilateral and multilateral concern—the abductees, normalization of relations, sanctions and in the SPT. Simultaneously, the DPJ staunchly supported South Korea’s tough stance, against a background of worsening inter-Korean relations.74 Better relations with North Korea would undeniably have certain security and potential economic benefits for the Japanese. North Korea’s geographic closeness to Japan makes Japan a vulnerable target, and the collapse of North Korea can hardly be thought to be in Japan’s interest, considering the political unrest and flow of refugees that would surely follow. Indeed, improved chances for regional stability, the failure to settle Japan’s war and colonial history with North Korea—and even Russia and the region at large—deprived access to cheap natural resources and other goods, and a worsening of Japan’s relative economic position compared to the Chinese and Koreans, all constitute ‘opportunities lost’ for a Japan that adopts a negative economic diplomacy towards North Korea.75 For these reasons, security concerns will likely be addressed through more positive economic diplomacy towards North Korea if and when progress is made in the multilateral context and in the abductees’ issue. An engaging policy, similar to the new economic diplomacy pursued towards China, is feasible; improved economic ties in the 1990s contributed significantly to the reduced likelihood of Sino-Japanese military conflict76 and served as confidence-building measures in the political field. Change in Tokyo will not come easily, however, and it remains questionable whether the elite in Pyongyang is willing to open and start reforming North Korea. Thus, the desire of both Japan and North Korea to break the stalemate should not be overestimated. and individual countries toughened sanctions—a positive environment for negotiations came with former US President Bill Clinton’s visit to Pyongyang in August and North Korean willingness to return to multilateral talks in October. 74 A downward spiral was triggered again in March 2010 by the sinking of the South Korean 1,200-ton warship Cheonan close to the North Korean border, after an underwater explosion widely believed to be caused by a North Korean torpedo. The Japanese government extended sanctions and introduced new measures against North Korea in April–May 2010, and the United Nations widened sanctions soon thereafter. 75 In the domestic context, it has been argued that improved relations with North Korea would also add to a solution to a domestic threat to national security, namely that of (North) Koreans who are resident in Japan (estimated at 200,000 individuals); interview by the author, Tokyo, April 2008. 76 Yoshinori Kaseda, ‘Japan and the Korean Peace Process’, in Kwak Tae-Hwan and Joo Seung-Ho (eds), The Korean Peace Process and the Four Powers, (Hampshire: Ashgate, 2003), p. 139.

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CHAPTER FIVE

JAPAN’S NEW ECONOMIC DIPLOMACY: CHANGING TACTICS OR STRATEGY? Introduction* This chapter assesses continuity and change in the diverging sub-fields of Japan’s economic diplomacy since the early 1990s. It does so by analysing developments in each of the strands of economic diplomacy that are recognized in the conceptual framework established in chapter one. Complementing the detailed studies presented in the previous chapters, a comprehensive picture thereby emerges of activity and inactivity along the economic diplomacy continuum. The question that is addressed here is whether the Japanese state is, as proposed by Linda Weiss, in a transformative phase—that is, ‘adapting, dismantling and innovating’—rather than ‘normalizing’ or converging on a neo-liberal (Anglo-American) norm.1 Is the Japanese government ‘losing faith in [its comprehensive security] approach and concentrating instead on the military security dimension’, as Christopher Hughes puts it?2 Further understanding of happenings in the field of economic diplomacy is also expected to contribute to the questions on Japan’s foreign policy and diplomacy that were raised in the works of Richard Samuels and Kenneth Pyle.3 Will Japan’s foreign policy be very different from the grand strategy that Yoshida pioneered, as Pyle argues, or will change be continuative, involving a reformulation rather than abandonment of the Yoshida Doctrine, as Samuels suggests? In other words, are we witnessing a change in Japanese tactics or strategy? The analysis presented in this chapter considers how and why Japanese economic diplomacy practice evolved throughout the past two decades.

* This chapter is slightly revised from ‘Japan’s New Economic Diplomacy: Changing Tactics or Strategy?, Asia-Pacific Review, vol. 19, no. 1, 2012, pp. 62–87. 1   Linda Weiss, ‘Developmental States in Transition: Adapting, Dismantling, Innovating, Not “Normalizing” ’, The Pacific Review, vol. 13, no. 1, 2000, pp. 21–55. 2 Christopher W. Hughes, Japan’s Security Agenda: Military, Economic, and Environmental Dimensions (Boulder, CO: Lynne Rienner, 2004), p. 208. 3 Recall that chapter two discussed these questions in greater detail.

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Five case studies, each addressing a strand of the conceptual framework of economic diplomacy, collectively suggest that slowly but steadily, the emphasis on commercial goals of economic diplomacy is broadened to include also a more outspoken and visible element of strategic power play, including formal unilateral sanctioning. Continuity on the business end as well as change on the power-play end is spurred in particular by the re-emergence of China and the evolving role of the United States in the East Asian region, as well as by Japan’s decline as an economic power in both absolute and relative terms. Relationships between the public and private sectors (kan–min) are also evolving, with the trend pointing towards a narrowing rather than loosening of ties. The chapter starts with a brief discussion of the way by which the conceptual framework of economic diplomacy applies to the case of Japan. The economic diplomacy continuum—which was designed primarily with practice of Western countries today in mind—is thus refined from its general form to better suit Japanese realities. This is followed by a series of case studies that trace continuity and change since the 1990s in the five strands of economic diplomacy that are encapsulated in the framework: commercial diplomacy (including tourism promotion); trade diplomacy; financial diplomacy; positive incentives (primarily development cooperation); and negative sanctions. General trends in Japan’s economic diplomacy can then be discerned, and the relevance of the country’s diplomatic style and practice can be considered more broadly. The case is made that the shift in Japanese tactics that is brought to light in this chapter is of consequence to a world where differences between ‘the West and the rest’ will only rise. The Economic Diplomacy Continuum As discussed in the previous chapters, Japan—as the defeated power in the Pacific War and latecomer in a system that was largely dominated by the United States and European countries—has emphasized economic diplomacy as a means to secure economic prosperity, political stability and national security. While numerous studies of expressions of Japan’s economic diplomacy exist, these commonly address one or a few particular element(s) of the whole.4 The distinctiveness and overlap between 4 See, for example, on Japan’s commercial diplomacy, Christopher B. Johnstone, ‘How Much Bang for the Buck? Japan’s Commercial Diplomacy in Asia’, in Jeffrey Garten, Robert

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v­ arious strands—that is, the policies, tools and purposes—thereby remain largely ambiguous. In an attempt to overcome this flaw, the present chapter takes a comprehensive approach and applies the conceptual framework of economic diplomacy developed in chapter one to the wide range of Japanese policies today. The fundamentals of Japan’s economic diplomacy are schematically represented in Figure 9, which is slightly adjusted from Figure 1 (chapter one) to accommodate the Japanese case. While the dashed line in Figure 9 represents the continuum of Japan’s economic diplomacy, the dotted lines mark variations between policies over time. For example, economic considerations have featured greatly in Japan’s development assistance (incentives), and that of other Asian countries in its wake. While aspiring to build friendly ties, emphasis has been given to promoting the economic growth of both the sending and the recipient states, rather than direct efforts to improve political and social rights such as good governance and human rights. In the 1990s, however, the Japanese government shifted course in response to pressure from European donors, and more recently it is again adjusting its policies because of competitive pressures from emerging and other (Asian) donors. Similar differences ‘power play-end’ ** stability **

primary goal: political regional rivalry tool: political

negative sanctions ODA financial diplomacy

tool: economic economic cooperation

trade diplomacy commercial diplomacy tourism promotion primary goal: economic ‘business-end’ ** prosperity ** Source: slightly modified from Figure 1 (chapter one).

Figure 9. Strands of Economic Diplomacy: The Case of Japan. Source: slightly modified from Figure 1 (chapter one)

Zoellick and James Shinn (eds), Riding the Tigers: American Commercial Diplomacy in Asia (New York: Council on Foreign Relations, 1998); on official development aid, see David Arase (ed.), Japan’s Foreign Aid: Old Continuities and New Directions (London: Routledge, 2005); and on sanctions, see Jean-Marc F. Blanchard and Norrin M. Ripsman, ‘A Political Theory of Economic Statecraft’, Foreign Policy Analysis, vol. 4, no. 4, 2008, pp. 374–398.

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and policy shifts are discernible in the field of trade diplomacy, where the Japanese government is apparently relatively more concerned with political–strategic rather than commercial considerations. In other words, the Japanese government sees trade agreements as an important tool in the struggle for influence in the East Asian region and to spur domestic restructuring of the economy, while businesses that favour such agreements seek enhanced commercial opportunities abroad. As discussed earlier, the more that a government manages to interrelate the different strands of economic diplomacy, the more comprehensive a country’s strategy becomes. But while a broad, inclusive strategy is an important requirement for success in the long term, it is not a guarantee. Rather, it denotes the capabilities, the intentions and perceptions on the perceived balance of national interests, but says little about the actual impact of policies, which depends on the context in which the undertaking is pursued. The main aim of this chapter is to contribute to understanding of the former—that is, the comprehensiveness, structure and evolvement of Japanese policies—while the successes and failures of activities are discussed in less detail. The findings of chapters three and four on the business end and power-play end of Japan’s economic diplomacy are incorporated in the analysis and complemented by smaller case studies detailing developments in other economic diplomacy strands. In this way, the happenings and long-term trends are analyzed in a comprehensive, coherent matter and as parts of a continuum. This is obviously not to deny that the distinction between the different strands is fluid or that certain overlap exists. Five Strands of Japan’s Economic Diplomacy The Japanese government has for a long time adhered to a policy that integrates economics, politics and security. Only recently, however, has explicit reference been made to the concept of economic diplomacy. The advent of the DPJ government in September 2009 marked a clear turning point in this regard. The staunchest promoter of economic diplomacy as part of foreign policy was the DPJ’s figurehead, Maehara Seiji—first in his position as Minister for Land, Infrastructure, Transport and Tourism, and from September 2010 until his sudden resignation in March 2011 as Minister for Foreign Affairs in the reshuffled Kan Cabinet. Under the strong leadership of Maehara, economic diplomacy was placed at the centre of foreign policy. As pointed out in chapter two, the following

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five pillars were emphasized in Japan’s Diplomatic Bluebook of 2011: (1) promoting the free-trade system; (2) securing the long-term and stable supply of resources, energy and food; (3) the international promotion of infrastructure systems; (4) the promotion of Japan as a tourism-oriented nation; and (5) publicizing the Japan brand.5 While the financial field is left untouched, the apparent overlap of these pillars and the strands of the conceptual framework suggests that the conceptual framework is indeed a useful tool by which to trace continuity and change in Japanese policies. What is more, the continuum presented in this framework helps to identify which considerations are considered and how they are prioritized by policymakers in their pursuit of the balance of national interests. The following paragraphs present short case studies that discuss policy shifts and the evolving institutional setting of Japan’s contemporary economic diplomacy. The cases cover the five strands of economic diplomacy that are identified in the conceptual framework, involving commercial diplomacy, trade diplomacy, and positive and negative inducements—­ primarily ODA and sanctions. This involves a partial recapturing of findings of chapters three and four, complemented by a discussion of developments in other areas of Japan’s economic diplomacy. The key parameters to assess continuity and change in these fields are the following: (1) highlevel domestic policy initiatives; (2) bilateral or multilateral negotiations with other countries; (3) debates in the public sphere involving politicians, the private sector, academia and the general public; and (4) institutional and legal reform. The recurring question is whether initiatives in these respective areas are being undertaken, planned, or not considered at all—that is, whether the trend is towards increasing or declining activity in the various economic diplomacy strands. Based on these findings, a comprehensive assessment is made of continuity and change in Japan’s economic diplomacy at large and of general trends since the 1990s. Commercial Diplomacy Two of the five economic diplomacy pillars put forward in Japan’s Diplomatic Bluebook 2011 constitute expressions of commercial diplomacy. These are the promotion of infrastructure systems abroad and the promotion of Japan as a tourism-oriented nation. The fifth pillar of publicizing the Japan brand is obviously closely related to these two. 5 MOFA, Diplomatic Bluebook 2011, p. 8.

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Promotion of infrastructure systems abroad: As already noted in chapter two, trade and investment promotion have long been two defining elements of Japan’s economic diplomacy. Primary responsibility for policymaking in this field lies with the Ministry for Economy, Trade and Industry (METI), while implementation is undertaken by the Japan External Trade Organization (JETRO). At both the policy and the practical level, policies have evolved significantly in recent decades. The initial focus on export promotion and facilitation of trade complaints from Japanese companies abroad (business advocacy) has been broadened to include also outgoing investment promotion. Furthermore, a serious effort to promote foreign direct investment into Japan materialized in the new millennium, but more recently JETRO’s focus returned to its outgoing function.6 Active support for Japanese enterprises has become particularly important in recent years, with the advance of economic partnerships worldwide and the rising demand for infrastructure, especially in Asia.7 As detailed in chapter three, recent proactive efforts by the Japanese government to promote infrastructure systems abroad primarily target industries that concern themselves with environmental and energy technology. Exemplary in this regard is the Infrastructure and Plant-Exporting Assistance Committee that was established at JETRO’s Tokyo headquarters in April 2010. This committee works with METI’s promotion and strategy offices that are active in various sectors, including the railway, nuclear power generation, water, and next-generation automobile industries. Efforts of the Japanese government in this field aim primarily to help its industries find new markets abroad, while at the same time addressing issues of resource security, and securing cooperative relations with other countries. Adjustment to shifting global power balances, domestic politics, and climate change challenges also play a role, while ‘hard’ security issues are barely considered. Notwithstanding this new activism, the promotion of infrastructure systems abroad faces various difficulties. The lack of a structure to provide the lump package of equipment supply, maintenance and management, together with low price competitiveness, are seen as major reasons for the problems facing both the nuclear and water industries. Unsuccessful bids for nuclear power projects in the United Arab Emirates and ­Vietnam—which were lost to South Korea and Russia, ­respectively—served as a wake-up

6 Interview with JETRO official Hiroshi Kobayashi, Tokyo, 4 February 2010. 7 MOFA, Diplomatic Bluebook 2011, p. 29.

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call and spurred reorganization efforts and government involvement. This included the creation in September 2010 of a ‘Ministerial Meeting for the Development of Package Infrastructure Overseas’ and of a support office at MOFA in October 2010. Tourism promotion: In 1964 the Japan National Tourism Organization was established, with thirteen offices around the world, ‘to further international exchange through tourism’. Only recently, however, have serious efforts to increase tourism in Japan been placed into a context of their added value for Japan’s domestic economy and economic diplomacy. A 2003 policy speech by (then) Prime Minister Koizumi Jun’ichirō laid the basis for the government-sponsored ‘Visit Japan’ scheme, and four years later the Tourism Nation Promotion Basic Law was enacted and preparations were made for the comprehensive, organized promotion of Japan as a tourism nation. But even when the Japan Tourism Agency was established in 2008, little was made of tourism (promotion) as part of economic diplomacy practice. A clear indication of the shift in this direction, however, was the June 2011 officers’ meeting on the economic diplomacy for reconstruction, which was held at the Ministry of Foreign Affairs with the aim of revitalizing exports from Japan and increasing the number of foreign visitors to Japan. Practical steps in recent years have included attempts to enhance easier entry for visitors by improving airport access and introducing more flexible visa regimes for visitors from countries with growing rich and middle classes, especially China, as well as for medical purposes. These initiatives aim primarily to tap tourists’ purchasing power and thereby to revitalize Japan’s domestic economy. Tourism was taken up as a pillar of the DPJ’s new economic growth strategy of 2010, and explicit targets for tourism revenues were set in spring 2011. This appears to have also spurred initiatives at the local level, such as ‘anime tourism’ in Saitama province, where the chamber of commerce, fans and publishers joined forces. Complementing local and national-level initiatives, tourism is increasingly discussed also at the international level, both in multilateral forums and regionally. When tourism ministers from the APEC countries gathered for the first time in 2000, they committed to improving the economic, cultural, social and environmental well-being of APEC member economies through tourism. Ten years later they emphasized the development of sustainable tourism industries and called for investment in newly emerging trends—including medical/wellness tourism and sports tourism. Moreover, ministers from Japan, China and South Korea have also gathered in recent years to

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d­ iscuss tourism trilaterally, thereby also facilitating cooperation between officials from local government tourism bureaus, travel agencies and airlines. At the trilateral meeting hosted by China in 2010, initiatives were made to promote environment-friendly tourism to help reduce carbon dioxide emissions, an indication of attempted linkage to the ‘green’ economic diplomacy effort that was discussed earlier. To summarize, it is clear that a range of new policy initiatives is being undertaken in the field of commercial diplomacy. These are occurring at the local, provincial and national levels, as well as in bilateral and multilateral meetings with other countries. Politicians and representatives from a diverse private sector are increasingly active, searching for new ways to further cooperation between them. Both in the field of trade and investment promotion—infrastructure systems in particular—and tourism, this also involves high-level political initiatives and the establishment of new agencies. Trade Diplomacy Promotion of the free-trade system constitutes the first of five economic diplomacy pillars put forward in Japan’s 2011 Diplomatic Bluebook. Certain (Cabinet) members of the DPJ have shown to be truly committed to this cause, albeit more so at the bilateral and (sub-)regional level rather than at the multilateral level—that is, within the WTO.8 Furthermore, attempts to proceed in this direction have faced fierce opposition from within the party, as well as from other domestic players—in particular the agricultural sector, which has been largely successful in keeping many of Japan’s protectionist policies in place. As a result, initiatives are realized only very slowly, if at all, and Japan has often lagged behind other countries. The surge in negotiations towards bilateral and multilateral trade agreements in Asia that started in the late 1990s has received extensive ­attention.9 Tokyo’s decision to embark on this path came in response to the proliferation of trade agreements in the global economy (with negative consequences for Japanese companies that did not enjoy such preferential

8 The Cabinet reshuffle of January 2011 was directly linked to this internal rift. As a sign of Prime Minister Kan gearing up to seek FTAs, the more pro-free trade Kaieda Banri also replaced Ogata Sadako as METI’s minister. 9 For the case of Japan, see, for example, articles by Masahiro Kawai and Shujirō Urata.

