Economic Diplomacy of the European Union. Liberal or Realist Actor?

TABLE OF CONTENTS

I. Introduction & Purpose

II. Methods

III. Economic Diplomacy

IV. Theoretical Background
A. Realism
1. Classical Realism
2. Neo-Realism
B. Liberalism

V. The European Union: Literature Review
A. Structure and System
B. Competences in Economic Diplomacy
1. Trade Agreements
2. Actions within the WTO
3. Economic Sanctions
4. Monetary Regulation
5. Financial Regulation
C. Strategic Motives

VI. Case Studies
A. Trade Agreements
1. The Customs Union (CU)
2. The European Economic Area (EEA)
3. Euro-Mediterranean Association Agreements (EMAAs),
4. Stabilisation and Association Agreements (SAAs)
5. The Eastern Partnership (EaP)
6. Economic Partnership Agreements (EPAs)
7. The Generalized System of Preferences
8. Other Agreements
9. Promotion of Labour Rights, Democracy, Rule of Law
10.Strategic Motives
11. Conclusion
B. Actions within the WTO
1. WTO Negotiations
2. Dispute Settlement
3. Conclusion
C. Sanctions
1. General Framework
2. Use of Sanctions
3. Strategic Motives
4. Conclusion

VII. Summary and Conclusion

VIII. Limitation and Outlook

IX. References

ABSTRACT

In the last decades the processes of globalization gave rise to economic interdependencies, leading to the increasing importance of economic diplomacy. The European Union is the largest trading block in the world and therefore exerts considerable power in international trade affairs. This thesis will pursue a theory-testing approach to analyze whether the EU is a realist or liberal actor in economic diplomacy. Through three case studies we come to a complex conclusion, that highlights the realist strategic thinking embodied in EU actions and the liberal set of tools that is used to achieve those.

Die Prozesse der Globalisierung habe in den letzten Jahrzehnten die ökonomischen Verflechtungen weltweit vergrößert, was zu einer gestiegenen Relevanz der ökonomischen Diplomatie geführt hat. Die Europäische Union ist der größte Handelsblock der Welt, was sie zu einem wichtigen Akteur in der internationalen Handelspolitik macht. Diese Arbeit wählt einen theorietestenden Ansatz, um zu analysieren ob die EU in ihrem Handeln im Rahmen der ökonomischen Diplomatie von der Denkschule des Realismus oder des Liberalismus geleitet ist. Durch drei Fallstudien ergibt sich dabei ein komplexes Bild, welches zeigt das strategische Überlegungen aus dem Realismus eine große Rolle spielen, aber auch liberale Instrumente genutzt werden.

List of Figures

Figure 1 - European Sanctions Map

List of Abbreviations

Abbildung in dieser Leseprobe nicht enthalten

I. Introduction & Purpose

While the European Union in general exercises more and more power over national governments in Europe, there are still a number of areas where the EU lacks significant competences. Even after the treaties of Maastricht and Lisbon, the member states still restrict European legislation and governance on foreign policy. On the other hand, the EU was granted significant competences in the area of trade, including Free-Trade-Agreements, sanctions, the WTO and monetary and financial regulation. These competences could be used in a foreign policy agenda, making use of their ability to shape the international economy. These processes of „decision-making and negotiation in international economic relations“ are commonly referred to as Economic Diplomacy (Stephen Woolcock, 2011, p.84)

Due to the increase in global trade flows boosted by the processes of globalization, aspects of the international economic order have received increasing significance in international affairs. As economic diplomacy is designed to shape the international economic order, the European Union - in particular the Commission, as we will later lay out - has an important set of tools at its hand. But how is it used? Is the EU the liberal powerhouse of the world, striving to increase trade regardless of strategic motives, promoting democracy and the global rise of capitalism with a view on human rights and labour rights? Or ist the EU in fact a realist actor, that makes use of economic diplomacy to increase its power and to strengthen its own national security?

To answer these question, the following research question is laid out: Is the EUs behavior in economic diplomacy influenced by the realist or liberal school of thought?

The next chapter, Methods, will show why a qualitative design is the suitable approach. Citing Robert K. Yin as a leading scholar in this field, it will also state why particularly case studies are the best applicable instrument for the qualitative study. The aforementioned brief definition of economic diplomacy may be able to introduce the reader into the topic, but a more comprehensive analysis of the term is needed to answer the research question. As some relevant scholars decide to separate all actions of economic diplomacy to achieve political and strategic goals under the term economic statecraft, a particular focus of our definition in the chapter Economic Diplomacy will be on why we choose to disregard this separation. The question arises, whether other schools of thought would be equally or better fitted to provide hypothesis for our focus on the economic diplomacy of the European Union. Further explanation on the choosing of the liberal and realist schools of thought and their theoretical assumptions will be given in the chapter Theoretical Background. At the end of each of the two chapters focusing on theory, three hypothesis on the EU's behavior in economic diplomacy will be set out. Following this, a further analysis of the structure of the European Union is deemed necessary. It will show the general workings of the European Union, why it is defined as a political system and how much competences the EU has in the different fields of economic diplomacy. Afterwards, the Case Studies analyze those subfields of economic diplomacy where the EU has significant competences.

While each part has its own conclusion, a detailed Summary and Conclusion follows, that sums up the findings. It comes up with a complex conclusion, that highlights both realist and liberal aspects in the EU's economic diplomacy. While realist thinking is the dominant driver behind EU actions, the tools used are essentially liberal.

II. Methods

The thesis will follow a qualitative, theory-testing approach. The aim is to test whether the economic diplomacy of the EU fits more into liberal or realist assumptions. In the field of foreign policy analysis - which is were this research question is located - qualitative research is associated with the second generation of researchers (Potter, 2010). The analytical parts of this thesis will follow their example and make use of case-studies.

Robert K. Yin, one of the leading scholars on case study designs, brings up three criteria for which this design is particular preferable: “(1) the main research questions are ‘how' or ‘why' questions; (2) a researcher has little or no control over behavioral events; and (3) the focus of study is a contemporary“ (2014, p.54-55). All those criteria are met in our research design: The research questions asks how the EU behaves in Economic Diplomacy and whether this can be explained by the realist or liberal school of thought; there is no control over behavioral events; and the focus of the study lies in the past few decades up to the present. Therefore, choosing case studies as the research method, seems to be the way forward to answer the research question.

Whether a case study is suitable for a research design does also depend on the type and number of available data to analyze the specific cases. Usually, case studies rely on archival research - agreements, contracts, but also summarizing fact sheets provided by the relevant institutions - as well as on scholarly articles on the particular topic (Yin, 2014). The economic diplomacy of the European Union is well document by the European External Action Service (EEAS), the Commission and other EU institutions. Furthermore, the relevant agreements and contracts are publicly available through various databases of the EU. In addition to that, numerous scholars have analyzed the economic diplomacy of the EU. Thus, case studies are the suitable research design, because one can rely on sufficient data needed to conduct the analysis.

Case study designs aim to understand a complex social phenomenon by looking at one or multiple cases (Yin, 2014). In this thesis, the complex social phenomenon to be understood is the Economic Diplomacy of the EU. The different cases that we look into to get a grasp of the topic are: (1) Trade agreements (2) Sanctions (3) Actions within the WTO. The limitation to these specific cases will be explained in the chapter Economic Diplomacy.

As previously laid out, the aim of our research question is to understand whether the economic diplomacy of the EU is influenced by the realist or liberal school of thought. The qualitative approach of this thesis in contrast to a quantitative approach is particularly fitting to our cause, as a „case study, like the experiment, does not represent a ‘sample', and in doing case study research, your goal will be to expand and generalize theories (analytic generalizations) and not to extrapolate probabilities (statistical generalizations)“ (Yin, 2014, p.100).

Following this, equally important to a comprehensive design of our case study analysis, is the theoretical background. This requires a thorough literature review of the two schools of thought, tracing back their origins, laying out their general propositions and applying their worldview on the research field of economic diplomacy.

III. Economic Diplomacy

Although the scholarly debate of economic diplomacy is a newly emerging topic of the late 20th and 21st century, the practice of it has been pursued by states and state-like actors since ancient times. Economic Diplomacy involves a wide range of economic tools including but not limited to sanctions and bilateral/ multilateral trade agreements, “to advance a country's economic, political and strategic goals“ (Wayne, 2019). The term implies, that the policy is pursued towards the outside by a sovereign authority - including but not limited to states - as we can see in the case of the European Union. As there are multiple definitions of economic diplomacy the following part will narrow down on the term, lay out the thoughts of the major scholars in the field and will come up with a clear definition for the research object.

First of all, what is diplomacy? Essentially, it describes certain processes that states use “to secure the objectives of their foreign policies without resort to force, propaganda or war“ (Berridge, 2015, p.1). Typically, diplomacy relies on instruments of communication, carried out by public officials or private persons acting under the direction of the aforementioned (Berridge, 2015). Thus, economic diplomacy can be generally described as those processes of diplomacy that rely on economic actions or try to achieve better economic outcomes.

Bayne and Woolcock (2007) 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. The role of the aforementioned is stressed, as Bayne and Woolcock include those as important actors in the area of economic diplomacy. Moreover, they define the instruments of their ‘new economic diplomacy' more narrowly and exclude those processes pursued towards political and strategical goals. The authors use the term ‘economic statecraft' for those instruments, implying that it needs to be studied separately (Bayne and Woolcock, 2007).

Furthermore, van Bergeijk and Moons (2009) define three elements that are typically for economic diplomacy: (1) The promotion or the influence of international trade by using political means, (2) The usage of economic means to strengthen cooperation and bi/multilateral relations, (3) The actions toward building the right international environment to facilitate those objectives. Although the authors build on the definition of Bayne and Woolcock, their definition shows that economic policies to achieve political and strategical goals are part of economic diplomacy. (van Bergeijk and Moons, 2007).

