International Trade Negotiations: Strategies and Techniques

1. International Trade Negotiations: Strategies and Techniques Terry Collins-Williams CML 4108JA – Strategic Trade Policy in Context by the Centre for Trade Policy and Law (CTPL) for the University of Ottawa Faculty of Law January, 2011

2. Negotiations • Negotiation: “An interactive process by which two or more people seek jointly or cooperatively to do better than they could otherwise CML 4108JA – January 2011

3. Negotiations/Advocacy • Differences arising in international negotiations as compared to advocacy in private practice of law • Relationship to the “client” • Scope of representation of the “client’s” interests CML 4108JA – January 2011

4. Interests • Interests are the drivers of negotiation • Know yourself • Know the other party • Rank interests according to their importance CTPL Certificate Program

5. Zone of agreement • You and I enter a negotiation. • I imagine the set of all possible settlements that I would accept. You do the same. • An agreement is possible if your set of potentially acceptable settlements overlaps with mine at (at least) one point. CTPL Certificate Program

6. Getting the Best Deal Possible • If we have overlapping sets of acceptable settlement, this is called a zone of agreement. • If there are several shared points within the zone of agreement, I want the settlement that is closest to my ‘best deal’ and you want the one that is closer to your ‘best deal’. CTPL Certificate Program

7. Zone of Possible Agreement Better for me Me You Better for you CTPL Certificate Program

8. Knowing the Terms • Maximum Outcome – the most you can hope for • Minimum or Reservation Outcome – the least you will take (or the most you will give) • Also called the bottom line CTPL Certificate Program

9. How Important is a Final Deal? • Is this the right time for a deal? • Do you have other options? • Do you have a lot of pressure on you to get a deal? • If so, does it matter what the content of the deal is? CTPL Certificate Program

10. No-Agreement Alternative • Negotiators are guided by considerations of the No-Agreement Alternative. • It tells them the what their reservation outcome is and helps to guide them on strategic choices • It can change as negotiations process • Most often, it is given to trade negotiators from their political masters. CTPL Certificate Program

11. NAAs and Reservation Outcomes • A reservation outcome or minimum settlement is one step away from the best you can do without an agreement. • Example: Currently my son walks to school. If I loan him $40 he can buy a skateboard. If I loan him $4000 he can buy a car. $40,000 buys him a very nice car. What is his reservation outcome? Maximum outcome? CTPL Certificate Program

12. Strategy • Knowing how to get the best deal possible is a function of strategy • Know what strategy to use is related to the importance of the agreement to you • If you can afford to lose the agreement, then you can use a competitive strategy • If you cannot afford to lose the agreement, then you must be more cooperative CTPL Certificate Program

13. Understanding the Process • Negotiations are dynamic. They change according to circumstances and as new information becomes available. • Consequently, negotiating strategy changes as well. CTPL Certificate Program

14. Cooperative Bargaining • Also called value creating bargaining • Growing the size of the pie • Exploring new options and areas of complementary interests • Joint problem solving • Exploring new solutions to existing problems CTPL Certificate Program

15. Competitive Bargaining • Also called value claiming bargaining • Refuses to yield • Holds firm on positions • Makes credible threats of withdrawal • Links progress on one issue to progress on another CTPL Certificate Program

16. The process of negotiation • A systematic exchange of offers/requests and responses. • A “conversation” that gradually reveals interests, preferences, areas of cooperation and convergence • Shows whether a zone of possible agreement exists. CTPL Certificate Program

17. The process of negotiation • Starts from maximum positions and works inward to reservation outcomes. • Sequential concessions to achieve a point of convergence. • Moving too quickly to compromise may leave you with an inferior deal. • Moving too slowly may jeopardize the deal or leave value on the table (unexplored options). CTPL Certificate Program

18. Moves away from the table • Events and influences away from the table can change the terms of the negotiations • Domestic pressures from interest groups • Changes of government • Media / public relations • Influences by third countries, third parties. CTPL Certificate Program

19. Major Elements of International Trade Negotiation (1) Five main steps in trade negotiations: • Domestic consultations • Formulating negotiating position • Obtaining negotiating authority • International negotiations • Implementation of the negotiated outcome CTPL Certificate Program