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treatment) and the stagnation of multilateral negotiations.10 The Japanese government’s ambitions are laid out in the Basic Policy on Comprehensive Economic Partnerships, which was published in November 2010. Since October 2009, bilateral negotiations with Vietnam, Peru, Mongolia, India, South Korea and Australia were concluded or given new impetus. Within the region, studies are being undertaken to realize regional economic partnerships such as the China–Japan–Korea FTA, East Asian Free Trade Agreement (EAFTA) and the Comprehensive Economic Partnership in East Asia (CEPEA). Furthermore, the Japanese government is aiming to join negotiations on the so-called Trans-Pacific Partnership Agreement (TPP)—a regional free-trade initiative involving the United States, Australia and other Asia-Pacific nations—as well as to further talks with the European Union and the Gulf Cooperation Council. Japan’s FTA policy has aimed to score points on three goals: (1) conferring important economic advantages—such as restoring the level playing field for companies that have been excluded from existing trade areas and to expand market share; (2) furthering new rules given the WTO deadlock; and (3) achieving political and diplomatic goals—that is, consolidating relations with other countries and Japan’s influence in the region.11 Indeed, the rivalry that exists between Japan and China has led both governments to engage countries in the Asia-Pacific region through bilateral and regional trade agreements.12 The Japanese government prefers the inter-regional TPP (which was pushed for by the United States) and the CEPEA, covering ASEAN plus Six (with China, Japan, South Korea, India, Australia and New Zealand). China is excluded from the TPP’s negotiations and instead emphasizes an intra-regional EAFTA (involving ASEAN plus Three, meaning China, Japan and South Korea).13 10 Saadia M. Pekkanen, Mireya Solís and Saori N. Katada, ‘Trading Gains for Control: International Trade Forums and Japanese Economic Diplomacy’, International Studies Quarterly, vol. 51, December 2007, pp. 945–970. 11   Mireya Solís, ‘Globalism Ascendant, Regionalism Stagnant: Japan’s Response to the Global Financial Crisis’, The Hague Journal of Diplomacy, vol. 6, nos. 1–2, 2011, pp. 51–52. See also Naoko Munakata, ‘Regionalization and Regionalism: The Process of Mutual Interaction’, in RIETI Discussion Paper Series, 04-E-006 (Tokyo: Research Institute of Economy, Trade and Industry, 2004). 12 For more on this, see, for example, Lam Peng Er, ‘Japan’s FTA with Singapore: The China Factor and Regionalism’, Japanese Studies, vol. 26, no. 2, 2006, pp. 211–220; and Aurelia George Mulgan, ‘Where Japan’s Foreign Policy Meets Agricultural Trade Policy: The Australia–Japan Free-Trade Agreement’, Japanese Studies, vol. 28, no. 1, May 2008, pp. 31–44. 13 This trade rivalry may be likened to the ongoing competition in the field of regional institution building—wherein Japan favours the intra-regional East Asia Summit ­(including

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As the Kan ­administration reviewed its policy priorities and postponed its decision about whether or not to join TPP negotiations, it became clear that opposing forces still had a stronghold in the wake of the March 2011 triple disaster of earthquake, tsunami and nuclear crisis in Japan. Even so, diplomatic concerns relating to alliance politics and regional rivalry apparently had the upper hand, as the Japanese government in November 2011 announced its intention to participate in the TPP negotiations.14 This clear example of domestic politics and geopolitical considerations shaping government approaches and interfering with economic logic is indicative of the importance of the IPE–security nexus and provides evidence of attempts at power play by the Japanese government. There can be little doubt that the economic decline of Japan has (had) a negative influence on Japan’s ability to wield power through trade diplomacy, not only multilaterally and through free-trade agreements but also with regard to engagement with countries in the region. Indeed, the recent (re)surfacing of territorial disputes with Russia concerning the Northern Territories has been directly linked to Japan’s declining economic strength.15 The same can be said with regard to rising tensions between Japan and China and South Korea concerning the Senkaku/Diaoyutai Islands in the East China Sea and Takeshima/Dokdo, respectively. This worsening position in which Japan finds itself politically and diplomatically constituted another strong driver behind the DPJ’s efforts to step up negotiations on economic partnerships. Indeed, former Japanese Prime Minister Kan Naoto emphasized that it will be vital for Japan to revive its economy in order to restore its national strength. Initiatives to further Japan’s free-trade agenda are taken not only by government actors, but also by Japan’s biggest business association—Nippon Keidanren—which published its ‘Proposals for Japan’s Trade Strategy’ in April 2011. Furthermore, in an unprecedented effort to win public support for expanding free trade, the Japanese government in early 2011 started a series of forums nationwide. At the same time, the government the United States and other countries in the Pacific), while China pushes for the ‘Asians-only’ ASEAN Plus Three. 14 See, for example, Masaaki Sugiura ‘TPP sanka ni wa, taichu, tairo kensei no sokumen mo’ [TPP Participation Also has Element of China, Russia Containment], Giron Hyakushutsu, no. 1747, 10 November 2011, and other contributions to this forum, including by Nobuo Ogata and Aiko Ikeo. 15 Gemba Kōichirō, ‘TPP wo kika ni koshō wo kasokuka suru’, Voice, January 2011, pp. 96–101 (also published as ‘Free Trade Agreements: An Urgent Part of Japan’s Agenda’, JapanEchoWeb, no. 4, December 2010–January 2011).

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is moving towards a more open and explicit use of the law in defending Japan’s economic interests.16 International and domestic institutions are emphasized: the WTO and reform of legal profession, including the creation of the Intellectual Property High Court and curriculum changes. This new legalism is said to reflect the interests of ‘trade-dominant’ industries, exporters and investors, and of government agencies, especially METI. Summing up, there is no lack of high-level policy initiatives in the fields of trade diplomacy, but actual results have been limited. While the 1980s and 1990s were characterized by ‘bottom–up’ regional integration that was spurred by the private sector, in the new millennium free-trade agreements have become an instrument in the rivalry for influence among the region’s governments. This highlights the economic–security nexus and the importance of geopolitical considerations in trade diplomacy. So far, domestic political forces—first and foremost, the agricultural lobby— have been largely successful in blocking actual progress in bilateral and multilateral free-trade negotiations, although debates in the public sphere involving politicians, the private sector, academia and even the general public are rising. Financial Diplomacy In the late 1990s the Japanese government became increasingly active, not only in negotiating trade agreements, but also in the field of financial ­diplomacy. Indeed, as finance and capital flows expanded rapidly and became relatively more controversial throughout recent decades, finance became the ‘new bogeyman’.17 Japanese policy activism focuses primarily on furthering financial cooperation, and shaping currency domination by the US dollar and exchange-rate policy—at times referred to as currency manipulation. Early in the new millennium it was argued that Japanese policy-makers had in many ways achieved their overall goal of constructing the basis of a framework for regional financial monetary cooperation, with Japan at its centre.18 More recently, however, Japanese financial diplomacy has been challenged by stiff competition from China. 16 Saadia M. Pekkanen, Japan’s Aggressive Legalism: Law and Foreign Trade Politics beyond the WTO (Palo Alto, CA: Stanford University Press, 2008). 17 Daniel W. Drezner, ‘Why is the WTO Protest-Free?’, Foreign Policy blog, 15 September 2010 (5:41 p.m.), available online at http://drezner.foreignpolicy.com/posts/2010/09/15/ why_is_the_wto_protest_free. 18 Glenn D. Hook, Julie Gilson, Christopher W. Hughes and Hugo Dobson, ‘Japan and the East Asian Financial Crisis: Patterns, Motivations and Instrumentalization of Japanese

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Japanese activism in the field of regional financial cooperation was invigorated by the Asian financial crisis of 1997–1998. As the country with the greatest financial wealth and institutional power in East Asia, Japan chose to focus its financial regionalism efforts on the East Asian region—in contrast to its wider Asia-Pacific preferences in trade, diplomacy and security.19 In a rather unconventional move, the Japanese government unexpectedly proposed the creation of an Asian Monetary Fund (AMF) that was to enhance financial stability in the region. This proactiveness appears to have been facilitated by the relative absence of sectoral lobby groups and inter-ministerial infighting. For example, Japan’s Ministry of Finance did not even consult with other ministries before publicly announcing the plan for an AMF.20 Although its proposals met with resistance—particularly from the United States and China—and the regional fund never materialized, Japan successfully pushed for the World Bank and IMF to recognize Japan’s development success as globally transferable. Indeed, a new developmentalist ‘identity’ among policy-making elites—a distinctive approach to economic matters that defies the dominant neoclassical paradigm—arguably constituted the primary reason for Japan to attempt to challenge its alliance partner (the United States) and the IMF.21 Despite the fact that its initiative constituted a diplomatic debacle in the short term, the Japanese government managed to further regional financial stability in the longer term by creating a string of bilateral currency swaps, referred to as the Chiang Mai Initiative (CMI). At the time of the multilateralization of the CMI in 2010, however, it became clear that Japan had to share the driver’s seat with the Chinese government. Both countries competed to become the primary investor in the fund and struggled to co-lead the regional integration agenda. Japan’s experience in the region has also shaped its response to the global financial crisis that started in 2008, wherein it emphasized global initiatives and downplayed the regional agenda. In the words of Solís, ‘this rebalancing in Japan’s economic diplomacy reflects the greater political space that it has enjoyed on the global level since its long-held views on Regional Economic Diplomacy’, European Journal of East Asian Studies, vol. 1, no. 2, 2002, pp. 177–197. 19   William W. Grimes, Currency and Contest in East Asia: The Great Power Politics of Financial Regionalism (Ithaca, NY: Cornell University Press, 2009). 20 Shigeko Hayashi, Japan and East Asian Monetary Regionalism: Towards a Proactive Leadership Role? (London: Routledge, 2006). 21   Yong Wook Lee, The Japanese Challenge to the American Neoliberal Order: Identity, Meaning, and Foreign Policy (Stanford, CA: Stanford University Press, 2008).

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the benefits of flexible IMF lending practices and controls on volatile capital flows became mainstream’.22 Japanese financial diplomacy has for a long time also included attempts to shape the role of the US currency in the global and regional economy. From the late 1980s, the Japanese government invested heavily in US treasury bonds—holding over 40 per cent of the total at its peak—while the private sector exported products at low prices. Japan thereby played a pivotal role in supporting the hegemony of the dollar over global finance, and—by extension—of the American management of global capitalism.23 Japan’s policies towards the (role of the) dollar underwent substantial change from the 1990s, however. As the Japanese government began to address the region’s heavy dependence on the dollar, which was regarded as one of the causes of the Asian financial crisis, Tokyo shifted away from its supportive policy to the dollar.24 By the end of 2011, the Japanese government had even started to buy Chinese government debt, albeit at very low levels. That being the case, domestic resistance within Japan and the power rivalry between Japan and China still make the US dollar the currency of choice in the medium-term future. To summarize, Japanese activism in the field of financial diplomacy is uneven. While the Japanese government overcame US and Chinese resistance and managed slowly but steadily to strengthen regional financial integration in an early stage, Japan is now losing ground to China. Furthermore, while the Japanese government continues to support the US dollar, it is at the same time diversifying, including towards the Chinese yuan. Finally, at the global level the Japanese government has made a significant financial contribution to expand the IMF’s resources and to restore trade financing. On the other hand, however, it has not played a major role in the debate surrounding the most pressing issues of a future financial architecture, such as tackling global imbalances and promoting foreign exchange-rate cooperation.25 Policies are thus ambiguous and

22 Solís, ‘Globalism Ascendant, Regionalism Stagnant’. 23 Taggart R. Murphy, ‘A Loyal Retainer? Japan, Capitalism, and the Perpetuation of American Hegemony’, The Asia-Pacific Journal, 41–3-10, 11 October 2010. This is a slightly revised version of an essay that is published in Leo Panitch, Greg Albo, and Vivek Chibber (eds), The Crisis This Time: Socialist Register 2011. 24 Saori Katada, ‘From a Supporter to a Challenger? Japan’s Currency Leadership in Dollar-dominated East Asia’, Review of International Political Economy, vol. 15, no. 3, 2008, pp. 399–417. 25 Solís, ‘Globalism Ascendant, Regionalism Stagnant’.

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mainly undertaken at the government level, while public debates are rarely heard. Inducements Securing the long-term and stable supply of resources, energy and food constitutes the second economic diplomacy pillar in Japan’s Diplomatic Bluebook of 2011. Policies in this field cannot be seen as separate from the economic diplomacy expressions of inducements—which are mostly positive, but also negative.26 That is to say, the Japanese government seeks to strengthen relations with resource-rich countries—especially emerging economies—through economic cooperation that also aims to improve the security of supply of natural resources. Depending on the target country and industry, these policies often also have an element of commercial and trade diplomacy, especially the provision of infrastructure systems. The importance of natural resources in Japan’s economic diplomacy is of a dual nature and involves importing energy resources, as well as securing the supply of rare earth metals and minerals that are needed for electric cars and nuclear plants.27 To address the challenge of importing energy resources, the Japanese government mainly targets oil-rich countries in the Middle East, while securing the supply of rare earth metals involves a number of countries in South-East and Central Asia, Latin America and Africa that harbour other natural resources. In both cases the Japanese government aims for a dual win, whereby deals to import raw materials go hand in hand with projects that benefit Japan’s exporting industries. For example, improvement of the security of supply of crude oil is sought through provision of water and nuclear infrastructure to Middle Eastern countries.28 In a similar vein, efforts are made in the next-generation automobile sector to secure the ‘stable supply of rare metals’ by forming ‘mutually beneficial relationships’ with resource-producing countries.29 If this is reminiscent of Japan’s Eurasian diplomacy and Silk Road diplomacy, which were initiated in the late 1990s, this is not 26 This conforms with Berridge’s definition of economic diplomacy, which refers to ‘diplomacy that employs economic resources, either as rewards or sanctions, in pursuit of a particular foreign policy objective’. Geoff R. Berridge (with Alan James), Dictionary of Diplomacy (Basingstoke: Palgrave Macmillan, 2003 [2000]), p. 91. 27 This was detailed in chapter three on the business end of Japan’s economic ­diplomacy. 28 MOFA, Japan’s ODA White Paper 2009: Japan’s International Cooperation, 2010. 29 Ministry of Economy, Trade and Industry of Japan, Jisedai-jidōsha-senryaku 2010 [Next-generation Vehicle Strategy 2010], 12 April 2010.