Okano-Heijmans, building on a state centrist realist framework, defines economic diplomacy as the “pursuit of economic security within an anarchic system“ (2011, p.16). When states engage to protect or enlarge their economic security, they use a variety instruments to achieve power goals, business goals, or a combination of them. The 'power-play end' describes instruments relating to political interests of the sovereign actors, whereas the ‘business end' involves tools of cooperative nature that promote commercial exchange or secure commercial objectives. (Okano-Heijmans, 2011)

Summing up, a basic definition of economic diplomacy describes it as those processes of diplomacy that rely on economic actions or try to achieve better economic outcomes. The separation of economic diplomacy and economic statecraft introduced by Bayne and Woolcock is disregarded in our definition, as this limitation would not be suitable for such a heavily intertwined area of research. Moreover, the various other definitions all show similarity to the general approach by Okano-Heijmans, describing economic diplomacy as a range of instruments between the business-end and the power-play end.

IV. Theoretical Background

In the academic field of international relations, three major schools of thought are deemed to be particularly relevant: realism, liberalism and constructivism (Frieden, Lake and Schultz, 2016).

First of all, the theory of realism provides scholars with a comprehensive theoretical view that centers on security as the main goal of all states. To achieve this security states strive for a position of power in the international arena, which is shaped by anarchy. Evolving over time, neo-realism emerged as a strain of realism, placing more significance towards the analysis of structures in international affairs. (Ravenhill, 2008)

On the other hand, liberalism is seen as the major opposing school of thought, often described by placing its assumptions in the contrast to realism. Liberalism, as it is not only a theory but also a foreign policy doctrine, seeks to create international bodies to limit the existing anarchy in the world, to achieve freedom and peace for individuals worldwide. Modern liberalism rests upon three pillars: democracy, capitalism and international organizations. (Doyle, 1986)

While realism and liberalism are the two dominant schools of thought, constructivism is also a relevant theory in international relations. Constructivism assumes the nature of international affairs to be socially and culturally constructed and for example in no way bound to the postulated necessity of security in realism (Guzzini, 2000). However, constructivism lacks a sufficient scholarly debate on economic diplomacy and is therefore disregarded for the theoretical background of this thesis. Thus, the following parts will focus on realism, neo-realism and liberalism.

A. Realism

1. Classical Realism

Realism assumes the global environment in a state of anarchy, forcing nation states as the central actors to strive for more power, to be able to provide security for their nation. Realism in International Political Economy shares this general assumption, in fact: „here IPE is simply a subset of IR“ (Ravenhill, 2008, p.33). Nevertheless, the strands of thought within the theory provide different explanations for state actions in the global economic system. This chapter will start by recapitulating on the works of the major historic scholars that contributed towards the realist school of thought. Afterwards, we will show how Hans Morgenthau combined those works into his realist theory.

The roots of classical realism date back to ancient Greece, with Thucydides referencing the concepts of power and balance of power - which are central to realism - in his book History of the Peloponnesian War. Analyzing the causes of the war between Athens and the Spartan-led Peloponnesian League, he finds that the war was made inevitable by the growing dominance of Athens in the region, pushing its adversaries towards war to rebalance power (Steven Forde, 1992). Moreover, Thucydides highlights the importance of self-interest that is embodied into human nature and puts rational above moral thoughts: “(...) you are beginning to talk in terms of right or wrong. Considerations of this kind have never turned people aside from opportunities of aggrandizement offered by superior strength“ (Thucydidies, [431BC] 1954, b.1 par. 76). Other historical scholars that passed on principles of realism include Machiavelli and Hobbes.

Machiavelli's often-cited book ‘The Prince' - intended to be a guide for a future ruler on all matters of statecraft - is a major source for scholars of realism. He agrees with Thucydides in abandoning moral guidelines for human actions: “Not the moral superiority of our ancestors, but their villainy, (.) is the foundation for the good name and the good fortune their descendants enjoy“ (Mindle, 1985, p. 216). Furthermore, Machiavelli adds an important characteristic of human behavior: egoism, or as described by Mindle (p. 217), the “desire for self- preservation“. In matters of international relations, this desire leads states to strive for a maximum of security to preserve their existence.

Thomas Hobbes, a philosophist and universal scientist best known for his work 'Leviathan', made important contributions to the realist school of thought that derive from the concept of anarchy and its defining character for individuals: “It is manifest that during the time that men live without a common power to keep them in awe, they are in that condition which is called war, and such is a war of every man against every man“ (Hobbes, [1651] 1990, p.76) . While Hobbes scope lies on the nation state, where he argues for a strong state inhibiting all power, the so-called leviathan, his thoughts can be applied to international relations. According to realists, anarchy, defined as the absence of a common power, is the state of nature in international relations. Referencing Hobbes, this situation leads to a constant state of insecurity - every country against every country.

In the anarchic international environment, states seek to enhance their national security by striving for more ,power‘, defined by Hans Morgenthau as “anything that establishes and maintains the control of man over man“ (2006, p.11). Political actions of nation states within the international arena always have a power aspect, as they are designed either to keep power, to increase power or to demonstrate power (Morgenthau, 2006). This view is also portrayed on international organizations, which are seen merely as stages to play out power relationships (Mingst, McKibben & Arreguin-Toft, 2018).

Numerous factors contribute to the national power: In addition to Geography, Military Preparedness and others, Morgenthau sees natural resources, industrial capacity and technology - all factors within the economic area - as central elements (Morgenthau, 2006). Summing up, the classical realism set forth by the theories of Hans Morgenthau emphasizes the state, defined as the sum of all individuals, “as the principal actor in international affairs and the fact that there is no authority superior to these sovereign political units“ (Gilpin, 2001, 16). Furthermore the actor's behavior - the political actions in the international arena are deemed to be rational, as well as shaped by “objective laws that have their roots in human nature“ (Morgenthau, 2006, 4) and the strive for national security.

2. Neo-Realism

The state-centric approach to realism by Hans Morgenthau and others was broadened by an innovative concept laid out by Kenneth Waltz, which can be described as the structure-centric approach, often known as neo-realism. This strand of thought focuses on the distribution of power between states, pursuing a more relational approach to determine national behavior. In his theory, “the international system consists of two basic elements: the actors or units of the system, namely states and the structure of the system“ (Schorning, 2015, p. 40). The international system is foremost characterized as decentralized and anarchic. According to Waltz, this is the primary distinctive factor for the system, as a system can be defined as anarchic (international politics) or hierarchic (domestic politics). The systems structure is developed out of interactions between states and their behavior in international affairs and the capabilities of the different units (Waltz, 1979). When observing the international system, we make use of different system sectors: economic, political, societal and strategic (cf. Buzan, Jones and Little, 1993).

While Waltz theory portrays nation states in a different light than Morgenthau, namely describing them as uniform actors whose inner life can be disregarded in the analysis, he shares the realist view that the primary goal of states is to secure their survival (cf. Schorning). Furthermore, states are believed to make “their decisions (.) based on the criterion of means-ends rationality“ (Schorning, 2015, p.41). Much like realists, neo-realists see a structural insecurity in the anarchic international system, which produces power balancing actions by states, as they always seek to enhance their security by positioning themselves in a position of power relative to other actors in the system (Schorning, 2015). States are reluctant towards international cooperation and the gains produced through it, as they fear to create relative gains for the cooperation partner (Waltz, 1979). Due to the anarchic order, “self­help is necessarily the principle of action“ (Waltz, 1979, p.111). One can see that the structure is the defining part for the system and therefore the main interest for analysis in the theory.

Werner Link enlarged the structural framework of neo-realism, when he proposed his theory of conflicts. He showed that states strive for security and wealth in an anarchic order and that these primary goals are achieved through actions that are influenced by internal/societal preferences, actions by other states and the structure of the international system (Link, 1994).

Focussing on the theoretical assumptions on Economic Diplomacy, realists and neo-realist see the world in a constant state of insecurity and assume that nation states try to cope with this by enhancing their national security through gaining more power. The fear of states to provide relative gains while interacting with each other, provides a starting point for the assumptions on economic diplomacy. Moreover, states are also reluctant towards the exchange of goods, as they seek to avoid dependency. In addition to that, international organizations are seen as mere arenas for power plays. Deriving from the theory we come up with these hypotheses for our case studies:

- EU Trade agreements are made with strategically relevant countries.
- The EU participates only in multilateral efforts in the WTO if there are relative gains - and focusses on bilateral agreements
- Sanctions are used for strategic motives to secure and enhance the power of the European Union

B. Liberalism

On the contrary to realism, classical liberalism sees “international relations as an outgrowth of politics in the domestic or national political arena“ (Haar, 2009, p.17). Central to the liberal worldview is the value of freedom, which is seen as a right of every individual person and must be ensured by the state (Haar, 2009). Building on the thoughts brought up by John Locke and the economic theories of Adam Smith and David Ricardo (Frieden, Lake & Schultz, 2010), liberals reason that there is a need for checked power in the political arena that ensures the wellbeing of all individuals. This need for the securitization of peace is then portrayed to the international system. As will be later laid out, liberalism highlights the importance of cooperation in the international system, stresses the normative power of international organizations and argues for democracy and free-market policies. While realists think that international politics is mostly about power and bargaining, liberals hold the view that “the danger of war can be reduced by spreading democracy, strengthening international institutions, and fostering economic independence” (Frieden, Lake & Schultz, 2010, p.31).

Michael Doyle (1986) lays out three historical strains of the liberal school of thought: (1) liberal pacifism, (2) liberal imperialism and (3) liberal internationalism (Doyle, 1986).

Building on the cornerstones of democracy and capitalism, Schumpeter's work is seen as the best example of liberal pacifism (Doyle, 1986). He argues that the rise of capitalism gave way for processes of specialization and the removal of previously existing boundaries, thus creating a “democratized, individualized and rationalized“ (Schumpeter, 1955, 68) society. The core proposition of Schumpeter in specific and liberal pacifism in general can be narrowed down to: “Democratic capitalism leads to peace“ (Doyle, 1986, 1153).

Machiavelli, who was previously introduced as a scholar inheriting principles of realism, has also contributed to another strain of liberalism: liberal imperialism.

