International Trade Negotiations: Strategies and

Techniques

Terry Collins-Williams

The Centre for Trade Policy and Law (CTPL)

June 20-24, 2011

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Negotiations

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

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Interests

• Interests are the drivers of negotiation– Know yourself– Know the other party

• Rank interests according to their importance

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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.

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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’.

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Me

You

Better for you

Better for me

Zone of Possible Agreement

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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

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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.

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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

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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

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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

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Understanding the Process

• Negotiations are dynamic. They change according to circumstances and as new information becomes available.

• Consequently, negotiating strategy changes as well.

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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).

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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.

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Major Elements of International Trade Negotiation (1)

Five main steps in trade negotiations:

1. Domestic consultations 2. Formulating negotiating position3. Obtaining negotiating authority4. International negotiations5. Implementation of the negotiated outcome

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”

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

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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?

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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

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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

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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