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a ­coincidence; these policies were about reshaping Japan’s approach to Russia and strengthening political and economic relations with the new republics in Central Asia and the South Caucasus against a background of the growing weight of China.30 As discussed, environmental and energy assistance have become an important feature of economic cooperation (ODA) programmes since the 1980s. Other than the direct commercial benefits that emerge from this approach, improving energy efficiency in other countries also helps to ease pressure in the competition for natural resources. As elaborated in chapter three, the strategic importance of forging mutually beneficial relationships and the diversification of natural resource imports for the Japanese business sector were underscored in a territorial and political dispute over the Senkaku/Diaoyu Islands in autumn 2010. While the Chinese government denied that any formal ban had been imposed, exports of rare earth minerals to Japan—and, later, to the United States and European countries—suddenly stopped. This constituted a severe blow to the Japanese manufacturing sector, which at the time largely depended on China for its imports of rare earth minerals. Indeed, there can be little doubt that this occurrence provided further impetus for the Japanese government to strengthen its ties with other countries that hold these resources. Rather than escalating the conflict, Tokyo thus opted for a quiet strategy of economic diplomacy that aimed for long-term, comprehensive goals. Economic Cooperation or ODA? It has been said that the reason Japanese development assistance is so impregnated with foreign policy objectives has to do with the few tools that are available to Japanese diplomacy.31 For historical reasons, ODA has indeed featured highly in negotiations on normalization with other countries in the East Asian region. On a different note, Söderberg points out that the 1993 ODA Charter justifies assistance as a tool for peace-making; it includes ‘contribution to peace and development’ as a concern.32 This being the case, Japanese activity in this field traditionally made relatively few direct efforts to promote political goals that Western countries tend

30 Reinhard Drifte, Japan’s Eurasian Diplomacy: Power Politics, Resource Diplomacy or Romanticism (London: Routledge, 2004). 31   Arase, Japan’s Foreign Aid. 32 Marie Söderberg (ed.), The Business of Japanese Foreign Aid: Five Case Studies from Asia (London and New York: Routledge, 1996).

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to emphasize in their aid, such as furthering good governance, human rights and the rule of law. As Japan grew into an economic superpower, from the 1970s the Japanese government deliberately increased its spending in the field of development assistance. Having become the world’s largest bilateral donor by 1989, Japan remained the single biggest provider of ODA from 1991 through 2001. It is little surprising therefore, that its policies were intensely researched and debated—both in the heydays of the early 1990s and after the subsequent decline of Japan as a donor. The need for change began to be addressed in Japan in response to fiscal problems, as well as to internal and external pressures for policy shifts—such as the need to address lack of transparency, the sensitivity of recipient needs, as well as a coherent and coordinated policy.33 This meant that, as the only ‘nonWestern’ donor among G7/G8 countries throughout the 1990s and early 2000s, Japan was at least partially ‘socialized’ into the ways of the OECD Development Assistance Committee, which was dominated by Western countries. At the same time, however, the Japanese government attempted to garner support for its ‘economic cooperation’ approach. It was even successful in having its principles of ownership and results-oriented assistance included in the 2005 Paris Declaration on aid effectiveness. Furthermore, as illustrated by the adoption of the Seoul Development Consensus on Shared Growth at the G20 summit in 2010, convergence towards the economic, cooperative style of aid-giving accelerated as a larger group of non-traditional donors emerged. The rise of other Asian countries—mainly South Korea, China and India—as new donors puts Japan in a middle position. It is challenged by Chinese activism in Africa, whose practice of conflating trade, investment and aid on the African continent are reminiscent of Japanese policies of old. This may come as no surprise, as Chinese delegations do indeed visit Japan to learn from its practices.34 Chinese proactiveness has pushed Japan to step up its own efforts towards the African continent, with the Tokyo International Conference on African Development (TICAD) as its main vehicle. For example, in July 2008, the development organization JICA used TICAD to launch a Coalition for African Rice Development, which aims to double African rice production within a decade. Similar

33 Arase, Japan’s Foreign Aid. 34 JICA representative in a seminar on 3 February 2010 at Tokyo University.

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competitive dynamics between the two Asian giants are seen in the Asian Development Bank (ADB). At the same time, and despite the worsening Sino-Japanese relationship, the ADB has facilitated the development and maintenance of shared expectations between the two parties over the future direction of development assistance.35 China’s influence in the ADB has expanded, but arguably not (yet) at Japan’s expense. Furthermore, Japan has responded to China’s rise by trying to wind back the ADB’s operations in China—resulting in the ADB moving towards socalled ‘social infrastructure’ in certain regions.36 Clearly, while public debate remains scant, Japanese policies in the field of development assistance are in flux and are simultaneously moving in opposite directions. Assistance efforts today indisputably involve the greater investments in social goals that traditional donors have long emphasized, but at the same time new actors are pushing the Japanese government towards renewed linkages with commercial diplomacy. While this may leave Japan in a good position to act as mediator between traditional donors and new actors in this field, there are few signs that the Japanese government is willing to take up such a role.37 Negative Sanctions Japan has traditionally held a strong preference for positive inducements and has shied away from using sanctions and other more blunt instruments at the ‘power-play end’ of economic diplomacy. That being said, its policies have shown remarkable shifts in recent years. As hesitance about openly adhering to a (military) ‘stick’ is weakening, the notion of comprehensive security appears to be subject to partial reinterpretation. The key drivers of these policy shifts should be sought in Japan’s declining ODA capabilities and the United States’ demands for a greater military role for Japan, with the alliance partner propelling Tokyo to make greater use of its military power.38

35 Joel Rathus, ‘China, Japan and Regional Organizations: The Case of the Asian Development Bank’, Japanese Studies, vol. 28, no. 1, 2008, pp. 87–99. 36 Rathus, ‘China, Japan’, p. 98. 37 As illustrated by the G-20 Summit in Seoul and the subsequent High-Level Forum on Aid Effectiveness that was organized in Busan, South Korea, in late 2011, South Korea appears to be more proactive in furthering the middle position. 38 Hughes, Japan’s Security Agenda.

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North Korea is presently the state under the heaviest sanctions imposed by Japanese law and international regulations,39 and thereby provides a useful insight into the motivations behind the shifts in Japanese foreign policy and economic diplomacy. Serious discussion on the establishment of a legal framework for sanctions started in Japan only after North Korea’s firing of the Taepodong missile in 1998, and the country only imposed unilateral sanctions from 2004. Indeed, in its relationship with North Korea, the Japanese government had tried economic engagement in various ways until the early 1990s, but it hardened its stance thereafter. As detailed in chapter four on the power-play end of Japan’s economic diplomacy, Tokyo seems to have come to the conclusion that North Korean rulers are more willing to preserve the status quo than some wish to believe and, consequently, started to use the North Korean threat to justify Japan’s controversial military enhancement in a context of uncertainty about the United States’ commitment and an increasingly stronger China. This strategy is practised through the negative approach to economic diplomacy of withholding economic benefits, including trade, humanitarian aid and other assistance that would become available with the normalization of diplomatic relations. These are clear signs that the Japanese government is willing to forcefully employ economic power in its foreign relations. Such change should not be taken lightly, especially since it is accompanied by a broader reorientation of Japanese strategic and military policy—most recently announced in the revision of the ‘National Defense Program Guidelines’ in December 2010.40 While sanctions and negative economic diplomacy towards North Korea may still be considered a rather exceptional case of bold power play, there is no lack of other instances of negative sanctions since the 1990s. The cases of Iran and Burma, for example, show a greater readiness to employ negative aid sanctions, notably the suspension of aid. At the same time, however, they may be illustrative of the ambiguity of Japanese policies, as 39 Sanctions have been either unilaterally imposed under domestic legislation or passed in conformation with UN resolutions (such as Security Council Resolutions 1540, 1695 and 1718). 40 Under the new Guidelines, Japan essentially reserves the right to upgrade its military capabilities, increasing its defense expenditures beyond the long-held ceiling of one per cent of gross domestic product. Furthermore, the guidelines are accompanied by a restructuring of Japan’s armed forces, including an upgrade of naval and coast guard capabilities. See Axel Berkofsky, ‘Dissecting Japan’s New Defense Guidelines’, International Relations and Security Network (ISN), 16 February 2011.

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sanctions have gone hand in hand with positive inducements, including the promotion of infrastructure. While warning that refusal by Tehran to abide by UN resolutions would lead to stronger action, for example, Tokyo maintained relatively cordial relations with Iran and exercised restraint in joining sanctions as tensions rose in recent years.41 As a way of contributing to a solution for the tension surrounding Iran’s nuclear programme, Japan offered to construct (and pay for) five nuclear plants and to ship highly-enriched uranium to Iran.42 In 2004 the Japanese government invested in an oil field development project in Azadegan in Iran, but withdrew in 2010 amid rising international tensions and possible US sanctions over Tehran’s nuclear activities. The Japanese government thus still prefers positive engagement with countries like Iran and Burma, although it has been increasingly less reluctant to employ punitive measures of its own and to concur with international sanctions in the past decade. As Iran failed to respond to calls to stop its nuclear programme, for example, Japan in mid-2010 sided with the United States and other allies in support of fresh UN sanctions against Iran. Furthermore, the Japanese government showed willingness to join international sanctions against Burma and cancelled an aid grant in 2007, and approved UN sanctions against Libya in spring 2011. More generally, it is said that while the Japanese government may take punitive measures against the countries that represent strong economic interests for Japan, it resumes aid to these countries as soon as possible.43 This points to a continued inclination towards comprehensive economic security policies, while bold power play primarily remains a default strategy. It is hence fair to say that while formal sanctions remain the exception rather than the rule in Japanese policies, the possibility of the Japanese government opting for more forceful economic diplomacy is greater today than at any other time in post-war history. High-level policy initiatives in this direction are limited to ad hoc occasions, as they are in bilateral or multilateral negotiating forums. Public debates are very much guided by domestic political purposes—namely, vote-winning—and at the same

41   Until China gained a foothold in Iran in recent years, Japan was Iran’s third-largest trading partner and the leading consumer of Iranian oil, and Japan’s third largest ­supplier. 42 Press TV, ‘Iran Ready to Accept Japan’s Nuclear Offer’, 26 February 2010. 43 Larisa Nikitina and Fumitaka Furuoka, Japan’s Foreign Aid Sanctions Policy after the End of Cold War, MPRA paper no. 6757, 2008.

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time aim to garner public support for strengthening military capabilities, and thus more forceful economic diplomacy. Policy and institutional reform towards these ends was undertaken in the early 2000s in the field of sanctions, and more recently with the strengthening of Japan’s defence capabilities. Japan’s Trajectory since the 1990s Based on the preceding case studies, broad trends can be discerned in Japan’s economic diplomacy. Japan’s commercial diplomacy is being revamped and linked to development assistance in new ways, especially in the ‘green’ environmental and energy fields. Tourism promotion is being elevated and is also quickly becoming an important part of commercial diplomacy efforts. Formal unilateral sanctions are no longer taboo, even if they are still applied only in exceptional cases—especially in Japan’s relationship with North Korea. Bilateral and multilateral trade diplomacy took off in the early 2000s and was revamped in 2010, with regional rivalry and alliance politics as the key drivers. Substantial success has so far been scant, however, not least because of strong domestic forces of resistance. Finally, Japan’s financial diplomacy in the region, which seemed promising in the early 2000s, has lagged in recent years, while currency policies are moving in opposite directions. Table 2 summarizes the developments in the various sub-fields of these strands, based on the parameters that were formulated in the introduction of this chapter. Taken together, and indicative of a shift in the perceived balance of national interests, the case studies show that slowly but steadily Japanese policies have moved from an emphasis on the ‘business end’ of economic diplomacy to include also a more outspoken and visible element of power play. At the same time, commercial diplomacy has been reinvented in response to enhanced competition and rising global challenges such as climate change and natural resource scarcity. The question that arises next is what these findings suggest about the context wherein changes in Japan’s economic diplomacy occur. Put differently, do these developments mark a substantive departure from past traditions, and in what direction is Japan appearing to move when the larger perspective of global rebalancing is considered?

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Table 2. Japan’s New Economic Diplomacy since the 1990s. Sub-field Commercial ­diplomacy

Trade and investment promotion Business advocacy Tourism promotion

Trade diplomacy Financial ­diplomacy

Bilateral (EPAs) Regional Multilateral (WTO) Regional cooperation (currency swaps) Regional currency Foreign government bonds

Trend

Policy change

++++ From export only to also more import and investment, infrastructure and ‘greening’ ++ Enhanced in the 2000s ++++ Starting from the late 2000s +++ Attempted but actual progress slow +++ Revamped, but 1agging ++ Ongoing effort, little progress +++ Asian Monetary Fund proposal failed, Chiang Mai Initiative ­(Multilateralization) ++ Ambiguous, support for dollar waning ++ Accumulating dollars, euros and yuan

Inducements Bilateral assistance (economic cooperation) Multilateral aid

+++ ‘Greening’ of aid, linking to infrastructure promotion + Conforming to Western ­consensus

Sanctions

+++ Less unwilling to use: North Korea ++ Less unwilling to use more generally ++ Still restrained, but following UN

Unilateral sanctioning Aid suspension Multilateral sanctions

Source: author’s compilation.

Breaking with the Past? What the developments in Japan’s inducement and sanctions’ regime—as well as its financial, trade and commercial diplomacy—have in common is that they are spurred by the ongoing change in the geostrategic and economic power balances among countries in East Asia. Regional and global rebalancing thus appears to be the primary driver behind Japan’s strategic reorientation. The evolving role of the United States and the US–Japan alliance plays a fundamental part herein. This conforms with earlier studies, which found that the Japanese government appears to be adjusting to

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the new reality where the hegemonic presence of the United States will be a more negotiated system that will entail a more pluralistic organization of power and influence.44 Japanese politicians and policy-makers are hence having another look at the economic and military benefits of the alliance with the United States and are reconsidering their policies. The case studies presented here further substantiate Christopher Hughes’ observation that Japan’s comprehensive security policy includes economic and environmental dimensions. Even so, the findings challenge his assertion that the Japanese government ‘may be losing faith in this [comprehensive security] approach’, concentrating instead on the military security dimension.45 That is to say, the conclusion may not be warranted that changes ‘reflect a gradual retreat from using economic power for security ends and, possibly, using economic power as the principal means to contribute to regional security’.46 While there is no denying that the Japanese government has also been strengthening and restructuring its military capabilities since the 1990s, its diplomatic practice still emphasizes economic means. This includes more forceful means of diplomacy, which can still largely be seen within a comprehensive framework of economic diplomacy. In other words, Japan’s new economic diplomacy no longer relies on inducements per se, but also includes more outspoken and forceful ways to defend its strategic interests. The greater willingness to use economic diplomacy also in negative (punitive or coercive) ways— as in the case of North Korea—shows a broadening by the Japanese government of its economic power-projection toolkit. This is not so much an erosion of the comprehensive notion of security and the practice of economic diplomacy, as a pragmatic reorientation in response to the changing regional economic and security environment. Convergence: In What Direction? The shifts in Japan’s economic diplomacy since the 1990s beg the question of whether Tokyo is moving closer to the traditional policies of Western countries, which generally adhere to a stricter separation of the public and private and of the economic and military–strategic spheres. Indeed, 44 For an analysis of the changing US hegemony and role in East Asia, and the interaction between sub-systems of economics and security therein, see, for example, G. John Ikenberry and Takashi Inoguchi, ‘Introduction’, International Relations of the Asia-Pacific, vol. 10, no. 3, 2010, pp. 383–388. 45 Hughes, Japan’s Security Agenda, p. 208. 46 Hughes, Japan’s Security Agenda, p. 240.