He argues, that the constitution of states as a republic gives citizens the power to influence the states behavior. Furthermore, those citizens do not only seek material welfare but also some kind of dominance or ruling over others. Following the general liberal assumption that sees the behavior of states in the international arena as a reflection of the national political environment, states are pressured by two forces to engage in imperialistic behavior. First, the will of their own citizens requires them to do so. Second, as all states are forced to enlarge their influence by the will of their citizens, a state itself has no choice but to do so too. (Doyle, 1986)

The third major historic strain is liberal internationalism, which relates to a variety of interdependent concepts that all strive to create peace through multilateralism and cooperation. It resembles "a centuries-old political project, aimed at promoting individual freedom through private property and government“ (Ikenberry, Parmer & Stokes, 2018, p.3). Liberal Internationalism strives for a coherent international order shaped by democratic states. Being applied in practice through the foreign policy of Woodrow Wilson, the theory is often referred to as a foreign policy doctrine, as it assumptions can lead to arguments for interventions in other states to build democracies (Hoffmann, 1995). In liberal internationalism, democracy, economic integration and international organizations form the so-called liberal tripod and have been empirically tested for having a significant effect on reducing the likeliness of war (Gleditsch, 2008).

The democratic peace theory - the idea that democracies rarely if ever fight each other - is rather old and can be traced back to as early as Immanuel Kant with his essay “Perpetual Peace” (Ray, 1998). Numerous quantitative studies (see Bremer 1993, Chan 1984, Russet and Oneal, 2001) show a significant effect of democracy on the likeliness of war, when analyzed on the dyadic level (that is democracy-democracy, democracy-autocrazy, autocrazy-autocrazy). While the monadic analysis is less clear cut (Chan, 1997), the dyadic findings support the proposition of Levy that the democratic peace theory comes "as close as anything we have to an empirical law in international relations“ (1988, p.662). Numerous aspects of democratic states are believed to contribute to this relationship between democracy and peace. First of all, leaders of democratic states are reluctant towards war, as "democratic re-election pressures (.) tend to make them more careful to select only wars they are likely to win“ (Hegre, 2014, p.161). Furthermore, the leaders are not only constrained by reelection pressures, but also by other political bodies such as the parliament. As a broad public debate will emerge within the population - involving the human and economic costs of war - the representatives will be heavily influenced by the will of the people (Hegre, 2014).

However, Gartzke's empirical study on capitalist peace shows that “economic development, free markets, and similar interstate interests [as factors of the capitalist peace argument] account for the effect commonly attributed to regime type in standard statistical tests of the democratic peace“ (2007, p.166). On the other hand, a study of Choi shows that the postulated effect of Gartzke, that factors of capitalism make democracy insignificant, is largely due to "model misspecification, observation omission, and sample selection bias“ (2011, p. 767). Concluding, the democratic peace and the capitalist peace theories should not be seen as two theories contradicting each other, but rather go hand in hand.

The main goal of liberalism ist to secure peace by strengthening cooperation through three factors: democracy, economic integration and international organization. As a functioning democracy is also heavily linked to the wellbeing of every individual, labour rights have to be considered as well. Following the theories of Adam Smith and David Ricardo, they seek to promote and strengthen international trade, as in theory it creates absolute gains for every participant through comparative advantages. The analysis of liberalism provides us with these central assumptions on economic diplomacy:

- Trade agreements are used to liberalize markets and to promote the global rise of capitalism, democracy, the rule of law and labour rights
- The EU is actively engaged in multilateral liberalization in the WTO and tries to build a greater multilateral framework for trade.
- Sanctions are used to secure a liberal world order built on democracy, peace and capitalism

V. The European Union: Literature Review

A. Structure and System

For the further examination of the economic diplomacy of the European Union and whether it fits to liberal or realist assumptions, we need to clarify: What exactly is the EU? Is it a federal state, like the United States of America or is it an international organization? This requires the analysis of the structure of the EU and its method of policy making.

Scholars widely agree that the European Union is a system ‘sui generis', describing it as a “unique, new, exceptional“ (Phelan, 2012) organization. It does not fit into the standard model of an international organization, as its member states have given a considerable amount of their sovereignty towards the EU institutions. Nevertheless, “the member states remain sovereign in many areas of policy, including the ability to sign international treaties“ (Hix and Hoyland, 2011, p.12). The EU remains something ,in-between‘.

Hix and Hoyland (2011, p.2) choose a comprehensive approach to narrow down on this, by defining the European Union as a political system. Referencing the definition of Almond (1956) and Easton (1957) they show that the EU fits to all four characteristics they laid out:

1. There is a stable and clearly defined set of institutions for collective decision­making and a set of rules governing relations between and within these institutions.
2. Citizens and social groups seek to realize their political desires through the political system, either directly or through intermediary organizations such as interest groups and political parties.
3. Collective decisions in the political system have a significant impact on the distribution of economic resources and the allocation of social and political values across the whole system.
4. There is continuous interaction (‘feedback') between these political outputs, new demands on the system, new decisions and so on.

The executive power of the political system European Union is shared between the Commission, the European Council and the Council of Ministers. While the focus of the Commission is on the mid-term development of the EU, the European Council and the Council of Ministers - which represent the national governments - set the long-term strategic goals. The Commission is serving as the de-facto government of the EU, each of its 24 commissioners is delegated by one member state government - but acting independent of national interests - and responsible for a certain policy area. The power of the Commission includes the right to initiate EU legislation, manage the budget and most importantly to represent the EU in trade negotiations, as well as issuing rules and regulations, for example on competition policy (Hix and Hoyland, 2011). In the legislative process, the European Union is governed by a two chamber system, “in which the council represents the states and the European Parliament represents the citizens“ (Hix and Hoyland, 2011, p. 49).

The EU can only pass legislation, as well as acting executively, in those areas were the member states have allowed it to do so. As defined in the treaties, three different types of competences exist: the e xclusive competences, shared competences and supporting competences (European Commission, 2019a) .

The exclusive competences - where the EU has the sole executive and legislative power - cover all matters of the customs union; the competition rules for the single market, the monetary policy for the eurozone (conducted by the ECB), trade and under certain conditions also international agreements, as well as marine life under the common fisheries policy (European Commission, 2019a).

In the areas of shared competences, member states can act if the EU has not yet done so. They include a wide array of policy areas: single market employment and social affairs; economic and social cohesion, territorial cohesion, agriculture, fisheries, environment, consumer protection, transport, trans-European networks, energy, security and justice, public health, research and space, development cooperation and humanitarian aid (European Commission, 2019a).

In the third category of supporting competences the EU has no power to act and can only support or coordinate the member states. These cover: public health, industry, culture, tourism, education and training, youth and sport, civil protection and administrative cooperation (European Commission, 2019a).

Summing up, the European Union displays some characteristics of a state, but lacks full sovereignty as it is governed by treaties that have to be signed by the member states. We therefore define the EU as a political system. Nevertheless, the EU has been given significant power primarily through its exclusive competences, but also by the shared competences. The Commission as an actor independent from the nation states exerts great power through its executive competences and the ability to introduce legislation.

B. Competences in Economic Diplomacy

As previously showed, the European Union is not defined as state, but as a political system. This requires a complex process of creating coherence between the views of the individual member states, especially in the area of external trade policy. The question arises: how exactly does the EU conduct economic diplomacy? This chapter will analyze the competences, as well as the processes and tools involved in shaping economic diplomacy. This will be done separately for each of the fields of economic diplomacy that were laid out that the beginning: trade agreements, sanctions, actions within the WTO, monetary regulation and financial regulation. At the end of each of this subparts, there will be a conclusion that states whether the specific field is suitable for a further case study analysis. This will depend on the competence given to the European Union.

1. Trade Agreements

First of all, trade policy making in terms of trade agreements is governed by the principal-agent model, with the member states being the principal and the Commission being the agent. The Directorate General Trade of the Commission (assisted by the DG Agriculture) is the sole negotiator for all trade negotiations. However, DG Trade has to be authorized to do so by the Foreign Affairs Council - the central representation of the member states in this process. After negotiations are finalized, the agreement is ratified by member states parliaments if there are issues of national competence affected and then adopted by the Foreign Affairs Council by a qualitative majority vote. Furthermore, the agreement has to be granted consent by the European Parliament. (Woolcock, 2017)

The Common Commercial Policy (CCP) governs the actions of the European Union on matters of external trade. It is legally based on Article 207 TFEU, which grants exclusive competence over the CCP to the European Union. The CCP rests on three pillars: “the World Trade Organization (WTO), preferential trade agreements and domestic regulation addressing third country relations“ (Bungenberg and Herrmann, 2013). While the central objective of the CCP is to promote global trade and remove tariff and non-tariff barriers, it has four protectionist instruments at its hand: the common external tariff, import quotas, anti-dumping measures and voluntary export restraints. Furthermore, the CCP makes use of export-promoting measures, trade sanctions, countervailing duties to combat export subsidies, safeguard clauses which are allowed by the WTO to move away from certain rules if there is an important national interest and rules of origin (Hix and Hoyland, 2011).

However, the ability to limit market access by protectionist matters against a single state is constrained by the binding agreements the EU made to a number of international regimes, including the WTO. The same applies to granting better access to other nations, limited by the most-favored nation principle of the WTO regime. In addition to that, the ability is further limited by liberal member states that oppose such measures (Woolcock, 2012). Nevertheless, the most-favored nation principle does not apply to regional free-trade agreements. Considering the vast market power of the European Union, the instrument of enlarging market access gives the Commission considerable power in negations over the aforementioned agreements. Summing up, the European Union was given significant exclusive competences on trade agreements, which makes it a suitable topic for a case study.

2. Actions within the WTO

The competences of the European Union in terms of economic diplomacy are also heavily linked to its recognition as an actor in the international arena. For all matters of trade, the WTO and specifically its Dispute Settlement Body (DSB) is an important international regime. The European Union is an official member of the WTO, as well as all of its member states in their own rights (WTO, 2019). Technically, these overlapping competences could bring some problems to the ability of the EU to act within the WTO. However, in the WTO as well as the DSB the “EU operates as a single actor (.) and is represented by the Commission rather than by the Member States“ (Mendonga, 2018. p.4). This means, that all voting rights and all other measures available to member states are restricted and an exclusive competence of the European Union - covered under the CCP. Considering the power given to the EU through this and the continuing engagement of the EU as a very active member of the WTO, a case study on them will certainly contribute to the research question.