20. Major Elements of International Trade Negotiation (2) • These steps do not follow a rigid sequence • Steps one to three may be revisited multiple times as negotiations proceed • Communications is an over-arching element, from beginning to end of the process • Effective communications stratgegy is essential to a successful outcome

21. Governing Principles in Negotiating Trade Agreements • Multilateral trade agreements encompassed in the World Trade Organization • Single Undertaking • MFN Non-discrimination (GATT Article I) • National Treatment (GATT Article III)

22. Governing Principles in Negotiating Trade Agreements • Relationship of regional and bilateral trade agreements to the WTO • GATT Article XXIV - conditions governing “substantially all trade” • WTO Agreement governs trade relations among Members, unless bilateral/regional arrangements supersede – “WTO plus”

23. Policy Matrix • Principal reference points for analysis • Assessing forward and backward linkages • Weighting negotiating priorities to reflect the politics and economics CTPL Certificate Program

24. Elements • Risk of agreement syndrome • Tendency to measure success by reaching an agreement grows stronger as the negotiations proceed • Negotiations are a means to an end, not the end in itself CTPL Certificate Program

25. Four Questions • What is the policy objective? • What are the instruments available to achieve this policy objective? • What are the constraints and opportunities of current international rules? • What are the prospects of changing those rules through negotiation? CTPL Certificate Program

26. The Policy Objective • Understanding the political and economic impacts of the potential results of the negotiation • Understanding the trade impacts CTPL Certificate Program

27. Politics • National political weight of sector(s) • Regional concentration • Significance for senior politicians • Symbolic importance for the population at large CTPL Certificate Program

28. Economics • Share of GDP and employment of sector(s) • Composition and strength/weaknesses of small medium, and large firms • Forward and backward linkages CTPL Certificate Program

29. Trade Issues • Dependence upon exports • Trade barriers impeding exports and imports • Other economic polices e.g. taxation, competition, labour, and environment CTPL Certificate Program

30. The Instruments • Choice between negotiations and unilateral instruments • Judgments to forego sovereign decision making or retaining policy flexibility becoming harder to make CTPL Certificate Program

31. Constraints/Opportunitiesof International Trade Rules • International trade rules constrain the use of trade instruments • each negotiation adds to existing rights and obligations • choice between retaining current rights and obligations and the policy flexibility preserved from past negotiations, or adding to them and limiting policy flexibility CTPL Certificate Program

32. Negotiating Tactics • Requests and offers • Understanding mercantilist bargaining • Persuasion • Tactics to avoid CTPL Certificate Program

33. Requests and Offers • Tabling requests for concession • Making of offers to respond • Find a zone of agreement. • Structure package to meet minimum requirement of each party. • Is result available better than the status quo? CTPL Certificate Program

34. Understanding Mercantilist Bargaining • Negotiators assume that benefits flow from concessions made by others • That concessions made by them represent a “cost” • Economic reality of a trade negotiation is the opposite • Country making the most concessions typically gains the most CTPL Certificate Program

35. Persuasion • Several audiences • During negotiation, negotiators emphasize value of offers and minimize value of requests • After negotiations value of requests satisfied is emphasized, while value of offers accepted is discounted CTPL Certificate Program

36. Tactics to Avoid • threats, confrontation, anger, deception, broken promises, and disrespect for the other team • for a negotiator, nothing is more important than earning and retaining the reputation of personal integrity CTPL Certificate Program

37. Coalition Building (1) • Importance of consensus in requires a broad coalition of governments share the same goals and objectives. • Easier to build a coalition dedicated to a negative goal than to a positive one, and to an agenda-related objective than to a negotiating outcome. • Issue-oriented and process-oriented coalitions more effective than broad, ideologically motivated groupings • Coalitions are a means to an end; danger g that building and preserving a coalition becomes an end in itself, detached from the more fundamental objectives CTPL Certificate Program

38. Coalition Building (2) • OECD • EU • Cairns • G-20 • G-90 • many more CTPL Certificate Program

39. G-20 case • Cancun Ministerial • Purpose to advance developing country interests on agriculture interests; specifically to refuse to negotiate on other issues until satisfied on agriculture • From Cancun to Hong Kong in 2005 to Geneva Spring of 2006, advanced specific proposals for subsidy reduction and market access CTPL Certificate Program