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the close and sometimes untransparent links between Japanese government and business (kan–min) have been the subject of much debate since the 1980s, as foreign countries grew increasingly critical of Japan’s ‘mercantilist practices’. As discussed earlier, administrative reform efforts were initiated in the early 2000s but real change has reportedly been scant and by no means uni-dimensional. What is more, past experience shows that even as Japan introduces rules that appear more similar or even identical to those in the United States and Europe, ‘interpretation and implementation will differ [. . .] as a result of different heritage that took many centuries to develop’.47 The case studies presented here also suggest that Japan is not converging on an Anglo-American neo-liberal norm, but, rather, going through a transformative phase. This conforms with the argument made by Richard Samuels, which was raised in the introduction of this chapter, that change in Japan’s foreign policy is continuative. Japanese policies in the field of commercial diplomacy, financial diplomacy and development cooperation, for example, both engage and challenge the ‘Western consensus’ by linking ideational and rationalist materialist factors.48 At roughly onethird of the total, loans—compared to grants—remain a much larger percentage of Japanese programmes in comparison with European donors, while grants are largely technical. Furthermore, the tendency to employ the know-how of modern industrial production-related sectors to build friendly relations with target countries and simultaneously to contribute to the stable supply of natural resources is still apparent. Indeed, the observation that while the economic importance to Asia of Japan as a nation has decreased in relative terms, the importance of Japanese firms has not, for they at least to an equal degree49 may be regarded as a success of Japan’s economic diplomacy, which has evolved to a next phase.

47 In Europe these processes are steered by the state, individuals and society, compared to min (public) and kan (private) sectors in Asia. In this context, globalization is seen as an attempt to unify the structures of relationships between (political) power and ownership rights (both individual and collective)—of which enforcing acceptance of the same rules for all societies is one means. See Kurt W. Radtke, ‘Public Versus Private: Governance in East Asia in the Age of Globalization’, in Alex E. Fernández and Barbara Hogenboom (eds), Big Business and Economic Development (London and New York: Routledge, 2007), p. 34. 48 Sato and Hirata make a similar argument based on research in other fields. See Yōichirō Sato and Keiko Hirata (eds), Norms, Interests, and Power in Japanese Foreign Policy (New York: Palgrave Macmillan, 2008). 49 Edward Lincoln, ‘The Asian Regional Economy’, in David Shambaugh and Michael Yahuda (eds), International Relations of Asia (Lanham, MD: Rowman and Littlefield, 2008).

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Recent policies in the fields of commercial diplomacy and development assistance have strengthened and still largely revolve around economic objectives, while negative sanctions also involve economic power play. Returning to the question that was raised in the introduction, the Japanese state can be seen to be adapting and innovating—that is, reconsidering its tactics. This in turn raises the question of whether (or how) Japan’s path and evolving policies may foreshadow the future of other states in East Asia that follow a similar economic growth model and that learn from Japan’s earlier successes and failures. The many differences of this group of countries notwithstanding, Japan’s experience appears to be of interest for at least four reasons:50 1) Japan’s roots of state-led development, which have inspired other countries in the region; 2) the evolution of Japan’s policies in response to power shifts in the region; 3) Japan’s decades-long experience as the only non-Western member of the group of developed countries; and 4) Japan’s geographical and cultural closeness to one of the world’s most rapidly developing regions. This chapter’s finding that Japan’s new policies do not so much involve a change of strategy, but rather a change of tactics, thus appears to be of broader relevance in a world where differences between ‘the West and the rest’ will only rise. Conclusion This chapter has presented a rough sketch of the trajectory of Japan’s economic diplomacy since the 1990s. Evaluating the successes and failure of Japanese policies is a different issue, which has not been the aim of the discussion here. A conceptual framework that distinguishes five economic diplomacy strands was employed to capture diverging developments in various fields and to make sense of the sometimes contradictory policies that are part of the Japanese approach. The framework proved helpful to distinguish tools and objectives in various strands of economic diplomacy towards different countries, and thereby comprehensively to analyse the multiple policy considerations that are commonly addressed separately in the fields of security studies and international political economy. It has been impossible in this study to cover in detail all of the factors that shape Japan’s economic diplomacy. Even so, the trend clearly points to an evolving practice of economic diplomacy where positive incentives

50 Recall that these points were already raised in the Introduction of this book.

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are still preferred but negative sanctions are no longer taboo. This constitutes a shift in the perceived balance of national interests, where considerations of political security are given relatively more priority, even if economic prosperity is also pursued in new ways. Japan’s new economic diplomacy started in the early 1990s and has undergone further substantial change in recent years. Policy shifts largely take place in coordination and cooperation with the private sector. Longtime practices in the field of commercial diplomacy are being revamped and reframed around the promotion of infrastructure systems abroad. The promotion of tourism has also been taken up as part of the practice of commercial diplomacy. Ambitious goals have been set, but little real progress has so far been made in the field of trade diplomacy, which— on the part of the government—largely involves political considerations that are related to alliance politics and regional rivalry. In financial diplomacy, the ambiguity of Japanese policies appears to result in a situation where the momentum is deferred to China. Furthermore, positive incentives are being redirected to the fields of environmental and energy technology, while a greater willingness to use (unilateral) sanctions is apparent. Not surprisingly, the domestic economic downturn in Japan and the reconfiguration of regional and global power—spurred by the re-emergence of China in the economic, political and military fields— appear to be the key drivers of change, while responding to global challenges such as climate change and the scarcity of energy and other natural resources are further considerations. There can be little doubt that Japan’s new economic diplomacy involves greater conformity to Western ways in some areas, notably negative sanctions, although the continued adherence to economic power as the main tool in striving for influence suggests that the appetite of the Japanese government and Japan’s private sector to switch to a strategy that conforms with Western countries remains limited. It is this ambiguity between the old and the new that suggests that we are witnessing a change in Japanese tactics rather than in Japan’s strategy.

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CONCLUSION

POWER SHIFT: ECONOMIC DIPLOMACY ON THE RISE The Theory and Practice of Economic Diplomacy: The Findings* Economic diplomacy is back. The pragmatic linking of politics and economics in foreign policy took the back seat during the Western-dominated era of free-market capitalism, but the era of globalization and global power shifts that started in the 1990s has once again created a new set of incentives and conditions for states to be more active in this field. Although economic diplomacy is clearly not a new phenomenon, we are currently witnessing a new episode of its practice. The changing reality with regard to economic diplomacy confirms a dual trend: it suggests that while the role of the state is declining in certain fields, it is expanding in other areas. This not without implications for the theory and practice of International Relations more generally. First, it challenges the oft-heard argument that the state is losing in importance in this era of globalization. That is to say, contemporary developments in the field of economic diplomacy necessitate a qualification of the commonly held wisdom, which holds that changes of the past decade have diminished state power. While economic diplomacy may be one field in which this is not the case, it is certainly not the only issue. Counter-terrorism and assistance to citizens in distress abroad are but two other examples,1 indicating that more research is needed in those fields if the changing roles of the state as well as non-state actors are to be properly understood. Moreover, what we can learn from this renewed state activism is that the end of the Westphalian state system—proclaimed by some scholars2—is nowhere in sight, even if important modifications are taking place. ­Certain * Parts of this conclusion overlap with a book chapter that was published as ‘Power Shift: Economic Realism and Economic Diplomacy on the Rise’, in Enrico Fels, Jan-Frederik Kremer and Katharina Harmat (eds), Power in the 21st Century: International Security and International Political Economy in a Changing World (Heidelberg/New York: Springer, 2012). 1   For more on the latter, see Maaike Okano-Heijmans, ‘Changes in Consular Assistance and the Emergence of Consular Diplomacy’, in: Jan Melissen and Ana Mar Fernández (eds), Consular Affairs and Diplomacy, Leiden: Martinus Nijhoff Publishers, 2011, esp. pp. 29–30. 2 As detailed by Stephen Krasner, the Peace of Westphalia of 1648 that established the so-called ‘Westphalian order’ is a benchmark for observers who claim an erosion of

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countries, notably in the West, may be shifting to a postmodern world in which sovereignty is increasingly handed over by the national state to other levels of government—both at a higher and lower level—and power is gradually more in the hands of non-state actors. Such change, however, is unlikely to be unilateral and not necessarily seen in other regions—at least not to the same extent. All of this implies that Western scholars and practitioners in particular need to enhance their understanding of the increased diversity between countries and regions, operating a world that has turned the page on the twentieth century. Competing capitalisms, each seeking its own preferred balance in public and private power, are now more widespread than ever and such configurations are at times not unlikely to be beyond the imagination of the untrained Western eye. Taken together and individually, the chapters in this book contribute to better understanding of such renewed activism by the state in the field of economic diplomacy. Answers to theoretical and empirical questions were sought in parallel, with findings on both fronts reinforcing each other. The empirical chapters on Japan highlight both continuity and change in a country that has long emphasized economic diplomacy in its international relations. At the same time, the findings point to differences between competing capitalisms and their distinct ways of organizing public and private power. Particularly when seen next to the first, theoretical chapter that helps to frame the analysis, the empirical chapters thereby further understanding of how (social) goals that guide economic diplomacy may differ between countries and regions. Collectively, the theoretical and practical findings enhance our knowledge of the scope and implications of this episode of economic diplomacy, its many expressions and tendency to evolve in response to changing international political, economic and security environments. Individually, not all of the points that emerge from this book’s analysis may be new, but, as a whole, they call attention to shifting modes of diplomatic practice and an evolving use of economic diplomacy, specifically by the Japanese government, that are characteristic of today’s realities. Japan’s economic diplomacy of the past two decades is characterized both by a growing willingness to engage in power play, and at the same time a continued and frequently unambiguous adherence to economic instruments and purposes. This raises the question of what s­ overeignty in the contemporary world. See Stephen D. Krasner, ‘Rethinking the Sovereign State Model’, Review of International Studies, vol. 27, no. 5, 2001, pp. 17–42.

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differences and similarities can be discerned in the extent to, and ways by, which economic diplomacy is conducted in Japan and elsewhere. After all, while most actors in the international system attempt to wield power through economic diplomacy, realities differ widely among countries in different regions and at varying stages of development. China’s economic and political systems, for example, are so completely different from others that one cannot easily expect China to be able to follow or imitate other examples. Yet if similarities are exposed, the question arises of what methods should be used to analyse common features. Before contemplating further on this question and other avenues for future research that emerge from this study, one needs to have a clear view of the assumptions about diplomacy, power, the state, and the promotion of a balance of national interests that can be considered as underpinning economic diplomacy. Economic Diplomacy and the Balance of National Interests The first point concerns the role of the state and its relationship with other actors that are involved in economic diplomacy. While this book started with the assumption that states are the most important economic diplomacy actors at the global level, it also provides ample evidence of the state operating amid a growing number of actors, as an incoherent entity that is moving closer to the private sector. The first point was suggested by (anecdotal) evidence in all of the chapters and was highlighted especially in chapter two on Japan’s economic diplomacy establishment and environment. As chapter two showed, while the Japanese state is still leading in economic diplomacy practice, a range of actors and institutions is involved in Japan’s economic diplomacy. This includes (semi-)government officials, politicians, representatives of an increasingly diverse private sector and other interest groups. As elaborated in chapter four, the newness on the power-play end of economic diplomacy lies in the influence of single-issue lobby groups—such as the Kazokukai. Chapter three provided deeper insight on how a diversity of government, semi-government and private actors do (not) cooperate on the business end of economic diplomacy. It also showed how the public and private sectors increasingly work in tandem to the benefit of interests that—seen from a government perspective—are more on the power-play end. Furthermore, the in-depth studies on Japan’s ‘green’ economic diplomacy and policies towards North Korea unveiled diversity in the activities, objectives and interests of different government institutions. This suggests that the state should not be regarded as a unified unit, but rather as ‘a set of fragmented and often not Maaike Okano-Heijmans - 978-90-04-25543-2 Downloaded from Brill.com09/01/2023 02:50:21AM via Western University

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easily defined institutions with a variable impact on social outcomes’.3 Finally, links between Japanese business and government were seen to evolve in recent years in response to foreign pressure. Unlike in the 1980s, the pressure is now indirect and the shift is in the opposite direction— that is, towards a narrowing of the public–private (kan–min) relationship. A quick look at media reports in other developed countries in Europe and the United States suggests that a similar trend is taking place in those regions as well. Second, the findings of this study suggest that the distinction between the targets or domain of an attempt at influence (who is to be influenced) and the objectives or scope of an attempt (in what ways does one actor try to influence another) is of vast importance to economic diplomacy theory and practice. This conforms with the argument made by Baldwin in his seminal study on economic power.4 The conceptual framework that was introduced in the first chapter proved helpful in unpacking economic diplomacy further, by distinguishing tools and objectives in various strands of diplomacy towards different issues and countries. This framework of analysis helps to make sense of multiple policy considerations that, overall, shape (perceptions on) the balance of national interests. After all, economic diplomacy inevitably involves a variety of tools, goals and consequences that scholars and practitioners alike need to consider comprehensively in order to set forth proper analysis and policies. Indeed, the empirical studies on Japan’s economic diplomacy presented in chapters three to five illuminate the framework’s usefulness in untangling the network of activities and objectives that economic diplomacy encompasses, while allowing for a comprehensive picture that sees these activities as a coherent whole. The conceptual framework also proved useful in uncovering linkages among the various strands. This in turn deepens our understanding of the trade-offs that are involved with a particular set of economic diplomacy policies. Clearly, there is value in recognizing that the practice of economic diplomacy commonly involves a pragmatic and interlinked approach of various strands, which are usefully placed along a continuum of economic and political tools and objectives.

3 Martin J. Smith, Power and the State (Basingstoke and New York: Palgrave Macmillan, 2009). See also G.T. Allison, Essence of Decision: Explaining the Cuban Missile Crisis (Boston, MA: Little Brown, 1999 [1971]). 4 David A. Baldwin, Economic Statecraft (Princeton, NJ: Princeton University Press, 1985), pp. 15–18.

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The conceptual framework also points to the importance of differentiating between the primary, secondary, and perhaps even tertiary goals and targets of a given attempt to influence. This, in turn, provides insight into the prioritization of the multiple goals that shape the balance of national interests and is thus helpful in assessing the relative importance attached to any particular policy goal. After all, and notwithstanding the (sometimes disappointing) outcomes of economic diplomacy policies, instruments are often used for a variety of reasons: ‘governments seek to gain or preserve military, political, ideological, economic, and even emotional values’.5 The in-depth case studies on Japan’s ‘green’ economic diplomacy and policies towards North Korea, for example, unveiled how objectives vary between industries and target countries, and that goals may involve individual, domestic and foreign policy considerations. More specifically, economic diplomacy contributes to objectives as varied as strengthening one’s image or leadership role, enhancing commercial profit, ­securing the stable supply of resources, furthering friendly relations with other countries and safeguarding global goods. The distinctiveness of target countries was found to lie mainly in their level of development, geographic location and resource endowments. In attempting to secure a variety of goals, governments commonly tend to create linkages between various strands in economic diplomacy. These in turn make for compromises in performing different activities that must be optimized—that is to say, to be successful in economic diplomacy, any government must resolve trade-offs in accordance with its foreign policy at large and the balance of national interests. Careful management of linkages and continuous investigation of existing and potential economic diplomacy activities are of utmost importance in this regard. In Japan’s economic diplomacy towards North Korea, for example, sanctioning and postponing of normalization negotiations obviously go at the expense of stronger commercial and trade relations. While the difficulty of managing trade-offs appeared as an issue in each of the empirical chapters, the challenge was particularly highlighted in chapter five on new directions in Japan’s economic diplomacy. Seeking a comprehensive overview of contemporary trends in each of the five strands of economic diplomacy for the case of Japan, this chapter showed that while domestic considerations related to agriculture and political votes tend to keep the government

5 Klaus Knorr, The Power of Nations: The Political Economy of International Relations (New York: Basic Books, 1975), p. 134.