3. Economic Sanctions

Article 215 of the TFEU is the legal basis for actions of the European Union that provide “for the interruption or reduction, in part or completely, of economic and financial relations with one or more third countries“ (Treaty on the Functioning of the European Union, 2012). It has to be noted, that sanctions are not covered under the CCP, but under the Common Foreign and Security Policy (CFSP) of the EU. This means that matters of sanctions do not fall under the exclusive competence of the EU, but are subject to the CFSP's “limitations in the face of coordination issues, competing interests and sporadic support from the member states“ (des Courieres, 2017).

The treaties of Maastricht and further Lisbon, gave the High Representative of the Union for Foreign and Security Policy - which is part of the Commission - the mandate to propose sanctions to the council, which must then decide by an unanimous vote (Russel, 2018). Furthermore, the Commission is responsible for the supervision of the uniform application of sanctions by the member states (des Courieres, 2017). One can see that the European Union was given the structural power to shape international policy through sanctions, which makes them an interesting case study for further analysis.

4. Monetary Regulation

In terms of monetary policy, the creation of a single currency under the European Monetary Union (EMU), in which a large part of the member countries participate, gave the EU significant competences. Now governed by the ECB, monetary decisions for the eurozone are no longer taken at the member state level. Thus, internal monetary regulation in eurozone country is tackled at the EU level. However, as not all countries are part of the EMU, the power of the EU to act in monetary regulation for all members is constrained. In addition to that, the recognition of the EU as player in international monetary consultations is limited, as the Commission has no formal representation at the IMF. The member states and the Commission work closely in a number of working groups to consult each other, but there is no obligation to come to a common position. Furthermore, it has to be mentioned that the ECB was granted an observer status, however, their status does not allow them to participate in discussions. A case study on this topic would therefore not be suitable, due to limited competences of the EU regarding external action through monetary regulation. (Koops and Tolksdorf, 2015)

5. Financial Regulation

Financial diplomacy through measures of regulation is an important field of economic diplomacy. Overall, financial regulation within the European Union is characterized by a complex system of “shared competence between the EU and the member states“ (Woolcock, 2012, p.86). Important policies enacted by the EU such as MiFiD 2 and MiFIR have the aim to guarantee fair, transparent, efficient and integrated markets (European Commission, 2019b). Nevertheless, they are limited in their application in terms of economic diplomacy. An important tool regarding external action would be the ability to control both internal and external capital flows. The European Union was granted this competence, but member states are still responsible for the “supervision of financial institutions and thus how regulatory standards adopted at the EU level are implemented by banks and other financial institutions“ (Woolcock, 2012, p. 86). The considerable market power the of the EU can thus not be used on measures of economic diplomacy. A case study is not suitable.

C. Strategic Motives

To analyze whether the economic diplomacy regarding trade agreements and sanctions follows strategic interests in the case study, we first have to lay down what the geopolitical goals of the EU are and which dangers it is facing.

The European Unions Geopolitical Outlook for Europe (2018) offers some insight into the different goals and risks of the European Union in the international arena. It mentions the unilateral annexation of Crimea and the increasing threat from Russia on its eastern border, as well as the Russian intervention in Syria which opposed EU and US efforts to a new political process in the country. Furthermore, China's disputed territorial claims in the South China Sea are of relevance for the geopolitical agenda. Further, the EU sees the growing instability in its neighborhood as a risk for the security of the bloc. Specifically, the conflicts in the Middle East as well as the rising threat of terrorism are mentioned.

Our analysis of realist/neorealist theory gives further insights on what actors perceive relevant for their national security and therefore influence strategic motives. Specific factors to consider are of geographic nature (the protection of strategically relevant points in the world, e.g. bottlenecks for global shipment routes) and the availability of strategically relevant resources, such as oil.

Summing up, the EU strategic goals include: Containing the threat from Russia at it's Eastern border and the Chinese territorial claims in the South China Sea, stabilizing its neighborhood, as well as securing important geographical points and strategically relevant resources.

VI. Case Studies

In the beginning, five parts of economic diplomacy have been laid out to be of interest. Of those, three areas remained where the EU has significant competences: trade agreements, actions within the WTO and sanctions. For those three points, detailed case studies will be provided in the following.

A. Trade Agreements

The European Union has various different schemes of trade agreements with multiple countries around the world in force, provisionally applied or in negotiation.

The strategy towards trade agreements has continuously evolved over the past decades and is currently governed by the ‘Trade for All' strategy passed in 2015, which governs all its actions on trade from 2016-2020. Influenced by the debate on the Transatlantic Trade and Investment Partnership (TTIP) it increases the transparency in trade negotiations and further calls for an inclusion of chapters on raw materials and energy in future trade agreements (Gstöhl, 2016). An important step in the evolvement of the strategy, was the ‘Global Europe' plan of 2006. In the light of failed attempts to come to global trade agreements through the WTO which was the previous strategy of the EU, it subsequently called for new bilateral Free Trade Agreements (Gstöhl and Hanf, 2014). Another important piece to consider is the document ‘Trade, Growth and World Affairs' from 2010, which emphasizes the overall importance of growth for actions of economic diplomacy by the European Union. It also states that the trade instruments available should be used “to promote the respect of human rights, labour standards the environment, and good governance, including in tax matters“ (European Commission, 2010). All of these standards are repeated in the the aforementioned current Trade for All strategy.

In the chapter ‘Economic Diplomacy' it has been shown that the CCP is no longer only a strategy of market liberalization but also used to pursue political goals, which is in accordance with the definition of economic diplomacy involving a business end and a power-play end. This enlarged strategy is visible in the different types of agreement the European Union has negotiated in the past. Those can be divided into three general categories: trade agreements, cooperation agreements and association agreements (Gstohl and Hanf, 2014). Between those categories are significant differences in the level of economic (and political) integration and the political and economic requirements for the partners.

Trade agreements are traditional FTA's that fall under the exclusive competence of the European Union, as set out in Art. 207 TFEU, concerning the CCP. Cooperation agreements include political conditions, for example to strengthen democracy in the partner country. They are usually not only based on Art. 207 TFEU but also other articles and include preferential trade access and almost always some sort of EU support. Association agreements are the most wide reaching category. They are based on a large degree of preferential access to EU markets, processes of political dialogue on various levels and are a step towards a Free Trade Area. Furthermore, they include significant processes of economic and political cooperation, as well as financial support from the EU. In some cases, association agreements do also include the prospect of EU membership. (Nugent, 2017).

1. The Customs Union (CU)

was first mentioned in the establishment of the European Economic Community in the Treaty of Rome: “the Community shall be based upon a customs union“ (Treaty on the European Economic Community, II, Art. 9). The 1993 Treaty of Maastricht establishing the European Union integrated the European Economic Community, renamed as European Community, into the EU (Treaty on European Union, II, Art. G). This lasted until the Treaty of Lisbon, when the EC's institutions were integrated into the EU and the European Union Customs Union was established. Today, this customs union consists of all European Union member countries. Additionally, the United Kingdom Sovereign Base Areas of Akrotiri and Dhekelia in Cyprus are part of the EU's customs territory and Turkey, Andorra and Monaco are integrated through bilateral agreements (European Commission, 2019c).

The Customs Union eliminates “all tariffs and quotas on trade among (the member states) [...] and committed them to completely harmonize their tariffs on imports from non-member nations“ (Baldwin and Wyplosz, 2004, p. 128). The power to negotiate and set those tariffs with other nations was granted exclusively to the European Commission, although it consults with the member states (Baldwin and Wyplosz, 2004). This makes the CU not only an economic but also a political agreement, as significant parts of the sovereignty of the member states are given to the European Commission.

2. The European Economic Area (EEA)

integrates the member states of the European Free Trade Agreement, Norway, Iceland and Liechtenstein into the European Single Market. An exception is Switzerland which ratified the EFTA but became no part of the EEA and has various bilateral agreements in place with the EU. The EEA is more wide- reaching than traditional FTAs, as it fully implements the four freedoms: free movement of goods, people, services and capital. Additionally, “the agreement includes horizontal policies strictly related to the four freedoms: social policies (including health and safety at work, labour law and the equal treatment of men and women); policies on consumer protection, the environment, statistics and company law; and a number of flanking policies“ (Bartczak & de los Fayos, 2018).

Although the EEA therefore implies a certain amount of political integration, it does specifically exclude the customs union, the common agricultural and fisheries policy and other fields such as the common foreign and security policy (Bartczak & de los Fayos, 2018).

The EEA goes along with a great deal of integration into EU systems and regulations, which is also why Switzerland refused to join it. The participation in the Single Market requires the non-EU member states of the EEA to apply all relevant EU legislation, “ensuring uniform application of laws relating to the Single Market“ (EFTA, 2019). This makes the non-EU members very dependent on EU regulation, as they have no formal participation in the EU legislative process. As they are constitutionally not allowed to directly apply EU law, EEA - EFTA institutions were formed that also allow them to participate in the shaping of EU legislation through working groups (EFTA , 2019).

3. Euro-Mediterranean Association Agreements (EMAAs),

have been signed with multiple countries of the Mediterranean area. Originating from the Barcelona Process starting in 1995, their aim is to create bilateral free trade agreements with the outspoken goal of combining them into an Euro­Mediterranean Free Trade Area (EMFTA). As of today, EMAAs with Algeria, Egypt, Tunisia, Morocco, The Palestinian Authority, Israel, Jordan and Lebanon have been signed and are in force (de Ville and Reynaert, 2010).

