International Trade Negotiations: Strategies and Techniques

International Trade Negotiations: Strategies and Techniques Terry Collins-Williams The Centre for Trade Policy and Law (CTPL) June 20-24, 2011

Negotiations • Negotiation: “An interactive process by which two or more people seek jointly or cooperatively to do better than they could otherwise

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

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

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

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

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? • Beware of Risk of Agreement Syndrome CTPL Certificate Program

No-Agreement Alternative • Negotiators are guided by considerations of the No-Agreement Alternative (or the constraints of the Mandate). • 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

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

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

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

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

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

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

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

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

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)

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”

Tactics in Trade Negotiations • Negotiating Modalities • Understanding mercantilist bargaining • Persuasion • Tactics to avoid CTPL Certificate Program

Negotiating Modalities • Tabling requests for concession • Making of offers to respond • Alternative negotiating modalities, eg formula approaches • 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

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

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 • Reminder of importance of Communications Strategy CTPL Certificate Program

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

International Trade Negotiations: Strategies and Techniques