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from joining negotiations on regional free-trade agreements, international competition requires that the Japanese government embark on this path. Furthermore, while the Japanese government could spur regional stability by furthering the yen as a regional currency of choice, alliance politics keep politicians from practising such financial diplomacy overtly. The way by which politicians in power conceive the desirable balance of interests defines the contours of economic diplomacy of the day, and varying perceptions on this front make for differences among individuals as well as among governments and among the many other actors involved. It also explains how policies may evolve over time. The fifth point suggested by the underlying study is a confirmation of the need to consider the relational nature of the concept of power, which emphasizes that power always depends on the context in which a relationship exists.6 While targets and the scope of policies are defined one-sidedly by the state that is utilizing economic diplomacy, the effectiveness of a policy needs to be measured with reference to others. This was illustrated in particular by the analysis on the ‘power-play end’ of Japan’s economic diplomacy, which was presented in chapter four. As this study showed, the mere fact that the Japanese government employs instruments with a clear economic dimension in attempts to influence North Korea—such as withholding official development assistance and imposing unilateral sanctions—says little about whether or not the Japanese government is successful in changing the regime in Pyongyang in the way that it desires. The importance of recognizing economic power and economic diplomacy as inherently relational becomes more obvious when considering the bases of national economic power. In absolute terms, the main underpinnings of national economic power are the volume, structure and organization of a state’s foreign economic transactions. More specifically, the 6 This approach is also inherent in Nye’s argument for soft power. See Joseph S. Nye Jr, Soft Power: The Means to Success in World Politics (New York: PublicAffairs, 2004), p. 2. It contrasts with the non-contextual definition of power that is typically adopted by realists, who argue that capabilities as such make for power. See, for example, Robert Gilpin, War and Change in World Politics (Cambridge: Cambridge University Press, 1981), p. 13. In his latest book, Nye adds further to the debate on power by making a case for ‘smart power’—the combination of the hard power of coercion and payment with the soft power of persuasion and attraction—while pointing out that the newness of power in the twentyfirst century is that it is more multidimensional, more diffuse and hence more complicated. The underlying study can be seen to provide further insight into the dealings of economic diplomacy in this new context. See Joseph Nye Jr, The Future of Power (New York: PublicAffairs, 2011).

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ability to exercise economic dominance can be defined by the following means: a country’s trade; the health of its external and internal finances; its military prowess; its technological dynamism; and the international status that its currency enjoys.7 However, the volume of trade and capital exports relative to the market value of the output of goods and services (gross national product) needs to be considered as well. After all, when these volumes are relatively large, a country is more susceptible to economic pressure from the outside. Put differently, while sheer magnitude may provide levers for pressure on other states, it also tends to enhance a country’s vulnerability to external pressure. This points to what Klaus Knorr referred to as the two sides of national economic power: the active side, being concerned with what a country can do to others; and the passive side, constituting a country’s ability to limit what other countries do to it.8 Seen in this way, although Japan’s active influencing power is clearly declining relative to that of others because of the sluggish growth of its economy, the fact that Japan is hardly dependent on imports (other than of natural resources) and foreign investment in the country, holds a large surplus of foreign currency, and continues to have strong technological prowess, acts in its favour. Indeed, as chapter three on the ‘business end’ of Japan’s economic diplomacy showed, the cutting-edge technological know-how of Japan’s domestic industries that also have a public function makes for new strength in Japan’s ‘green’ economic diplomacy. The chief challenges that the private sector and the Japanese government now face are how to deal with new competitors and how to adjust Japanese products flexibly to the needs of targeted developing countries. A seventh finding that appears from this study is that while analysis of actual policies and actions is important, it is equally significant to recognize and study inaction—instances where one would have expected action—as well as deliberate avoidance of positive steps. These are, after all, also ways by which policymakers can pursue their desired balance of national interests. Chapter four on Japan’s economic diplomacy towards North Korea presented ample practical evidence that such failure to act needs to be interpreted as a way of projecting power and economic diplomacy practice. This means taking seriously the fact that economic levers may also be 7 Arvind Subramanian, ‘The Inevitable Superpower: Why China’s Dominance is a Sure Thing’, Foreign Affairs, vol. 90, no. 5, 2011, pp. 66–78. Subramanian broadly defines economic dominance as the ability of a state to use economic means to get other countries to do what it wants or to prevent them from forcing it to do what it does not want. 8 Knorr, The Power of Nations, p. 84.

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used to prevent certain things from happening, and that negotiations may be deliberately postponed or blocked for the same purpose. The concept of ‘negative economic diplomacy’ was introduced to refer to (a combination of) such punitive, conditional, postponing and obstructionist behaviour. This relates to another point that is put forward by this study: that historically contingent change in the practice of economic diplomacy occurs within four essential dimensions, comprised of the context, tools, theatres, and processes. These elements were included in economic diplomacy’s analytical framework, established in chapter one and subsequently applied to the case of Japan most explicitly in chapter two. The four dimensions spell out the analytical angles that together provide a comprehensive understanding of a country’s economic diplomacy—that is, how economic diplomacy is embedded in the pursuit of a balance of national interests. Notwithstanding its obvious limitations, this model usefully highlights the multiple ways by which interaction between the four dimensions takes place. The proposed framework may also facilitate research and analysis, as each of the four dimensions is commonly studied within one of the research fields that concern themselves with economic diplomacy. Although the distinction is obviously not as neat as this simplified model may seem to suggest, it appears a legitimate claim that while IR studies mainly address the economic diplomacy context, economic studies tend to perform qualitative assessments of the effectiveness of tools, IPE largely focuses on the theatres wherein economic diplomacy is played out, and the diplomatic studies’ tradition primarily deals with processes. In the case of Japan, profound changes in the regional and global contexts have spurred new thinking on Japan’s economic diplomacy during the past two decades. Complementing earlier research on related (sub-)themes, chapter two on Japan’s economic diplomacy environment and establishment found that the main drivers of such shifts are alliance ­politics—that is, relations with the United States—and rivalry in the region—the China factor. That is to say, the reconfiguration of regional and global power encourages the Japanese government, in coordination and cooperation with the private sector, also to reassess its economic diplomacy policy. Slowly but steadily, policies shift from an emphasis on the ‘business end’ of economic diplomacy, to include also a more outspoken and visible element of power play. These are clear indications of the changing ways by which Japanese policymakers strive to optimize the balance of national interests. What has not changed, however, is the ­central role of economic instruments and purposes in evolving diplomatic practice. In other words,

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the more forceful means of diplomacy that are now increasingly adhered to can still largely be seen within a comprehensive framework of economic diplomacy. Japan’s policies towards North Korea, for example, still largely involve economic tools rather than more traditional military instruments. Similarly, the challenges of resources and environmental security are also perceived largely in economic terms—that is, addressed with tools that are primarily economic. Notwithstanding the modifications to policy and practice, this represents a significant degree of continuity in Japanese policies. Indeed, the ambiguity between the old and the new suggests that the change in Japan is in tactics rather than in strategy. The fact that economic tools and purposes still form the core of Japanese strategy also implies that the appetite of the Japanese government and private sector to switch to a strategy that conforms with Western countries remains limited. It is this continuity in Japan’s economic diplomacy, in particular, that seems to point to fruitful avenues for future research and that underscores the value of applying the conceptual and analytical frameworks developed in this study to other cases as well. Doing so will facilitate comparison between the ways by which countries—at varying stages of development and in different regions—go about practising economic diplomacy. This is likely, in turn, to unveil how (groups of) countries tend to employ certain strands more often and more forcefully than others, thereby pointing to an inclination to employ a particular set of tools for specific purposes. This completes the circle by bringing the discussion back to its starting point: that economic diplomacy is practised differently by different countries and that better understanding of these variations will illuminate the future of international relations and diplomacy more broadly. The Case of Japan in Perspective The findings that emerge from this book conform with earlier research that found that Japan’s economic diplomacy practice throughout the post-war period has been relatively comprehensive in comparison with other developed countries in Europe and the United States. While the Japanese government has adjusted its ways to comply with and ward off foreign criticism, especially since the 1990s, this study has argued that the fundamentals of its approach have not shifted profoundly. Even though the Japanese government since the 1990s has undeniably also strengthened and restructured its military capabilities, its diplomatic practice still

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emphasizes economic means. This includes more forceful means of diplomacy, which can still largely be seen within a comprehensive framework of economic diplomacy. Japan’s new economic diplomacy no longer relies on inducements per se, but also includes more outspoken ways to defend strategic interests. The greater willingness to use economic diplomacy also in negative (punitive or coercive) ways—as in the case of North Korea— appears to be a broadening by the Japanese government of its toolkit of economic power projection. It signifies a shift in the perceived balance of national interests, where considerations of political security are given relatively more priority, even if economic prosperity is also pursued in new ways. This is not so much an erosion of the comprehensive notion of security and economic diplomacy practice, as a pragmatic reorientation in response to the changing regional economic and security environment. This finding is significant, of course, for anyone with an interest in Japan’s foreign relations and evolving diplomatic practice. It should also be of relevance, however, to anyone with an interest in international relations and diplomacy broadly. After all, China and other emerging economies that have been characterized as developmental states use similar methods to Japan to increase their influence on the international stage— thereby making the impact of economic diplomacy more far-reaching now than at any time in history and suggesting that this is unlikely to change anytime soon. In the words of former US National Security Adviser Zbigniew Brzezinski: ‘We are dealing with something qualitatively different from what has gone before. It is a general awakening of the far east’.9 The unfolding reality raises important but complex questions about how governments of both industrialized and emerging countries conceive the role that economic factors play in diplomacy, and how economic influence is projected and exercised on the international stage. Seen in this larger context, the underlying study—with all the obvious limitations of a small-scale research project—constitutes no more or less than a pilot study. In order to weigh the relevance of the findings for contemporary debates and tomorrow’s realities, it appears opportune to assess how the case of Japan links to the study of international relations and diplomacy more broadly. A modest attempt to extrapolate findings is thus undertaken in order to elucidate avenues for others to address these issues in the future.

9 Quoted in David Pilling, ‘Poised for a Shift’, Financial Times, 23 November 2010.

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The Conceptual Challenge In the aftermath of the Asian financial crisis of the late 1990s, Karel van Wolferen argued that: As Asia regains its role as the fastest-growing region in the world and holds an ever more important place in the global political economy, the conceptual challenge posed by the 1997–1998 crisis will acquire increased relevance in creating a prosperous and peaceful world.10

The challenge to which van Wolferen was referring has surely not lost its importance and is even bigger now than it was at the time of his writing. Signs are increasing that, just as Europe exported its own (Westphalian) state system of power in international relations to the rest of the world, so too do the emerging countries, especially in Asia, increasingly shape and reconfigure the international system.11 The newness is less structural— although it does involve abandoning or postponing what might have been a post-statal society—and more procedural and ideological. It entails a move beyond emphasis on the military–economic nexus that transformed European states into established powers,12 and acts as an impediment to the export of democracy by Western countries. In this context Japan’s experience should be of utmost interest, as it is Japan in particular that can provide clues as to how other Asian countries may and may not evolve. After all, and notwithstanding the many differences among them, Asian countries share one important characteristic: relatively extensive state influence in the economy and a comprehensive approach to shaping and practising economic diplomacy. Several decades ago, the role of Japan as a ‘first-mover’ and example to other Asian countries in the region was discussed with reference to the now well-known ideas of the ‘flying geese model’ and the ‘­developmental state’.13 In this tradition, it may now be time to assess the relevance of 10 Karel van Wolferen, ‘Sorting out the Conceptual Muddle: The Role of the Japanese Economy in the Asian Financial Crisis’, Cambridge Review of International Affairs, vol. 16, no. 1, 2003, pp. 57–58. 11   Maaike Okano-Heijmans and Frans-Paul van der Putten, ‘China’s Rise and the Changing Rules of the Game in the International Order’, CEPS Commentary, 29 June 2009. 12 Tilly argues that the expansion of military force drove the processes of state formation in Europe. See Charles Tilly, Coercion, Capital, and European States, AD 990–1990 (Cambridge, MA: Basil Blackwell, 1990), esp. pp. 122–126. 13 Kaname Akamatsu originally coined the ‘flying geese pattern of development’ in Japanese articles in the 1930s, and the idea spread in English in the 1960s; see Kaname Akamatsu, ‘A Historical Pattern of Economic Growth in Developing Countries’, The Developing Economies, preliminary issue no.1, 1962, pp. 3–25. Chalmers Johnson introduced the term

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Japan’s diplomatic practice for today’s and tomorrow’s international ­relations—that is, how Japan’s style of practising diplomacy, especially economic diplomacy, has influenced and guided rapidly emerging countries in the East Asian region. Indeed, the geography, history and policies of the group of Asian countries that is now enhancing their influence in international politics suggests that their style may be more prone to that of Japan than to other (developed) countries. For example, the South Korean government shares with Japan an emphasis on ‘green growth’ and the promotion of infrastructure businesses abroad, and delegations from China visit Japan to study its experience in the field of ODA.14 This book does not provide sufficient evidence to draw strong conclusions on the extent to which Japan’s path may foreshadow that of other Asian countries, not least because one should not speak lightly of the many differences among the various emerging countries or of the particularities of the Japanese case. That being said, the issue of how Japan’s experience is of relevance for the theory and practice of tomorrow’s economic diplomacy justifies far more attention and discussion is indeed long overdue. The Changing Context Economic diplomacy is, of course, not a new phenomenon. From the very beginning of regulated contact between separate polities in the ancient world, economic interests played a fundamental role in emerging diplomatic relations. What is new, however, is the context wherein economic diplomacy is practised nowadays and the extent to which governments are willing to adhere to this approach. Indeed, notwithstanding the many differences between countries, certain basic differences exist between emerging economies15 and developed countries in the West. What is more, developments in the evolving practice of both groups of countries are mutually constitutive. First, economic diplomacy plays a relatively greater part in the foreign policies of countries that are now strengthening their role and influence

‘developmental state’ in the 1980s; see Chalmers Johnson, MITI and the Japanese Miracle: The Growth of Industrial Policy, 1925–1975 (Stanford, CA: Stanford University Press, 1982). 14 This latter point was made by a JICA representative in a seminar on 3 February 2010 at Tokyo University. 15 The term ‘emerging countries’ is here used interchangeably with ‘emerging economies’ and ‘advanced developing economies’—all of which can be found in scholarly and newspaper articles on related topics. The focus here is on emerging countries in Asia, with a particular emphasis on China.