The agreements have specific varying arrangements for individual countries but share a common structure. In the area of trade, they seek to establish the free movement of goods with the gradual removal of trade barriers, such as customs duties (European Union, 2011) . Additionally, their goal is to promote: „regular dialogue on political and security matters (.), economic, trade and financial cooperation (.) social and cultural cooperation and on educational matters [as well] as intra-regional cooperation“ (European Union, 2011) between the countries of the Mediterranean.

4. Stabilisation and Association Agreements (SAAs)

describe the multiple bilateral association agreements the EU has signed with countries of the Western Balkan region under the framework of the Stabilisation and Association Process. Starting in 1995, SAAs have been negotiated with Albania, Bosnia and Herzegovina, Former Yugoslav Republic of Macedonia, Kosovo, Montenegro and Serbia. As the SAAs provide a step towards becoming a candidate country for the European Union, they are not limited to the establishment of a free trade area. The political cooperation systems put in place include the “Stabilisation and Association Council“, that resides on the ministerial level, the “Stabilisation and Association Committee“, which is assisting the council and the “Stabilisation and Association Parliamentary Committee“, that facilitates cooperation between the European Parliament and the parliament of the respective partner country. (De Munter, 2018)

5. The Eastern Partnership (EaP)

is a structural agreement between the European Union and its eastern neighbors: Azerbaijan, Armenia, Belarus, Georgia, The Republic of Moldova and Ukraine. The Eastern Partnership strategy is to create Association Agreements (AA) with the individual countries which provide them with “EU market access plus political and economic support in return for economic and democratic reforms“ (Dragan, 2015, p.14). The goal, outlined by the European Commission, is in the first step to create bilateral Deep and Comprehensive Free Trade Agreements (DCFTA) with the partner countries, then “among the partners, possibly leading to the creation of a Neighbourhood Economic Community“ (European Commission, 2008, p.5). However, the starting condition for a DCFTA is the membership in the WTO (Dragan, 2015).

As of today, the EU has finalized negotiations on AAs including DCFTAs with Georgia, Moldova and Ukraine. The relations with Azerbaijan are still governed by a Partnership and Cooperation Agreement (PCA) - which is in force since 1999 - but negotiations for a new framework agreement began in 2017 (European External Action Service, n.d.). While negotiations with Belarus are still ongoing with no agreement to date - mostly due to the ongoing accession process to the WTO - the EU and Armenia signed a new Comprehensive & Enhanced Partnership Agreement (CEPA), which includes economic integration and strengthening of the civil society (European External Action Service, 2018).

6. Economic Partnership Agreements (EPAs)

have been signed with countries from the African, Caribbean and Pacific (ACP) area, “designed to facilitate the ACPs' integration into the world economy through gradual trade liberalisation and improved trade-related cooperation“ (European Commission, n.d.). The term EPA describes a number of different agreements with states in the aforementioned regions: EPA Caribbean, EPA Pacific, EPA with Eastern and South African States (ESA), EPA with Cameroon, EPA with the SADC EPA group, as well as EPAs with Code d'Ivoire and Ghana (European Commission, n.d.). These EPAs include 29 countries which are already implementing the agreement. For two other EPAs the negotiations are already finalized and awaiting implementation: EPA West Africa with 16 countries and EPA East African Community (EAC) with 5 countries (European Commission, n.d.). This dispersed field of various agreements all trying to facilitate the same goal shows the approach of the European Union to tailor trade agreements to the partner countries needs. Generally speaking, the Economic Partnership strive to remove all barriers for trade access from ACP states to the European Union and will gradually remove tariffs of ACP states on EU exports (European Commission, n.d.). Furthermore, they are targeted to enhance cooperation in in all areas related to trade and subsequently enhance the integration of ACP states into the world economy, as outlined in the Treaty of Lisbon (Kolodziejczyk, 2016).

7. The Generalized System of Preferences

grants goods originating in developing countries, preferential market access in the European Union, by partly or entirely removing tariffs, depending on the specific type of system. The Generalized System of Preferences can be divided into three subparts with different access levels provided: The standard GSP, the GSP+ and the Everything but Arms (EBA) scheme. Under the standard GSP, developing countries are granted preferential access for a number of goods. This number is increased in the GSP+, where nearly 90 percent of all goods are covered under preferential access. The GSP+ arrangement is conditional on fulfilling numerous goals in the area of sustainable development and good governance, including the signing of a number of UN treaties. A specific scheme was developed to promote development in least developed countries, called EBA. Granting preferential access for all goods but arms, it does not include conditionality clauses. (Marx, 2018)

8. Other Agreements

In addition to the aforementioned, the EU has various other trade agreements in place. Those include: the Association Agreement with Central America, the Free Trade Agreements with Colombia, Ecuador and Peru, the FTA with Chile, the FTA with Mexico, the Comprehensive Economic and Trade Agreement with Canada (CETA), the FTA with South Korea and the new Economic Partnership Agreement with Japan. (European Commission, 2018)

The agreements with Colombia, Ecuador and Peru are classic FTAs that include a process to implement labour and environmental rights in the partner states. The AA with Central America covers reciprocal preferential market access, enhances the regional integration of the partner states and has implemented a chapter on trade and sustainable development (TSDs). The agreements with Mexico and Chile do not include similar chapters or obligations. (European Commission, 2018)

The Comprehensive Economic and Trade Agreement between the EU and Canada represents the largest free trade agreement between industrial nations to date - its "provisions for non-trade barriers—including, but not limited to, services, investment, and public procurement—(...) are thus far unparalleled“ (D'Erman, 2016). The EU signed a wide reaching FTA with South Korea that does also include a TSD chapter and is therefore considered the first of the new generation treaties (European Commission, 2018). The Economic Partnership Agreement with Japan is a comprehensive trade agreement including a reaffirmation of the commitments made by the EU and Japan towards multilateral initiatives on labor and sustainable development, which was combined with a Strategic Partnership Agreement (SPA) (Nakanishi, 2019).

Additionally two FTAs with Singapore and Vietnam have been signed but are not in force yet. Negotiations are ongoing for trade agreements with the MERCOSUR region, Australia, New Zealand and the United States, as well as with several states of the ASEAN region, including the Philippines, Thailand and Indonesia (European Commission, n.d.).

9. Promotion of Labour Rights, Democracy, Rule of Law

The analysis of the different trade agreements of the European Union shows, that almost all of them include some kind of measure to promote labor rights. Most important are the newly developed chapters on trade and sustainable development, which are a central part of agreements since the emergence of the ‘Global Europe' strategy on trade in 2006. However, the chapters on the promotion of labor rights in the different agreements vary widely in their scope and reach. A good example for the importance of labor rights is the GSP+ scheme, which sets certain labor standards for partner countries. This mechanism was further strengthened by a commission proposal for 2002-2004: "While beneficiaries of the previous social GSP clause had to apply the core labour standards without necessarily ratifying them, in the future, beneficiary countries of the GSP+ regime also have to ratify the eight ILO Conventions“ (Orbie, Vos and Tavernieres, 2005, p.167). Recently, the 2014 GSP reform further strengthened the conditionality clauses: “applications for GSP+ become more stringent and violations are more closely monitored“ (Orbie and Martens, 2016).

While there is a notable example in the case of Sri Lanka, which was removed from the GSP+ for a short time due to a failure to live up to its obligations, other agreements of the EU do not share that kind of enforceability (Oehri, 2017). Further, Oehri (2017) shows by comparing the European Union and the United States in terms of labor provisions in trade agreements, that the EU is “largely rejecting legal commitments which can be sanctioned“. Nevertheless, there is development on criticism and the EU new generation FTAs (since the EU-Korea FTA) rely the on more „comprehensive labor provisions within a broader sustainable development chapter that is made legally binding through the use of dispute settlement“ (Postnikov and Bastiaens, 2014).

The EU trade policy has a special focus on democracy, dating back to the first EMAAs at the end of the last century. It is part of its overall trade strategy to include positive conditions and processes on democratic progress and the enforcement of human rights in its trade agreements, particularly not only in the EMAA, but also the SAA and EaP - the trade schemes targeted towards the regional neighborhood.

The EMAAs, mirroring the general approach of the European Union, “clearly privilege(s) the use of positive over negative political conditionality in the region“ (Van Hüllen, 2012), using incentives to further democracy building in the partner states. An important part of the strategy towards promoting democracy and human rights is constituted by the political dialogue between the EU and partner state government officials in the Association Councils (Van Hüllen, 2012). This further shows the strategy of the European Union, which uses dialogue and incentives to achieve their goals in region. Therefore, success depends entirely on the willingness of the actors to participate.

This approach can also be seen in the case of the Eastern Partnership and the Stabilization and Association Agreements in the Western Balkans. A great emphasis of the AAs made under the EaP, such as the one with Ukraine, is on the “importance of the parties' ensuring the rule of law“ (Sushko et al., 2012, p. 13), as the basis for a functioning democracy. The EaP AAs are not only more comprehensive and wide reaching than the EMAAs, they do also “provide for a termination procedure“ (Sushko et al., 2012, p.13) in case the parties are infringing on the central parts of the agreements, such as pluralist democracy and the rule of law. This provides for a strong enforceable conditionality, however it is debatable if the EU would ever make use of such a procedure.

The Stabilization and Association Agreements with the states of the Western Balkans are even more comprehensive on democracy and the rule of law, as they not only rely on trade agreements but are also designed to bring a designated path towards membership in the European Union. While relying on a positive conditionality approach, the process is more effective as it comprises of different stages. If a country wants to take the next step in negotiations, it has to meet the relevant criteria set out by the European Union. The specific conditions to be met are set out by the Copenhagen Criteria, which are the general criteria to be met for membership in the European Union and take a considerable focus on democracy, human rights and the rule of law. (Elbasani, 2013)

Other trade agreements apart from the aforementioned different Association Agreements and the GSP+ which does also include chapters on human rights and the rule of law, do not hold up the same standards. While the other “agreements have an ‘essential elements' clause on human rights, (...) sanctions have never involved trade flows“ (Orbie and Martens, 2016, p.78). The EU stresses the importance of strengthening democracy and human rights in trade agreements in official documents, but “most observers agree that in practice, democracy promotion as an objective in EU external relations takes a backseat compared to the EU's concern for stability in order to meet its economic and security interests“ (Van Hüllen, 2012, p.119)

10. Strategic Motives

Whether strategic motives are involved in the EU trade agreements, will be analyzed by looking at the different agreements one-by-one.