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in international politics. In other words, the governments of emerging economies are relatively more willing than their counterparts in the United States and Europe to intervene extensively in the domestic economy and in international economic relations in order to achieve political goals that directly serve their own strategic interests.16 This is at least in part explained by the stage of development; after all, the now established powers have similarly followed a path that emphasized economic tools and purposes in an early phase of their growth. Furthermore, it deserves emphasis that this is not to say that governments in the United States and Europe do not intervene at all in their economies, either now or at earlier stages of their development. Indeed, recent examples of state intervention in Western countries include bailouts of private companies and quantitative easing in the late 2000s. The difference is thus relative. A second point is that these emerging countries—much like Japan— are prepared to use political instruments to further economic and commercial goals to relatively greater extents than most of their Western counterparts. Attempts at influence are facilitated, among other things, by direct links between the government and the private sector—including through state-owned enterprises and sovereign wealth funds. Examples include China’s economic cooperation, which conflates aid with trade and investment to gain foreign governments’ support for its ‘one-China’ policy and Beijing’s unofficial ban on exports of raw earths to Japan in the midst of a political and territorial dispute between Japan and China in late 2010. Moreover, an example of successful ‘negative economic diplomacy’ can be found in the expressions of displeasure by Brazil, Russia, India and China (the so-called BRIC countries) in the lead-up to the Seoul G20 summit that was held in November 2010. Criticizing the G20’s failure to make substantial progress with cooperation, the BRIC countries exerted significant influence in agenda-setting and were thereby able to further their interests even before the formal meetings started. Confronted with new competition and domestic troubles, the governments of developed countries in Europe and the United States are now once again also increasingly willing openly to use economic means for diplomatic objectives and diplomatic instruments for economic gains. Geopolitical and geo-economic shifts, which had been underway since the new phase of globalization began in the 1990s, thus gained force

16 See also Ha-Joon Chang , Kicking Away the Ladder: Development Strategy in Historical Perspective (London: Anthem Press, 2003).

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with the global financial and economic crises of the late 2000s. This put an end to an era in which—in the eyes of many Western countries— globalization, growth and ‘less government’ had appeared to provide the recipe for welfare and less conflict.17 History shows that economic diplomacy takes a more prominent place in foreign policy during periods of change.18 It is thus no coincidence that—against the background of a (re-)emerging China as an economic and political power and the relative decline of the transatlantic powers19—economic diplomacy is gaining in importance once again. The main challenge facing governments all over the world today may be that variations in countries’ domestic political cultures and ideologies, as well as in levels of development (particularly between the established powers and the various challengers) are now larger than at any earlier time in history. This foretells of a turbulent period, in which criticisms of perceived misuse of economic diplomacy will not be let off the hook. Domestic structures and organization influence foreign policy and the way that a state goes about projecting power, as well as the role of economic instruments and purposes herein. If the public and private sectors are more closely aligned domestically, they are better positioned to act in tandem in foreign relations when desiring to do so, and vice versa. Indeed, the stronger states in China and Japan, but also in France, display a greater tendency towards the comprehensive use of economic diplomacy. This stems not in the least from the fact that governments in these countries have a relatively strong capacity to link politics with economics and vice versa, even if differences in the domestic organization of politicoeconomic life between these countries make for variations in their practice of economic diplomacy. Having said this, and as alluded to earlier, certain basic differences between developed countries in the West and (emerging) economies do present themselves. The domestic characteristics of a country’s economy are also of importance in light of the fact that the bases of national economic power need not only be seen in absolute, but also in relative terms. For example, 17 Peter van Bergeijk, Maaike Okano-Heijmans and Jan Melissen, ‘Introduction—­ Economic Diplomacy: The Issues’, The Hague Journal of Diplomacy, vol. 6, nos. 1–2, 2011, pp. 1–2. 18 Rik Coolsaet, Historical Patterns in Economic Diplomacy: From Protectionism to Globalization, International Studies Association Convention, 2001, available online at http://isanet.ccit.arizona.edu/archive/coolsaet.html, accessed 30 July 2008, p. 9. 19 For more on this, see G. John Ikenberry and Takashi Inoguchi, ‘Introduction’, International Relations of the Asia-Pacific, vol. 10, no. 3, 2010, pp. 383–388.

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although China’s active influencing power grows with the steady rise of its economy, its dependency on trade and foreign investment in China acts as an impediment. Relatively recent efforts to strengthen domestic demand are therefore of dual importance to China, as these will rebalance China’s economy and enhance Beijing’s passive economic power. Seen in this context, and considering the rivalry between the United States and China, it is in a sense ironic that Washington in particular pushes Beijing to embark on such structural reform. Rising Geo-economic Tension Confronted with the viscosity of global governance and international political and financial institutions, the governments of emerging countries primarily employ economic diplomacy—rather than military force or political influence—to strengthen their position. This makes for paradoxical responses from established powers, with European ‘old money’ being haughty about, and at the same time afraid of, Asian ‘new money’, which is needed to save several European countries from bankruptcy. The research presented in this book contributes to thinking also on these issues by offering suggestions about how to conceptualize the economic dimension of diplomacy in theory and furthering understanding of its application in practice in one country in particular: Japan. What is now required is consideration of the political philosophy and economic systems of a larger number of countries—and of how the many variations in this configuration operate in relation to one another. As was shown, next to the normative and organizational context, the (evolving) position and policies of a country in international politics need to be considered. A dichotomy of ‘systems’ in ‘the West and the rest’ is tempting, and while this distinction may be useful for certain purposes, government interventions during and in the aftermath of the global financial crisis of the late 2000s in countries as diverse as Europe, the United States, China and South Korea show that differences in capitalism, ­public–private cooperation and international economics cannot be captured by this simple bifurcation alone.20 This is why—if the aim is to delineate the workings, purposes and consequences of the economic dimension of power—a

20 For a useful analysis of how capitalism in the United States and European countries has evolved since 1815, see Anatole Kaletsky, Capitalism 4.0: The Birth of a New Economy in the Aftermath of a Crisis (New York: PublicAffairs, 2010).

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meaningful analysis should include a historical, organizational and ideological perspective. While ideological underpinnings evolve only very slowly in any particular country, changing economic and politico-strategic realities bring about a shift in the ‘theatres’—that is, the international organizations and other forums for negotiation—where the fiercest confrontations arise, as well as in the countries that confront one another in those settings. It is thus no surprise that growing tension on trade issues between the United States and China in 2010 is reminiscent of the trade disputes between Washington and Tokyo in the 1970s–1980s. Back then—as concerns rose about an East Asian challenge to US hegemony—it was the Japanese automobile industry that triggered protectionism in the United States and, to a lesser extent, many European countries, whose industry was losing its competitive edge. Today, it is the renewable energy industry of China, in particular, that creates a vastly more competitive landscape in sectors where the United States has failed to innovate substantially. While the industries and the countries differ, both the challenger and the established power display similar behaviour to secure their interests, with the challenger depending on innovative economic capabilities and the established power relying on its established political position. Another shift that is currently underway is the growing significance of financial and monetary issues in international relations—that is, of financial diplomacy. Importantly, developments in this field are obscuring the asymmetry of powerful developed countries versus weak countries. Consider, for example, that—for the first time in history—a country like China, which in certain ways is still an early developer, has become a creditor to several developed countries in the West. Beijing can already use its financial power to resist US entreaties and may soon be able to coerce European countries into changing their policies. Its ‘power of credit’ mainly involves passive power for now, which should not be overestimated as China depends on these same countries for export markets.21 At the same time, however, there is no denying that Beijing even today has much more influencing power than one might expect when considering China’s per capita income.22 As developed countries, especially in 21   Daniel W. Drezner, ‘Bad Debts: Assessing China’s Financial Influence in Great Power Politics’, International Security, vol. 34, no. 2, 2009, pp. 7–45. 22 According to IMF figures, China’s per capita GDP in 2010 ranked 95th in the world at US$ 4,283, while its balance of payments amounted to US$ 272,500 bln. Contrast this

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Europe, look to China to invest in the eurozone’s bailout fund, Beijing’s economic influence may also soon involve an element of active power. A case can be made that as advanced developing countries—led by China—emerge as influential players, they are changing the rules of the game in international relations to the advantage of large countries where the state has greater influence over economic activity.23 Small countries and countries with open economies and a relatively strict separation of the public and private spheres have (even) more difficulty getting their voices heard. The rise of big Asian countries with a strong state is thereby accelerated, while European countries lose influence. An Agenda for the Future Empirical research on economic diplomacy that is based on solid conceptual and analytical foundations is at an early stage. While economists are making headway with cost–benefit analyses of various economic diplomacy expressions—including the trade-enhancing effects of summitry and diplomatic representation abroad—structured political science research is lagging. The chapters in this book collectively point to the importance of having a clear framework for research that furthers understanding of shifts in political and economic instruments and purposes as a comprehensive whole and that facilitates comparisons between countries, regions and industries. Such a framework also addresses the vagaries of the concept of ‘the national interest’ by introducing two ends of a spectre that determine what is better called ‘the balance of national interests’. The conceptual framework illuminates how these two ends—economic prosperity and political stability—are intrinsically related, and how linkages between activities on either side create trade-offs that must be optimized. In other words, by explicating the specific tools and goals of economic diplomacy, the continuum helps to identify the multiple concerns of with the figures of a developed country like the Netherlands, which ranks tenth with a per capita GDP of US$ 46,418 and, with a balance of payments of US$ 46,690, is regarded as a ‘healthy’ European economy. Seen from this perspective, Japan may be in the preferable position, with a per capita GDP of US$ 42,325 and a balance of payments of US$ 166,500. 23 For more on this, see Maaike Okano-Heijmans, ‘Power Shift: Economic Realism and Economic Diplomacy on the Rise’, in Enrico Fels, Jan-Frederik Kremer and Katharina Harmat (eds), Power in the 21st Century: International Security and International Political Economy in a Changing World (Heidelberg/New York: Springer, 2012).

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­ olicymakers, and elucidates how these considerations are prioritized or p balanced. It also signals human agency and fallibility as well as the point that one particular balance is struck from among several options. The assumption that a government strives for a balance of national interests thereby also speaks to developments in diplomatic practice, including the growing number of (non-state) actors involved and the resulting socialization and democratization of diplomacy.24 The conceptual framework and empirical findings introduced here are only a modest start in furthering understanding of economic diplomacy and the particularities of (groups of) countries, leaving many gaps that still need to be filled. Several avenues of particular interest for future research should be mentioned here. For the case of Japan, this includes in-depth case studies that address contemporary issues such as the financing of projects (for example, in the Mekong region), taxation as an instrument of policy, and the enforcement of intellectual property rights’ compliance and patents. Also of interest are historical studies that address specific occurrences when economic diplomacy played a major part, such as the substitution by Japan of coal with oil in the late 1950s,25 and the import by Japan of soy beans from Brazil in relation to alliance politics after the US embargo of 1973. More broadly, fruitful avenues for future research include applying the conceptual framework for economic diplomacy to other countries and regions; establishing links to alliance and agency theories; supplementing political science research with financial and commercial cost and benefit data; industry-specific research; and the challenge of balancing ­bilateralism and multilateralism in economic diplomacy. Further insights in all of these areas will contribute to what may be the most promising, but at the same time the most challenging, research agenda for the future in this field. This relates to advancing our understanding of the extent to which other regions do and do not adapt to standards that have been developed by European countries and the United States in the postwar period, and how this in turn impacts on Western countries. What is required is more profound knowledge of the ways by which a newly

24 See for example The Foreign Ministry at a Tipping Point, unpublished Post-­Conference Report of The Foreign Ministry of the Future Conference, Brussels, 10–11 July 2011. This reports also points to the growing importance of economic and financial diplomacy and the challenge of ‘state capitalism’. 25 It was only with the US–Japan Security Treaty (AMPO) that Japan was guaranteed a stable supply of oil, which was cheaper at the time.

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rising group of countries is changing the rules of the game and the ways of conducting international politics, and what this means for developed countries in the West. The use of economic means (as an alternative to military and political means) to enhance a country’s position in the international system is increasingly prevalent as the potential of China and other (advanced) developing countries to exercise economic power grows and the legitimacy of war as a policy tool further wanes. This urges European countries to rethink the balance of political, economic and military capabilities. Interrelating economic and political external policy in answer to growing economic diplomacy and the (negative) use of economic power should not mean resorting to protectionism, however. Rather, European countries need to make clear choices about where their priorities lie, for example concerning welfare, safety, the environment, human rights, and development cooperation. As economic growth and financial resources decline, room needs to be made at the negotiating table. More critically perhaps, a new mindset is required that is open to learning from newly developing countries while preserving those fundamental values that matter most. Western countries need politicians with long-term vision, who are clear on the choices that they make in these two regards, and who dare to convey this message to their publics at home. Clarity about priorities forms the basis of an effective response to the changing rules of the game in international relations. At risk is a betrayal of the political–economic model and fundamental values that took European countries years to develop, whereas structural adjustments to the current design—modifications that maintain the attraction of the European approach—would suffice.

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index abductees, see also Kazokukai 15, 77, 109, 111, 114, 116, 118–123, 127–129, 131–132, 134, 138, 140 Abe, Shinzo 87, 119–121, 132, 138 advocacy, see business advocacy Africa 66, 98, 102, 154, 156 agriculture 71, 73, 79 n. 100, 100, 123 n. 34, 148, 151, 171 aid 9, 10 n. 16, 74, 78, 83, 87–88, 95, 99, 102, 105, 156, 159, 179 development aid, see also official development assistance (ODA) 30–31, 38, 67, 123 economic aid, see also economic cooperation 29 n. 36, 116, 123, 131, 138 green aid, see also Cool Earth 65, 86, 161 humanitarian aid 109, 112, 115, 117, 122–123, 127–129, 135, 138, 158 suspension of aid 32–33, 158, 161 (un)tied aid 28–29 Alamgir, Jalal 38, 39 n. 49 alliance alliance politics 13, 55, 58, 66, 68, 80, 150, 160, 165, 172, 174, 184 US-Japan alliance 63, 66, 134, 157, 161 Arase, David 38 n. 49 ASEAN Plus Three (APT) 76, 149, 150 n. 13 ASEAN Regional Forum (ARF) 133 Asia Asia-Pacific 1–2, 76, 133, 149, 152 Central Asia 66, 154–155 East Asia 1–2, 4, 6, 13 n. 23, 35 n. 44, 41, 54, 65–66, 70, 76, 96, 110, 114–115, 134, 136, 142, 144, 152, 155, 161, 162 n. 44, 164, 178, 182 South Asia 66 Southeast Asia 66, 70, 83 Asia-Pacific Economic Cooperation (APEC) 76, 88, 147 Asian crisis, see Asian (financial) crisis (AFC) Asian Development Bank (ADB) 67, 130, 133, 157 Asian financial crisis (AFC) 9 n. 15, 47, 67, 71, 152–153, 177

Asian growth model 67, 164 Asian Monetary Fund (AMF) 9 n. 15, 67, 71, 152 Aso, Taro 122, 128 Association of Southeast Asian Nations (ASEAN) 93, 133–134, 137, 149 Australia 9, 13 n. 23, 131 n. 64, 133, 149 automobile industry, see Japan: automobile industry (next-generation) balance of power, see power: balance of power Baldwin, David 17 n. 1, 23, 26–27, 38, 49 n. 79, 113, 170 Barston, R.P. 43 Bayne, Nicholas 27, 29 n. 36, 42–44 Bergeijk, Peter A.G. van 23 Berridge, G.R. 29 bilateral channels 9–10, 29, 32, 71, 74, 83, 87–88, 96–97, 100, 102, 109, 111, 115–122, 123, 132, 137–138, 145, 148–149, 151, 159, 161 Blanchard, Jean-Marc 23 Bolivia 67, 99 Brazil 179, 184 Bretton Woods system 21 BRICs (Brazil-Russia-India-China), see also BRIICS 179 BRIICS (Brazil-Russia-India-Indonesia, China, South Africa), see also BRICs Bull, Hedley 42 n. 60 bureaucracy 10, 72, 78, 101 Bush, George W. 25 business business advocacy 15, 69, 71, 103–104, 146 business promotion, see commercial diplomacy business sector, see also private sector 14, 27, 45, 69, 75, 94, 99, 126, 155 Cabinet Office, see Japan: Cabinet Office capitalism capitalist system 56 Japanese style, see Japan: capitalism chamber of commerce 43, 147 checkbook diplomacy, see Japan: checkbook diplomacy

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Chiang Mai Initiative (CMI) 67, 71, 152 Chile 67 China 4–7, 9, 13, 15, 25, 31, 39, 55, 57–58, 60, 63–68, 70–72, 76 n. 90, 79–81, 84, 91, 93–96, 99–100, 104, 106–107, 109 nn. ♣, 2, 110, 112, 115–116, 118 n. 22, 119, 124 n. 37, 125–126, 132–133, 136–140, 142, 147–153, 155–158, 159 n. 41, 165, 169, 174, 176, 178–183, 185 China factor (in Japanese foreign policy) 13, 55, 66, 112, 174 Clean Development Mechanism of the Kyoto Protocol (CDM) 94, 97 climate change 14, 23, 81–84, 87–89, 91, 97–98, 105–107, 146, 160, 165 coercive power, see power: coercive power Cold War 21, 38, 56, 58, 106 commercial diplomacy see diplomacy: commercial diplomacy  commercial diplomat 8, 12, 18, 26, 29, 40–42, 69, 71, 82, 92, 103, 107, 142, 145, 148, 157, 160–161, 163–165 commercial interests, see economic interests companies, see private sector comparative advantage 37 competitive(ness) 32–33 n. 42, 65, 71, 83, 85, 102, 107, 143, 157, 182 Comprehensive Economic Partnership Agreement (CEPEA), see also trade agreement 149 comprehensive security, see security conceptualization 4, 18, 96 conflict 20 n. 7, 23, 40, 45, 99–100, 107, 155, 180 Constructivism 34 n. 43, 42, 73 consular issues 20, 118–119, 167 consulate, see diplomatic representation convergence, see Japan: converging (to neoliberal norm) Cool Earth, see Japan: Cool Earth (initiative) Coolsaet, Rik 3 n. 3 corporations, see private sector culture 24, 35, 44 decision making 29 n. 36, 50 defence, see also security 7, 99, 111, 118, 136, 139, 160 democracy 30, 105, 177 Democratic People’s Republic of Korea (DPRK), see also North Korea 109 n. 1

Democratic Party of Japan (DPJ), see Japan: Democratic Party of Japan (DPJ) developed countries 6, 14, 47 n. 72, 89, 92–94, 102, 104–107, 164, 170, 175, 178, 180–183, 185 developing countries, see also emerging countries 46, 47 n. 72, 74, 85–86, 88, 91, 93–95, 97, 100, 105–107, 173, 183, 185 development development policy, see also aid 5–6, 9, 11, 15, 22, 29, 44, 47, 51, 56, 64, 66, 69–70, 73–74, 77–78, 82–85, 92–94, 96–97, 107, 118, 129, 131, 142–143, 147, 155–157, 164, 169, 171, 175, 179–180 developmental state 56 diplomacy bilateral diplomacy 43 n. 63 business diplomacy 40 commercial diplomacy 8, 12, 18, 26, 29–30, 32, 40-41, 69, 71, 82, 92, 103–104, 107, 142–143, 145, 148, 157, 160–161, 164–165 diplomatic history 7, 15, 43–44, 55, 58–59, 61, 162, 168, 175–176, 178, 184 diplomatic practice 22, 183 diplomatic representation consulate 118 n. 22 diplomatic representation embassy 75 n. 88 diplomatic studies 3, 19, 21, 27, 29, 34–35, 42, 59, 174 (diplomatic) engagement  5, 10, 15, 65, 73, 110, 117–119, 121, 127, 150, 158–159 financial diplomacy 8, 12, 15, 18, 26, 29, 142, 151, 153, 160, 163, 165, 172, 182, 184 n. 24 multilateral diplomacy 111–112, 115, 130, 132, 140 n. 73 normalisation of diplomatic relations 15, 64, 116–117, 122–123, 129 n. 59, 138, 158, 178 regional diplomacy 35, 112, 115, 130, 134–135 trade diplomacy 8, 12, 18, 26, 29, 31, 40–41, 48, 70, 135, 142, 144–145, 148, 150–152, 154, 160, 165 Doha, see World Trade Organization (WTO) domestic politics, see politics domestic politics 10, 14–15, 21, 70, 83, 101, 107, 123, 146, 150

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domestic side, see economic diplomacy domestic side Drezner, Daniel W. 39 Drifte, Reinhard 65 n. 54, 84 n. 6, 155 n. 30 Drysdale, Peter 41 n. 56, 53 n. 2 East Asian Free Trade Agreement (EAFTA), see also trade agreement  149 economic econometrics 40–41 economic cooperation, see also economic aid 6, 31, 64–67, 69-70, 78, 83, 88, 95, 102–103, 131, 143, 154–156, 179 economic engagement 15, 110, 158 economic governance 18, 73, 181 economic growth 6–7, 56, 84, 88, 91, 143, 147, 164, 185 economic influence, see also influence and lever, leverage 126, 176, 183 economic interdependence 65, 73 economic interests 11, 35, 45, 136, 151, 159, 178 economic model 31, 185 Economic Partnership Agreement, see also trade agreement 70, 149 economic power 28, 38, 84, 111, 142, 158, 161–162, 164–165, 170, 172–173, 176, 181, 185 economic science 3 economic strength 31, 105, 136, 150 economic security, see security economic statecraft, see statecraft economic diplomacy analytical framework 3, 10, 12–13, 18–19, 28, 33, 36–37, 50, 54–55, 62, 80, 174–175 business end 12, 14, 28–29, 30–31 n. 41, 44, 50, 57, 65, 76–77, 81–83, 103–104, 115, 135, 138, 142–144, 154 n. 27, 160, 169, 173–174 conceptual framework 8, 12, 14–15, 31, 33, 37, 50, 82, 85, 95, 103, 112, 135, 141–143, 145, 164, 170–171, 184 cost-benefit (analysis) 17, 22, 29, 40, 45, 82, 104, 183 definition 3 n. 3, 5, 10, 17–19, 29–30, 32–33, 33 n. 42, 35, 37, 41–44, 49, 55, 60, 66, 72, 154 n. 26, 169, 185 domestic side 11, 22–23, 35, 48, 61, 72, 82–84, 101, 107, 114, 121, 137, 145, 172–173, 180–181

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effectiveness 2, 5, 10 n. 16, 11, 31, 33–34, 40, 48, 49 n. 79, 81, 84, 113–114, 137, 155–156, 172, 174 goal 30, 50, 97–98, 105, 139, 171 impact 5, 24, 32 n. 41, 44, 46, 56, 64, 125, 136, 144, 176, 185 inducements 8, 12, 145, 154, 157, 159, 161–162, 176 interlinkage (of strands, tools) 64, 69 keizai gaikō 58 negative approach 14–15, 67, 77, 110–113, 115, 119, 121–122, 125, 129–130, 131 n. 64, 132–134, 136–140, 158, 174, 179 package deals 72, 102 positive approach 70, 116 power play-end 30, 104, 112, 135, 143 sanctioning 6, 8–9, 12, 15, 20, 26, 29–30, 32 n. 41, 38, 47, 67, 69, 104, 109, 111–112, 115, 118, 120, 123, 124 n. 37, 125–127, 135, 138, 140, 142, 145, 154 n. 26, 157–161, 164–165, 171–172 strands, expressions 3, 8–9, 12, 15, 19, 28–40, 42, 50, 55, 62, 66, 69–71, 74, 80, 82, 92, 95, 103–104, 111, 122, 130, 133, 135, 141–145, 154, 164, 168, 170–171, 174, 179, 183–184 task force 61, 101 embassy, see diplomatic representation emerging countries, see also developing countries 14, 18, 39, 89, 94, 105–107, 154, 176–179, 181 empirical studies 13 n. 23, 21, 170 energy 14–15, 59, 61, 65, 67, 70, 75–76, 79, 81–91, 93, 95–96, 98–99, 106–107, 128–129, 131, 145–146, 154–155, 160, 165, 182 environment  environmental politics 82 Europe (European) 13 n. 23, 20–21, 25, 35, 45, 56, 59, 61, 78, 82, 93, 97, 143, 149, 163, 170, 175, 177, 179–180 European countries 2, 5, 16, 30–31, 46, 55, 64, 94, 99, 105, 142, 155, 181–183, 185 European Union (EU) 25, 38, 45, 49, 93, 149 export promotion 6, 30, 40, 85, 146 finance finance ministries 152 financial assistance 83 financial crisis, see also global financial crisis, Asian financial crisis 9 n. 15, 47, 67, 79, 152–153, 177, 182 financial stability 152

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financial diplomacy, see diplomacy: financial diplomacy firms, see private sector fiscal policy 156 food 61, 99–100, 127, 129, 145, 154 foreign (exchange) reserves 153 foreign policy foreign economic policy 19, 25, 26 n. 25, 41, 62–63 foreign pressure, see also Japan: foreign pressure (gaiatsu) 10, 14, 73, 79, 84, 170 foreign representation, see diplomatic representation framework of research (conceptual, analytical), see also economic diplomacy: conceptual framework, analytical framework 12, 183 France 102, 107, 180 free trade agreement (FTA), see also trade agreement 9 n. 15, 49, 70, 148 n. 8, 149–151, 172 Fukuda, Yasuo 87, 121, 122 n. 32, 127 Futenma 63 G7 / G8 (Group of 7/8) 87–88, 156 G20 (Group of 20) 156, 179 Garten, Jeffrey 41 n. 57, 45 n. 68, 78 n. 94, 142 n. 4 geo-economic 61, 180 geo-political 96 George, Aurelia 149 n. 12 Gerschenkron, Alexander 56 Gilpin, Robert 30 global financial crisis (GFC), see also financial crisis 79, 152, 182 global institutions, see international institutions globalization 1, 3 n. 3, 21, 24, 163 n. 47, 167, 180 governance 18, 30, 73, 105, 143, 156, 181 government influence in the market 39, 44–48 intervention 45–46, 79, 182 spending 87 gravity model 22, 40 great powers 42 ‘green’ (economic diplomacy, policy) 14, 72 n. 76, 81–83, 85–86, 88–90, 92, 95–98, 101, 103–105, 107, 148, 169, 171, 173 Grimes, William  78 n. 96 Hagström, Linus 53 n. 1, 111 n. 9 hard power 28, 172 n. 6

Hartly, Keith 38 n. 48 Hatoyama, Yukio 78 n. 97, 84 n. 4, 97, 122 high-technology, see technology  Hinds, Manuel 39 n. 50 Hirschman, Albert O. 20 history, see diplomatic history of Japan: Pacific War Hocking, Brian 27 n. 27, 28 n. 30, 42 n. 61 Hook, Glenn D. 12 n. 22, 39 n. 50, 54 n. 3, 68 n. 62, 110 n. 4, 151 n. 18 Hosoya, Yuichi 59 Hudson, David 42 n. 61 Hughes, Christopher W. 141, 162 human rights 6, 30, 45, 47, 105, 127, 143, 156, 185 hybrid approach, see also Japan: hybrid approach 68 identities 35, 42 identity 152 ideology 44, 47 India 7, 9, 31, 43, 66, 93–94, 99–100, 149, 156, 179 Indonesia 93 industrialized countries, see also developed countries 6, 14, 46, 47 n. 72, 89, 92–94, 102, 104–107, 164, 170, 175, 178, 180–183, 185 industrial networks 57 industrial policy 14, 54 n. 3, 55, 79, 81–82, 87–90, 106–107 influence, see also lever, leverage 4, 6, 9, 15, 18–19, 23, 26 n. 25, 27, 29–31, 35, 44, 47–49, 51, 53, 55–56, 60, 63, 65 n. 51, 66–67, 71, 73–74, 77, 79–80, 96, 105, 107, 112–113, 116, 122, 125–126, 129–130, 133, 136–138, 144, 149–151, 157, 162, 165, 169–174, 176–181, 183 influence attempt 23, 112–113, 130, 137 information-gathering 74 infrastructure 61, 76, 78, 83, 85, 89–94, 96, 98, 101, 144–148, 154, 157, 159, 165, 178 infrastructure systems 61, 145–146, 148, 154, 165 innovation 14, 19, 21, 77–78, 86–88, 90 institutional arrangements 145 institutional framework 18 instrument, see tool interests balance of national interests 4, 7–9, 11, 28, 33, 47, 50, 55, 57–58, 63, 81–82,

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103, 107, 111, 113–114, 135, 137, 139, 144–145, 160, 165, 169–171, 173–174, 176, 184 interest group(s) 11, 13, 27, 35, 72–73, 77, 120 n. 27, 123 n. 35, 169 national interest 1, 4, 7–9, 11, 14, 25, 28–29, 33, 36–37, 39, 42, 47, 49–50, 53 n. 1, 55, 57–58, 60, 63, 81–82, 103, 107, 111, 113–114, 121, 135, 137, 139, 144–145, 160, 165, 169–171, 173–174, 176, 184 international cooperation, see also regional cooperation, multilateral cooperation 3, 24, 65, 67, 74–75, 91, 104, 128, 136, 137 n. 71 international institutions, see also global institutions, international financial institutions 25, 35, 55, 67, 133 International Monetary Fund (IMF) 39, 64 n. 50, 67, 130, 133, 152–153, 183 n. 22 international organizations, see international institutions international relations theory 20–21 investment  investment promotion 15, 29, 69, 71, 74, 76, 85, 103, 107, 146, 148 Iokibe, Makoto 59 IR theory 20–21 Iran 104, 158–159 Ishizuka Tetsuya 60 James, Alan 29 Japan 3/4 J’s pyramid 94 administrative agencies 75–78, 85, 93 automobile industry (nextgeneration) 14, 82, 89–90, 92, 96, 99, 106–107, 146, 154, 182 Cabinet Office 74, 76, 86 n. 10, 88 nn. 15, 18 capitalism 1–3, 25, 44, 46–47, 51, 53, 78, 80, 84, 153, 167–168, 182 chequebook diplomacy 69 converging (to neoliberal norm) 54, 141, 163 Cool Earth (initiative) 82, 87–90, 94, 97 Democratic Party of Japan (DPJ) 24 n. 19, 61, 63, 72, 77–78, 88–89, 96–97, 101, 112, 122, 139–140, 144, 147–148, 150 DPJ Manifesto 88 foreign pressure (gaiatsu) 10, 14, 73, 79, 84, 170

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hybrid approach 68 Innovation Network Corporation of Japan (INCJ) 77, 86, 95 Institute for Development Economics of JETRO (IDE-JETRO) 74 Japan Bank for International Cooperation (JBIC) 75, 85, 93–94, 100, 128 Japan External Trade Organization (JETRO) 74–77, 78 n. 93, 85, 94, 101 n. 45, 123 n. 34, 146 Japan Inc. 53 Japan International Cooperation Agency (JICA), see also New JICA 74–75, 77, 78 n. 93, 85, 93–94, 101 n. 45, 156, 178 n. 14 leadership 4, 74, 84, 97, 106, 144, 171 Liberal Democratic Party (LDP) 61, 77, 83, 89, 97, 99, 112, 117, 119, 123 Ministry of Agriculture, Forestry and Fisheries of Japan (MAFF) 73 Ministry of the Economy, Trade and Industry (METI) 65, 73–76, 78, 85–87, 89–91, 93, 101, 126 n. 50, 137 n. 71, 146, 148 n. 8, 151 Ministry of the Environment (MOE) 76, 85 Ministry of Finance 76, 152 Ministry of Foreign Affairs (MOFA) 18 n. 5, 67, 73–74, 76, 92, 97, 147 Ministry of Land, Infrastructure, Transport and Tourism (MLIT) 76, 90, 101 New JICA, see also Japan International Cooperation Agency (JICA) 74–75, 77, 85, 93–94, 156, 178 n. 14 ‘normal’ country 53, 79 nuclear power industry 91 Pacific War 55, 69–70, 115, 142 peace constitution 5, 7, 56 railway 14, 72, 76, 82, 89–90, 92, 95, 97, 101–103, 106–107, 146 reactive state 62 remilitarization 54 water business 76, 82, 89–90, 92, 94, 102, 106–107 Yoshida Doctrine 4, 56–57, 141 kan-min (public-private) 13, 77, 142, 163, 170 Kan, Naoto 88, 148, 150 Katada, Saori N. 7 n. 9, 41 n. 56, 71 n. 72, 73 n. 81, 149 n. 10, 153 n. 24 Kawai, Masahiro 148 n. 9