Turkey, Andorra and Monaco have been integrated through bilateral agreements in the Customs Union as the most wide reaching trade agreement. While Andorra and Monaco are - due to their size - strategically irrelevant, this is not the case for Turkey. It is relevant for security in the middle east and it borders Greece, which is an EU member. While Turkey has already been integrated into NATO, it is not traditionally considered a ‘western' nation, which is why the EU chose to deepen the ties to increase its influence (Arikan, 2006).

The European Economic Area comprises of Norway, Iceland and Liechtenstein. Norway has considerable oil reserves as well as other natural resources available. Liechtenstein - a country the size of a small town - borders the EU but is strategically largely irrelevant. Iceland has a geographical important position in the North Atlantic by its ability to secure trade flows (Kochis and Slaterry, 2016). While Norway and Iceland are strategically important, their participation in NATO did already secure them as partners. Thus, the EEA should not only be seen in the light of strategic motives but also in the historical process of the enlargement of the European Union (which Norway did not want to join) and in economic interests as "a market-making project“ (Goldthau and Sitter, 2014, p. 1456).

The Euro-Mediterranean Association Agreements include countries of North Africa, as well as parts of the Middle East. Those countries are of considerable importance for the protection of EU borders and the flow of resources. Bechir Chorou put it blatantly: “Europe wanted a secure access to oil and gas and protection against waves of migrants“ (Spencer, 2002, p. 136). An example for a key country covered under the EMAA is Morocco, which is “strategically important for the political and economic security of Western Europe, North Africa, and the Middle East (.) [, with a] gas pipeline feeding southern Europe [, that] passes through Moroccan territory from the oil and gas fields of neighboring Algeria“ (Dawson, 2009, p.5). Furthermore, Egypt is also located at a strategically important point, as it controls the Suez Canal.

The Western Balkans, targeted by the Stabilization and Association Agreements lie in the heartland of Europe and border a number EU member countries. They are an integral part in what would be considered as a EU zone of influence. Their stability and their orientation towards the EU is highly strategically relevant, as they could be influenced by outside actors and then pose a significant threat for EU members. (European Parliament, 2018)

The aims of the Eastern Partnership have been only partly reached, as only Georgia Moldova, Ukraine and Azerbaijan have signed some type of agreement with the European Union. However, the target countries of the policy are all in between Russia and the EU. Considering the unilateral annexation of Crimea, the occupation of Abkhazia and South Ossetia in Georgia, the growing Russian military threat in general and the outlined goal of the EU to contain this threat, make them strategically relevant.

The Economic Partnership Agreements target a variety of developing countries in the African, Carribean and Pacific region. While some of them are rich in natural resources the generalized approach taken by the EU shows that those were not in the primary interest of the agreements. Combining this with the limited impact those nations have in shaping the international arena, strategic motives are not clearly evident in EPA agreements. (European Commission, n.d.)

The various GSP schemes, comprising of the standard GSP, the GSP+ and the EBA target developing countries and least developed countries (LDCs). Similar to the case of EPAs, the strategic significance of the target countries is limited as is their importance in international affairs. In addition to that, the conditions set out for positive incentives in the GSP+ concern liberal topics such as democracy, the rule of law and labor rights. As the preferential access is one­sided (no preferential access of the EU to its partner countries is included), this further limits strategic movement of the EU in the GSP scheme. (Marx, 2018)

The FTA agreements signed with countries of Central and South America bear little reference to the geopolitical focus of the EU as outlined in the official document. Obviously, they are also not in the neighborhood of the European Union and their relevance in terms of natural resources is also limited. Nevertheless, Panama, which is a partner country through an Association Agreement controls the geographically important Panama canal. However, the overall strategic importance of the countries in Central and South America is rather small.

Japan is an important regional player in Asia and particularly relevant as an opponent to Chinese influence in the area. Notably, they are a vocal enemy to China's territorial claims (Samuels, 2005). As an important player in the international arena and a player active in the territorial dispute that does also concern the EU, as outlined in it's strategical goals, Japan can be defined as strategically relevant.

Canada meets a number of criteria set out to be the strategical goals of the European Union. First of all it is a major supplier of strategic resources with its significant oil reserves. Further but of less importance, it is geographically located near to the arctic and the north west passage which could become a major shipment route through climate change. This makes Canada a strategically relevant country to the European Union.

11. Conclusion

The case study showed that the EU operates on a large variety of schemes for trading agreements, which differ in their level of integration and the conditions imposed on the partner country. The first hypothesis we set out was:

1. Trade agreements are made with strategically relevant countries. (Realism)

The analysis of trade agreements on the strategical relevance of the respective partner country, shows that the countries targeted by Association Agreements, which are on the top level regarding integration and conditional clauses, are highly strategically relevant for the European Union. The three different schemes EMAA, SAA and EaP all have the neighborhood of the EU as their target and therefore are in the zone of interest of the European Union. This relevance is further backed by a official document of the Commission, that stresses instability around Europe as a key geopolitical risk (European Commission, 2018). The FTAs with countries in Asia show an increasing action by the EU in the region bordering the South China Sea - were territorial claims were also outlined as a threat for Europe's security (European Commission, 2018). This analysis is in line with other academic articles on the topic. For example, a study by Richard and Van Hamme (2013) "indicates that the geography of the EU's bilateral relations is strongly determined by the importance of the functional relations the EU shares with each country in the world“. Considering this, hypothesis one was partially confirmed: Trade agreements are indeed made with strategically relevant countries - however not exclusively as the case of EPAs, the GSP and South America shows.

The second hypothesis proposed:

2. Trade agreements are used to liberalize markets and to promote the global rise of capitalism, democracy, the rule of law and labour rights. (Liberalism)

As showed in the analysis, trade agreements of the European Union are based on a reciprocal reduction of tariffs reducing market barriers and therefore enhancing liberalization. The Trade for All strategy characterizes trade agreements as a “way of market opening, deregulation, liberalization and increased competitiveness“ (Rudloff and Laurer, 2017, p.6). In terms of labour rights, democracy and the rule of law, they largely follow a positive incentivizing approach rather than legally binding and sanctionable obligations by the partner countries. However, this approach developed over time. EMMAs rely on political bodies that promote dialogue, the EaP approach makes use of a termination clause for AAs if partner countries do not meet the central conditions and the SAA process sets out different stages, where certain obligations have to be met to come to the next negotiation step. Generally speaking, the EU is following the thought that “liberal markets should function within a regulatory framework of agreed rules covering essential social or environmental objectives“ (Woolcock, 2012). The next step has been taken in the new generation FTAs since the EU- Korea FTA, which will also include legally binding chapters on labour provisions, which are legally binding through processes of dispute settlement. The hypothesis is therefore found to be true.

B. Actions within the WTO

1. WTO Negotiations

The World Trade Organization originated from the unsuccessful negotiations on an International Trade Organization (ITO) after the second world war, with parallel negotiations on a General Agreement on Tariffs and Trade (GATT). As the US Congress opposed such an organization, the ITO was abandoned and the GATT went into force in 1947. Todays WTO, which was founded in 1995, is build on the rules and procedures of the GATT and the two other major agreements General Agreement on Trade in Services (GATS) and Trade-Relate Aspects of Intellectual Property Rights (TRIPS). (Hoekman, 2002, p.41)

In 1960 the European Community became a contracting party of the GATT, up until then only the member states were participants (Bazerkoska, 2011). As the nature of the agreements from the GATT to the WTO changed with the numerous negotiation rounds, insights will be drawn by the behavior and goals of the EC and subsequently the EU in those situations. Mortensen (2009) describes the early years of EC membership in the GATT as characterized by a defendant position, influenced by domestic politics. While it was the US that exempted agricultural trade from GATT regulations, the effects of the Common Agricultural Policy installed by the EC later led US officials to call for more liberalization. The following Kennedy Round (1965-69) of negotiations was then a further example for the EC's defendant position, as calls for more liberalization by the US were blocked by the EC and the „GATT was at standstill for the rest of the 1960s“ (Mortensen, 2009, p.84).

The Tokyo Round followed from 1973-1979 to further evolve the GATT, but it failed to come up with solutions for the reduction of non-tariff barriers (Mortensen, 2009). This was accredited to the blockade of the EC, as Mortensen shows by citing Ostry: “[they] skilfully blocked any meaningful reform on dispute settlement thereby ensuring that its preference to handle disputes bilaterally through non-transparent negotiations could continue“ (Mortensen after Ostry, 1997, p.86). While this behavior shows, that the EC tried to defend the relative power of its domestic economy and its own way of solving disputes - there is no evidence that they pursued an aggressive stance, by e.g. “securing specific advantages for European exporters“ (Mortensen, 2009, p.84).

The next decade of multilateral negotiations on trade were characterized by the start of the US to engage in bilateral free trade agreements, “whereas the EU still remained self-committed to multilateralism and instituted a moratorium for bilateral agreements in order to focus explicitly on WTO negotiations“ (Rudloff and Laurer, 2017, p.6). Later in in the 1980s, the delegates again came back to the negotiation table for the Uruguay Round. The central aim of these talks which lasted from 1986 to 1993 was to cover fifteen more sectors - including agriculture - under the GATT (Gibbons, 1991). Interestingly, the initiative was almost exclusively started by the developed western nations, as “most developing countries were opposed to the launch of a new GATT round, (.) because the North had failed to meet prior commitments and obligations“ (Wilkinson, 1996, p.252). As agriculture was a central part of the Uruguay round, there was a considerable danger of the failure of the wide­ranging negotiations, due to the stance of the EC. As the EC made large concessions to US demands in the field of agriculture to obtain liberalization in other markets such as investment and intellectual property rights, the Uruguay round ultimately was a success (Cline, 1995, p.2). The subsequent agreement on the GATS and TRIPS during the Uruguay round “grew into North-South Confrontations“ (Mortensen, 2009, p.85) as they highly favored the industrialized triad of the US, Europe and Japan. This is also why scholars come to the conclusion that “the industrialised countries (.) assist themselves (.) by further tipping the balance of trade in their own favour“ (Wilkinson, 1996, p.251).

Although the newly established WTO inherited many principles from the GATT rules, the coverage was - as previously showed - widely expanded and a “single undertaking [clause] (all its provisions apply to all members)“ (Hoekman, 2002, p.45) was established. This was a major change, as previously countries were allowed to opt out of certain provisions (Hoekman, 2002, p.46).

While the EU's defensive stance on agriculture was a dooming threat to the Uruguay round, the concessions the EU made towards the emergence of the "GATS, TRIPS and dispute settlement reforms proved more significant. Both agreements are today safeguarding European competitiveness in designer goods, pharmaceuticals and the global service industries“ (Mortensen, 86). This success led the EU to become a major proponent of continuing multilateral negotiations in the WTO. Following this, the EU was the driving force behind the launch of the Doha Development Agenda (since 2001) (Dürr and Zimmermann, 2007, p.772). However the following negotiations of the so-called Doha Round were characterized by the rise of importance of developing countries. The ambitious strategy of the EU to increase its role in this multilateral negotiations “have been thwarted by the rise of powers with markedly divergent positions on many issues and with an image of the EU as a defender of Western interests“ (Ahnlid and Elgström, 2014, p.87). This led to a standstill and the failure of the DDA. The EU and the US came to the conclusion, that they are no longer in a predominant position that previously allowed them to dominate multilateral agreements and enforce their interests. “They developed an alternative strategy: Bilateral and (mega)regional trade and investment agreements.“ (Rudloff and Laurer, 2017, p.6)

2. Dispute Settlement

The Dispute Settlement Understanding (DSU) emerged first from “a small annex to the 1979 Understanding on Dispute Settlement on customary practices, and played out by different rules across the different covered agreements“ (Petersmann and Pollack, 2003, p.466). However, it lacked significant enforceability and a common set of rules until the Uruguay round (Petersmann and Pollack, 2003, p.467), where the EC gave up its defensive stance on dispute settlement. Therefore, the Uruguay round was an important evolvement from the previous approach employed in Tokyo. A substantial change to the DSU was the partial removal of consensual decisions at key stages of the process (Delich, 2002, p.71). Highly significant is the automaticity the DSU implies: "by becoming a party to the WTO agreements, Members have accepted in advance the jurisdiction of the WTO dispute settlement process“ (McRae, 2004, p.4). The specific terms of procedure are laid down in the Understanding on rules and procedures governing the settlement of disputes in Annex 2 of the WTO agreement. It establishes the Dispute Settlement Body, that further creates panels that decide on the specific cases. An appellate body can be consulted if one of the conflicting parties chooses to do so. Through these mechanisms, “a substantial body of jurisprudence has emerged from the decisions of panels and of the Appellate Body, (...) a distinct WTO legal system“ (McRae, 2004, p.5) was created.

After the EC and subsequently the EU abandoned it's reluctant stance on the use of multilateral dispute settlement in the Uruguay round, it became an active and continuous user of the mechanisms available. Alasdair R. Young (2006, p, 191) outlines three goals the EU has in its strategy towards dispute settlement: advocate for particular economic interests, preserve multilateral trade rules and defend the common rules often described as the acquis communautaire. The first goal is covered under the European Union's Market Access Strategy, which strives "to create the best possible conditions for European firms to export around the world“ (European Commission, 2019d). Furthermore, Young lays out that the second goal follows the reasoning of various scholars, that multilateral trade rules are the "most efficient way to ensure compliance by one's trading partners, and thus to open foreign markets to one's producers“ (2006, p.192). The third goal is in line with the importance of the acquis communautaire to the overall functioning of European markets. While the first two goals are more offensive in nature, the third point characterizes the defendant position.

The EU is highly effective in enforcing their claims through Dispute Settlement Bodies of the WTO and frequently makes use of the mechanism. In fact, the “EU has been the second most prolific user of the WTO's dispute settlement system, only slightly behind the US and in line with its share of world exports“ (Young, 2006, p.193).

3. Conclusion

The analysis of EU actions within the framework of the WTO, shows that it was initially reluctant towards multilateral trade liberalization, largely due to the protectionist Common Agricultural Policy which was opposed by the US and other nations and frequently put on the negotiation table. However, this approach changed over time, as the EU began to see the positive effects of liberalization in other sectors that partially outweighed the member states interests on the CAP. This lead to “the transformation of Europe from a defensive neo-mercantilist GATT player to the proactive, post-modern trade liberalizer in the WTO“ (Mortensen, 2009, p.84). This leads to the answer of our first hypothesis:

- The EU participates only in multilateral efforts in the WTO if there are relative gains and focusses on bilateral agreements (Realism)

While this has been the case in the early years of EU membership to the World Trade Organization, its stance has significantly evolved towards more multilateral liberalization. However it has to be noted that some scholars accredit the failure of the Doha round to the fact that the EU and the US realized that they were no longer able to dictate the terms of trade and therefore secure their relative gains. However, the EU abandoned its defensive stance on multilateral dispute settlement and is today one of the main actors inside the mechanism. While multilateral efforts are important to the EU, they actively tried to create relative gains and blocked outcomes of negotiations that could bring unfavorable terms. We find the hypothesis to be true.

- The EU is actively engaged in multilateral liberalization in the WTO and tries to build a greater multilateral framework for trade. (Liberalism)

As previously laid out, the behavior of the EU has shifted over time towards a ,post-modern trade liberalizer' from the previous protectionist stance. The EU was the main driver behind the Doha round and actively pushed for a further comprehensive agreement on trade that would liberalize global markets. Its activity and continuous engagement in the area of dispute settlement, underlines this claim. While the hypothesis can be confirmed, it has to be seen in the contrasting light of the first hypothesis, which put an emphasis on relative gains, therefore reducing the significance of this finding.

C. Sanctions

1. General Framework

Generally speaking, “sanctions are measures that one party (the sender) uses to influence another (the target)“ (Eatom and Angers, 1992, p.899). The European Union employs sanctions as a foreign policy instrument since the 1980s (Portela, 2016). A significant amount of sanctions the EU employs is a result of United Nations Security Council (UNSC) resolutions on sanctions, which have been used since the 1960s but were previously adopted by the member states (Cardwell, 2015). However, the EU has also imposed a number of autonomous sanctions (Cardwell, 2015). The emergence of the CFSP in 1992 gave rise to an increased use of sanctions by the EU, while the new sanctions policy of the UNSC in 1995 moved EU policy towards the use of more 'targeted sanctions' (Portela, 2016). These targeted sanctions describe a shift away from a generalized approach that targets whole countries (e.g. the trade embargo on Argentina in the 80s as a response to the Falkland crisis) to a policy instrument that targets the individuals responsible for sanctionable actions and the ones profiting from them (Portela, 2016). The EU makes use of such measures because, they "are more effective than indiscriminate measures and minimise adverse consequences for those not responsible for such policies and actions“ (Council of the European Union, 2018).

The general approach of the EU towards sanctions - also described as restrictive measures - is outlined in the agreement the Council came up with in 2003 and which was codified in 2004. The Council sets out the following reasons to impose sanctions: in “support of efforts to fight terrorism and the proliferation of weapons of mass destruction and as a restrictive measure to uphold respect for human rights, democracy, the rule of law and good governance“ (Council of the European Union, 2004).

2. Use of Sanctions

The sanctions regime “connects foreign policy actorness with the EU's considerable economic weight“ (Cardwell, 2015) and has therefore the potential to be a very effective instrument. The question remains: How and for which reasons does the EU employ economic sanctions?

As of May 2018, the EU operates over 42 sanction regimes, targeting 29 countries (European Parliament, 2018) with a significant rise in the past years, as only 33 regimes have been in place in 2015 (Cardwell, 2015). Giumelli (2013, p.12), deriving from practical evidence and the guidelines of the EU, shows that there are five general aims for which the EU imposes sanctions:

(i) conflict management (e.g. Afghanistan in 1996 and Libya in 2011); (ii) democracy and human rights promotion (e.g. Belarus and Uzbekistan); (iii) post-conflict institutional consolidation (e.g. the Federal Republic of Yugoslavia and Guinea); (iv) non-proliferation (e.g. Iran and Libya in 1994); and (v) countering international terrorism

Recent sanctions have targeted former leaders in Tunisia and Egypt as a response to the so-called ‘Arab Spring', the Russian Federation in the light of its annexation of Crimea and the Assad Regime after the outbreak of the Syrian civil war. In the absence of UNSC resolutions, the EU made use of autonomous sanctions in these cases (European Parliament, 2018). In Tunisia and Libya, the main goal of the sanctions was to make the former leaders unable to influence the transition process with their significant funds, by freezing their assets (Giumelli, 2013). In Syria, the EU initiated a more wide reaching trade embargo to target the regime, ceasing eg. all oil imports from Syria, which previously accounted for 95% of the yearly production (European Parliament, 2018). While Russia went unpunished by the EU after its invasion in Georgia, the EU did not stand by to the infringement of the territorial integrity of Ukraine and imposed trade sanctions as well as freezing assets (European Parliament, 2018).

While Giumelli (2013, p.12) is right by proposing that the core aims of EU sanctions are “human rights promotion and post-conflict institutional consolidation“, we see in the case of Syria and especially Russia, that the EU also engages with sanctions in response to ongoing military conflicts, even when large powers are involved. Nevertheless, most of the EU sanctions target members of a former regime that was overthrown by democratic reforms (e.g. Taliban in Afghanistan) or rebel groups that have engaged in severe violations of human rights (e.g. in the Democratic Republic of Congo).