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Kazakhstan 67, 99 Kazokukai (Association of Families of Victims Kidnapped by North Korea), see also abductees 15, 77, 109 n. 3, 111, 119–123, 127–129, 131–132, 134, 138, 140, 169 Kelly, Dominique 43 n. 63 Kim, Jong-il 114, 119, 125 Knorr, Klaus 173 Koizumi, Jun’ichiro 73, 77, 114, 119–120, 125, 147 Kojima, Akira 60 n. 31 Kopp, Harry W. 28 n. 31, 42 n. 58 Korea, see also South Korea, North Korea 9, 14–15, 38, 66, 68 n. 62, 72, 77, 91–92, 102, 107, 109–140, 146–147, 149–150, 156, 157 n. 37, 158, 160, 162, 169, 171–173, 175–176, 182 Korean Peninsula 110, 130, 132, 136, 138 Korean Peninsula Energy Development Organization (KEDO) 117–118, 128 Kostecki, Michael 42 n. 61 Kotabe, Masaaki 40 n. 55 Kunz, Diane B. 38 n. 49 Kyoto Protocol 87, 97 labour market 126 Latin America 66, 98, 102, 154 leadership 4, 74, 84, 97, 106, 144, 171 Lee, Donna 27 n. 27, 42 n. 61, 43 n. 62–63 legal framework 126, 158 level playing field 45, 149 lever, leverage, see also influence 4, 6, 9, 15, 18–19, 23, 26 n. 25, 27, 29–31, 35, 44, 47–49, 51, 53, 55–56, 60, 63, 65 n. 51, 66–67, 71, 73–74, 77, 79–80, 96, 105, 107, 112–113, 116, 122, 125–126, 129–130, 133, 136–138, 144, 149–151, 157, 162, 165, 169–174, 176–181, 183 Liberal Democratic Party of Japan (LDP), see Japan: Liberal Democratic Party (LDP) Liberalism, see also Neo-liberalism 34 n. 43, 63 linkage(s) 20, 33, 49–50, 53, 56, 64, 69, 82, 99, 102, 123, 148, 157, 170–171, 184 loan 93–95, 106, 128, 163 Lukes, Stephen 113 Maehara, Seiji 61, 72, 101, 144 market market access, see also trade diplomacy 19, 32, 100, 125–126, 133, 140

market failure 45, 46 Marshall, Peter 43 n. 64 Mastanduno, Michael 24, 26 n. 26 McCormack, Gavan 7 n. 8, 123 n. 36 Mekong region 83, 184 Melissen, Jan 17 n. *, 20 n. 9, 167 n. 1, 180 n. 17 mercantilist, mercantilism 56 n. 10, 77, 79, 106, 163 methodology 31, 50 Middle East 31, 57, 98, 154 military military capabilities 65–66, 111, 115, 119, 139, 158 n. 40, 160, 162, 176, 185 military-economic linkage 53, 56 military means 5, 45, 53 n. 1, 57 military power 28, 57, 157 military security 54, 104, 141, 162 military threat 121, 131–132, 139 Mitarai, Fujio 125 monetary policy 29 Mongolia 99, 149 Morgenthau, Hans 8 n. 11, 20 multilateral multilateral agreement 132 multilateral channels 10–11, 29, 32, 65, 67–68, 83, 87–88, 96–97, 109, 111–112, 116, 122, 126, 130–140, 145, 147–149, 151, 159, 160 Naray, Olivier  42 n. 61 nationalism 64 natural resources, see also raw materials 64–65, 84, 92, 98, 104, 106–107, 123, 125–126, 140, 154–155, 163, 165, 173 negotiation 3 n. 3, 4, 7, 9, 10–11, 15, 21 n. 11, 22–23, 25, 28–31, 35–36, 42, 44, 49–50, 55, 59–60, 64, 68–69, 73–74, 96–97, 100, 103, 109 nn. ♣, 2, 110–112, 115–123, 130–133, 137–138, 139 n. 73, 145, 148–151, 155, 171–172, 174, 182 Neo-liberalism, see also liberalism 34 n. 43, 63 Neo-realism, see also realism 7, 34 n. 43, 56, 63 Netherlands 107, 183 n. 22 New Energy and Industrial Technology Development Organization (NEDO) 76–77, 78 n. 93, 85–86, 101 n. 45 Nippon Export and Investment Insurance (NEXI) 75, 85, 93 Nippon Keidanren (business federation)  76–77, 87, 150

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Nitsch, Volker 40 n. 53 non-governmental organization (NGO), see also non-state actor 27, 10, 43, 167–168, 184 non-profit organization 76 ‘normal’ country, see Japan: ‘normal’ country 53, 79 norms 11, 35, 96–97 North Korea 9, 14–15, 38, 68 n. 62, 77, 109–140, 158, 160, 162, 169, 171–173, 175–176 nuclear Non-Proliferation Treaty 100, 117 nuclear crisis 81 n. ♣, 91, 100, 124, 138, 150 nuclear power industry, see Japan: nuclear power industry 91 nuclear (weapon) programme 91, 104, 109 n. 2, 116, 132–133, 139, 159 nuclear technology 100 nuclear test 118, 125–127, 139 n. 73 nuclear weapon(s) 109 n. 2, 122 n. 33 Nye, Joseph  113, 172 n. 6 Obama, Barack 25, 45, 94 Odell, John S. 43 n. 62 official development assistance (ODA), see also aid 67, 70, 79 n. 100, 95, 172 O’Hara Glen 39 n. 50 Okada, Katsuya 75 n. 88, 100 Okano-Heijmans, Maaike 17 n. *, 31 n. 40, 130 n. 61, 167 n. 1, 177 n. 11, 180 n. 17, 183 n. 23 Orbie, Jan 38, 45 n. 67 Organization for International Cooperation and Development (OECD) 93, 156 Development Assistance Committee (DAC) 87 Pacific War 55, 69–70, 115, 142 pacifism 63 peace constitution, see Japan: peace constitution Pekkanen, Saaida 41, 149 n. 10, 151 n. 16 Pempel, T.J. 58 n. 18 Philippines 91 Pigman, Geoffrey Allen 43 Plaza Accord 70, 83 Polachek, Solomon 23, 40 politics domestic politics 10, 14–15, 21, 70, 83, 101, 107, 123, 146, 150

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political culture 24, 44, 51, 180 political economy 18 n. 5, 43 n. 65, 56, 58, 164, 177 political influence 67, 136 political interests 49, 53 political science 18 n. 5, 183–184 political strength 81 politician 13–14, 26, 35, 45, 59, 61, 72, 77, 99, 101, 115, 117–119, 121, 123, 129, 137–139, 145, 148, 151, 162, 169, 172, 185 single-issue politics 112, 115, 121 policy-makers 5, 24, 26 n. 26, 61, 63 n. 42, 97, 110, 115, 121–123, 129, 138–139, 151, 162 Portela, Clara 38 Porter, Michael E. 32, 33 n. 42, 71, 71 n. 74 power balance of power 1, 14, 18–19, 25, 42, 51, 83-84, 106–107, 146, 161, 181 coercive power 26, 162, 176 hard power 28, 172 n. 6 power shift, see also economic shift  5, 24, 65, 164, 167 soft power 28, 113, 172 n. 6 relational concept 49 practitioner(s) (of diplomacy) 4, 13 n. 23, 17, 18 n. 4, 26, 30 n. 38, 39 n. 50, 42, 50–51, 53, 59, 96, 168, 170 pragmatism 63 private business, see private sector 13–15, 18, 25, 40, 45, 55, 57, 70–72, 75–76, 78–81, 83, 85–86, 89–91, 93–95, 98, 102, 126, 142, 145, 148, 151, 153, 163 n. 47, 165, 169, 173–175, 179–180 prosperity 1, 3–4, 7–8, 10, 14, 17, 19, 28–30, 32 n. 42, 36, 39, 50, 63, 81, 83, 103, 107, 137, 142, 165, 176, 184 protectionism 45, 182, 185 public public goods 89 public-private partnerships (PPPs) 14, 73, 95 public sector 25, 87, 91 Putnam, Robert 11, 21, 42, 72 Pyle, Kenneth 57, 141 Pyongyang Declaration 114–115, 120 Rana, Kishan 20 n. 9, 43 railway industry, see Japan: railway 89, 90 n. 23, 103, 106 rare earth (metals) 98, 154 Ravenhill, John 41

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raw materials, see also natural resources 64–65, 84, 92, 98, 104, 106–107, 123, 125–126, 140, 154–155, 163, 165, 173 reactive state, see Japan: reactive state 62 Realism 7, 34 n. 43, 56, 63 reform 68, 70–71, 73–74, 77–78, 109, 124, 145, 151, 160, 163, 181 regional regional cooperation 65, 137 n. 71 regional diplomacy 35, 112, 115, 130, 134–135 regional integration 151–152 regionalism 65, 152 regional rivalry 150, 160, 165 regulation 46 n. 71, 126, 158 remilitarization, see Japan: remilitarization 54 representation, see also diplomatic representation 22, 183 research and development (R&D) 77, 86, 107 Ripsman, Norrin 23, 38 rivalry 13, 55, 71, 73, 136, 149–151, 153, 160, 165, 174, 181 Rose, Andrew K. 40 Rothkopf, David J. 1 n. 1, 41 n 58 rule of law 156 Russia (Russian) 92, 102, 109 n. 2, 119, 124, n. 37, 128, 131 n. 64, 140, 146, 150, 155, 179 Samuels, Richard 7–8, 57–58, 141, 163 sanction(s), see also economic diplomacy: sanctioning 6, 8, 12, 15, 20, 26, 29–30, 32 n. 41, 38, 47, 67, 69, 104, 109, 111–112, 115, 118, 120, 123 n. 34, 124 n. 37, 125–127, 135, 140, 142, 143 n. 4, 145, 154 n. 26, 157–161, 164–165, 172 Saner, Raymond 40, 43 Saner-Yui, Lichia 40 n. 55, 43 n. 63 scarcity (of natural resources) 81, 84, 99, 160, 165 Schaede, Ulrike 6 n. 7, 54 n. 3, 78 n. 96, 85 n. 9 Schoff, James L. 77 n. 92, 120 n. 27, 126 n. 49, 131 n. 65, 132 n. 67 science and technology (S&T) 73, 102, 104 Sealy, Len S. 39 n. 51 security economic security 18, 23, 26, 28, 60, 64, 159

comprehensive security 14, 57, 65, 100, 107, 141, 157, 162 ‘hard’ security 14, 83, 146 national security 3–4, 25, 28, 37, 53, 57, 83, 110–111, 115, 118, 130, 137, 139, 140 n. 75, 142 supply of natural resources  14, 65, 83, 98–100, 104, 106, 154 Self Defence Force 139 Sengoku, Yoshito 72, 101 Senkaku/Diaoyu Islands 64, 99, 150, 155 services 100, 173 single-issue politics, see politics: single-issue politics Sino-Japanese relations 64, 157, 95 Six-Party Talks 109, 116, 120–121, 130–132, 134–136, 138, 139 n. 73, 140 small and medium enterprises (SME) 123 Söderberg, Marie 155 soft power 28 n. 31, 113, 172 n. 6 Solís, Mireya 152 South Korea 72, 76 n. 90, 92, 102, 107, 109 n. 2, 110, 112 n. 10, 115 n. 17, 116, 122 n. 32, 125 n. 42, 126, 133, 138, 140, 146–147, 149–150, 156, 157 n. 37, 182 sovereignty 167 n. 2, 168 stability 1, 3–4, 7–8, 10, 14, 28, 30, 33 n. 42, 36–37, 50, 63, 78, 81, 86, 99, 103–107, 114–115, 122 n. 33, 124, 137, 140, 142, 172, 184 state state centric (approach) 10, 80 as primary actor 10, 12, 27, 35 state visit 40 statecraft economic statecraft 18, 23, 26–27, 29, 38, 40, 44, 68, 110 Steil, Benn 39 n. 50 Strange, Susan 22–23, 41 strategy strategic (policy, consideration)  110 n. 10, 113, 122 strategic interest 32 n. 41, 44, 105, 162, 176, 179 Stremlau, John 41 n. 57 Stubbs, Richard 56 n. 11 summit 35, 68, 88, 119–120, 156, 179, 183 sustainable development 97 sustainable economy 106–107 swap agreements (currency) 71, 152 tactics 15, 35, 58, 63–64, 68, 80, 141–142, 164–165, 175 Tadokoro, Masayuki 60

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Takenaka, Heizo 79 n. 99 Takeshita, Noboru 83 Tanaka, Hitoshi 59 tariffs 47, 90 technology 14, 67, 70–71, 76, 81–93, 98–102, 107, 136, 138, 146, 165 territorial dispute 64, 99, 150, 155, 179 terrorism 19 n. 6, 49, 116, 121 n. 30 Thailand 91 Tinbergen, Jan 22 tool analytical tool 2, 11, 145 economic diplomacy as a tool 24–25, 46–47, 83, 155, 165, 181 economic tool 3, 5, 18–19, 24–25, 29, 31 n. 39, 36, 41, 44, 55, 63 n. 42, 112, 170, 175 political tool 25, 29, 33 n. 42, 55, 64, 70, 121, 129, 170, 179 tool of economic diplomacy, see economic diplomacy: strands, expressions tourism 5, 147–148, 160, 165 trade informal barrier 126 trade agreement, see also free trade agreement (FTA) or Economic Partnership Agreement 9, 15, 26 n. 26, 29, 31, 69, 71, 73, 88, 144, 148–149, 151 trade barrier 32 trade diplomacy, see diplomacy: trade diplomacy trade mission 18, 41, 72, 124 trade promotion 3 n. 3, 6, 15, 29, 69, 71, 74, 76, 85, 103, 107, 146, 148 trade relations 15, 129, 133, 138, 171 Trans-Pacific Partnership 9 n. 15, 149–150 transparency 156 Tsokhas, J. Kosmas 39 n. 50 Tsuruoka, Koji 94, 97 two-level game theory (Putnam) 11, 72

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United Arab Emirates 92, 103, 146 United Kingdom (UK) 24 n. 19, 43, 59 n. 26 United Nations (UN) 67, 126 n. 51, 139 n. 73, 140 n. 74, 158 n. 39, 159 United States (US) 2, 4–5, 9 n. 15, 13 n. 23, 15, 18 n. 4, 21, 24–25, 30, 38–39, 46, 49, 55–57, 59, 61, 63–67, 69–72, 78–79, 91, 93–94, 99–102, 107, 109 n. 2, 110, 115–117, 119–121, 126, 129, 131–134, 136, 137 n. 72, 138–139, 142, 150 n. 13, 151–153, 155, 157–159, 161–163, 170, 174–175, 179–182, 184–185 Urata, Shujiro 7 n. 9, 41 n. 56, 70 n. 69, 74 n. 83, 102 n. 49, 148 n. 9 Vietnam 72, 91–92, 94, 99, 101–102, 146, 149 Viner, Jacob 20 Washington Consensus 5 water business, see Japan: water business water industry, see Japan: water business Weiss, Linda 54 n. 5, 141 welfare-enhancing effect 17, 22, 39 west (the West, Western) 1–2, 5–6, 22 n. 13, 48, 161, 167, 178, 181–182, 185 Western countries 1–2, 5, 15–16, 18, 25, 30 n. 38, 31, 45, 53, 55, 67, 72, 80, 125 n. 43, 142, 155–156, 162, 165, 168, 175, 177, 179–181, 185 Woolcock, Stephen 27, 42–44 World Bank 67, 130, 133, 152 world order, see also power shift 6, 16, 24–25, 51 World Trade Organization (WTO) 44, 60, 65 n. 51, 148–149, 151 Wright, Quincy 20 Yoshida Doctrine 4, 56–57, 141 Zoellick, Robert 49

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