The sanctions of the EU makes use of various combined to achieve a maximum of efficiency. Those instruments are arms embargoes; asset freezes and visa bans; and general economic sanctions, which do not follow the targeted approach (EU Parliament, 2018). While the term economic sanctions could give way to the conclusion that the other sanctions are not economic in nature, this is certainly not the case. Arms are an economic good that is traded, and the asset freezes target large personal funds, which reflects the significance of the EU financial market as a harbor for foreign money. All of those different instruments relate to some kind of economic measure.

Abbildung in dieser Leseprobe nicht enthalten

Figure 1, Sanctions Map, from European Parliament. (2018). EU sanctions: A key foreign and security policy instrument.

3. Strategic Motives

The previous chapters showed that the sanctions regimes of the European Union target 29 countries all around the world. The question remains whether these regimes are imposed because of strategic motives. The general strategic motives have been previously defined: ‘Contain the threat from Russia at it's Eastern border and the Chinese territorial claims in the South China Sea, stabilize its neighborhood, as well as securing important geographical points and resources/raw materials.'

A number of sanction regimes are imposed on countries within the neighborhood of the European Union. Those are: Belarus, Bosnia, Egypt, Libya, Lebanon, Syria, Tunisia and Ukraine. However, almost all of them are targeted sanctions against non-state actors, including officials of the former regime. Only the sanctions on Libya (partially lifted, but ongoing arms embargo), Belarus and Syria do also target the nation state itself. Syria is special in the sense that the sanctions imposed do also include general economic sanctions. (European Parliament, 2018)

Furthermore, some countries targeted are also a provider of strategic resources: e.g. Iran, Iraq (non nation-state), Libya, Syria and Venezuela, which are all oil exporting countries. Further included are Ukraine with sanctions against non nation state actors, which is a transit country for Russian gas - although its importance is shrinking because of new pipelines being build around its territory. In addition to that, the Democratic Republic of Congo - a major provider of raw materials such as coltan - is targeted. The most important player affected by EU sanctions is Russia (oil and gas exporter), for its annexation of Crimea. (European Parliament, 2018)

The countries affected by sanctions that inhibit a strategical relevant point are all located around the important ship cargo line through the Gulf of Aden, the Red Sea and the Suez Canal. Those countries are: Egypt, Eritrea, Somalia and Yemen. While the regimes on Eritrea and Yemen target the nation state with arms embargoes, those on Egypt and Eritrea target non nation state actors. (European Parliament, 2018)

4. Conclusion

This case study showed that sanctions of the European Union are generally applied for violation of human rights and democratic efforts or for the support of post-conflict institution building. However, the analysis of strategic motives showed, that some countries do also fall under the defined strategic areas of interest of the EU. The hypothesis derived from the realist school of thought states:

- Sanctions are used to for strategic motives to secure and enhance the power of the European Union

Of the 39 countries targeted by sanction regimes, eight are in the neighborhood of the European Union, five are exporters of strategically relevant resources and four inhibit strategically relevant geographical points. Accounting for the countries which fall into more than one category, a total of 16 countries do fall under the strategic motives of the EU. However, in all of those cases the aim of the sanctions was to target former or active members of a regime that have engaged in the oppressing of democratic movements or human rights abuses. A notable case to consider is Russia, where the sanctions have been triggered by the infringement of Ukraines territory.

Considering this, only small parts of EU sanctions do follow truly strategic motives. Nevertheless, there are cases where strategic motives are at play (e.g. Russia) which is why the hypothesis is found to be partially true: there is some realist thought behind the EU sanction policy

- Sanctions are used to secure a liberal world order built on democracy and the rule of law

On the contrast to the first hypothesis, the case study finds numerous evidence to support the second hypothesis derived from the liberal school thought. The overview on sanctions from the European Parliament (2018) shows, that almost all sanctions concern current or former undemocratic regimes that engaged in human rights abuses. For example in Zimbabwe, where persons are targeted that “seriously undermine democracy, respect for human rights and the rule of law“ (Giumelli and Krulis, 2012, p.171). Another example would be Syria, where the sanctions mainly target “persons responsible for the violent repression against the civilian population in Syria, persons benefiting from or supporting the regime, and persons associated with them“ (Council of the European Union, 2013, 18)

This shows, that the sanction policy of the European Union is largely influenced by the liberal school of thought by engaging against undemocratic actors and securing a liberal world order, which is why the hypothesis is found to be true.

VII. Summary and Conclusion

Economic diplomacy describes those processes of diplomacy that rely on economic actions or try to achieve a better economic outcome. In the framework of the European Union, the analysis showed that the EU has significant competences in economic diplomacy. The research question of this thesis asked whether the economic diplomacy of the European Union is dominated by the realist or liberal school of thought. A suitable research design was found in case studies. To find out whether a subfield of economic diplomacy is suitable for a case study, the structural framework of the EU was laid out to show which competences are existing in which sector. From the theoretical framework, three hypotheses on the behavior of the European Union were derived for each school of thought.

In the framework of realism and neo-realism, scholars see the world in a state of anarchy, which influences the behavior of states in international relations. They are characterized as rational actors, that do not care about questions of morality and constantly seek to enhance their security. As security itself is not absolute but relative to other states, they are also afraid of creating relative gains when they engage in international affairs. This is particularly relevant for trade agreements, as those are designed to benefit both engaging parties, which could result in relative gains for the counterpart. Furthermore, states are also reluctant towards international cooperation, as it limits their own degree of freedom and is not deemed to be effective, as it is seen as merely a tool of the most powerful state in the international organization. In addition to that, states always try to minimize their dependency, which is they are reluctant to an exchange of goods with other nations. However, states do also seek to create alliances for their objectives, for which trade agreements could be useful. Deriving from these thoughts, three hypothesis for our case studies were defined:

- EU Trade agreements are made with strategically relevant countries.
- The EU participates only in multilateral efforts in the WTO if there are relative gains - and focusses on bilateral agreements
- Sanctions are used for strategic motives to secure and enhance the power of the European Union

The liberal school of thought is often characterized as the counterpart of realism and neo-realism. Liberalism builds on the assumption that in the absence of an international government, states have to engage in international cooperation to create a framework for security and peace. However, the creation of international institutions is only one of the several paths liberals lay out to fulfill their goals. Additionally, the spreading of democracy and economic interdependency as foundations for peace is deemed particularly relevant. Scholars of liberalism have showed empirically that democracy, capitalism and international organization can reduce the likeliness of war. These assumptions lead us to three hypothesis on the economic diplomacy of the EU:

- Trade agreements are used to liberalize markets and to promote the global rise of capitalism, democracy, the rule of law and labour rights
- The EU is actively engaged in multilateral liberalization in the WTO and tries to build a greater multilateral framework for trade.
- Sanctions are used to secure a liberal world order built on democracy, peace and capitalism

Initially five fields of economic diplomacy have been laid out, which were: trade agreements, actions within the WTO, sanctions, monetary regulation and financial regulation. The analysis of the structural framework of the European Union lead us to discard Monetary Regulation and Financial Regulation as the EU lacked significant exclusive competences and international recognition in those fields.

For trade agreements, the case study showed that the EU indeed made trade agreements with a number of countries deemed to be strategically relevant. However, this was not exclusively the case. On the other hand, trade agreements of the EU lay importance on the promotion of democracy and the rule of law (through engaging in political dialogue), on capitalism and creating economic interdependency (through exporting European norms and procedures) and on labour rights (through positive incentives and in new generation trade agreements also through binding measures). This leads to the conclusion that the EU definitely makes use of a liberal toolset but has also a realist approach by linking itself with strategically relevant countries.

In the case study dealing with the WTO, an important historical evolvement of the EU strategy was pointed out. While the EU formerly had a defensive stance on multilateral efforts on trade through its fear of creating relative gains, this position changed over time. After the Uruguay round that gave way to GATS and TRIPS and founded the WTO, the EU was the main driver of the next multilateral effort, the so-called Doha round. However, this attempt failed because the US and EU blocked negative outcomes that would reduce relative gains for them. The EU is an active participant in the dispute settlement system created under the framework of the WTO and gave way to its current form in the relevant negotiations. The case study showed, that the EU does largely participate in multilateral efforts to achieve relative gains. While the liberal hypothesis was also found to be true, its significance is limited due to the relative gains aspect.

The European Union's reasons to employ sanctions include violations of human rights and the oppression of democratic actors. While the sanction policy also targets states that are deemed to be strategically relevant, in all but one case (Russia) sanctions concern current or former undemocratic regimes that engaged in human rights abuses. This leads to the conclusion that - like proposed by the liberal hypothesis - sanctions are used to secure a liberal world order build on democracy and the rule of law.

The answer to the question whether the EU's economic diplomacy is influenced by the realist or liberal school of thought is complex. The case studies outlined that the EU indeed links itself to some degree with countries strategically relevant and tries to secure relative gains in WTO negotiations. However, the use of trade agreements to promote democracy, the rule of law, labour rights and economic interdependence, the behavior in the WTO where the EU is a main driver of continued multilateral efforts, and the use of sanctions to promote democracy show that the European Union is also influenced by the liberal school of thought. Concluding, this thesis finds that the EU's strategy is derived from both realist and liberal thinking, but makes use of a liberal toolset.

VIII. Limitation and Outlook

The thesis followed a theory testing approach that makes use of case studies and qualitative analysis. Due to the enormously wide-reaching field of economic diplomacy, the number of treaties and processes involved and the limited number of pages, it could not fully grasp the whole nature of economic diplomatic actions by the EU. A more precise analysis would have been possible if there was a focus on only one of the case studies. However, the research question called for a comprehensive analysis of the variety of fields involved. Furthermore, while the detailed the different sectors the different sectors included some treaties and archival sources, it mainly relied on works from other scholars. In addition to that, the exclusion of other schools of thought limits the explanatory effect of this thesis.

Further research on the nature of EU economic diplomacy is deemed to be necessary. While a large number of scholars worked on different subtopics, only a small amount e.g. Woolcock tried to lay out a whole picture of EU economic diplomacy. The thesis contributed to this limited number of comprehensive research, but it should be amended by more detailed case studies that could involve process tracing to better find out the causes for actions by the EU.

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