Negotiations

Algorithm of Trade Negotiations

January 06, 2005, Dhaka

CENTRE FOR POLICY DIALOGUE (CPD) B A N G L A D E S H

a civil society think–tank 1

Algorithm of Trade Negotiations

Presented at TPA Workshop on “WTO and Bangladesh” January 4-6, 2005

Presented by

Dr Ananya Raihan Research Fellow

Centre for Policy Dialogue (CPD) The paper is based on the materials of “Commercial Diplomacy” run by the CTPL, Ottawa, Canada 2

Algorithm of Trade Negotiations Negotiating Goals and Objectives “You Can’t Always Get What You Want, But If You Try, Sometimes You Get What You Need Is there a problem or an opportunity that cannot be resolved or realized on the basis of domestic action and that may be amenable to intergovernmental negotiations?

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Algorithm of Trade Negotiations

I. What is negotiation? II. What to negotiate: Problem Identification III. Who Negotiates and for Whom: Interest Identification IV. Algorithm of Trade negotiations V. How Bangladesh is Negotiating?

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Algorithm of Trade Negotiations I. What is Negotiation From Latin negotiari: "to carry on business. Two interpretations: (1) The process of reaching an agreement by conferring or discussing. (2) The transfer of rights in a negotiable instrument by endorsement and delivery or merely by delivery. A discussion intended to produce an agreement a dialogue between two or more people in order to arrive at an agreement that meets the needs of those involved without sacrificing anyone's priorities The act of discussing an issue between two or more parties with competing interests with an aim of coming to an agreement

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Algorithm of Trade Negotiations I. What is Negotiation [contd.] Contracting through the use of either competitive or other-thancompetitive proposals and discussions. Any contract awarded without using sealed bidding procedures is a negotiated contract. An exploratory and a bargaining process (planning, reviewing, analyzing, compromising) involving a buyer and seller, each with their own viewpoints and objectives, seeking to reach a mutually satisfactory agreement on all phases of a procurement transaction - including price, service, specifications, technical and quality requirements, freight and payment terms. A dispute or conflict resolution process in which two or more parties settle their differences by themselves, without the use of a third-party. 6

Algorithm of Trade Negotiations I. What is Negotiation: Negotiating Parties Individual vs. Individual Private Entity vs. Private Entity Individual vs. Private Entity Government vs. Government Government vs. Private Entity

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Algorithm of Trade Negotiations I. What is Negotiation: Classification By Subject •

Personal

•

Business and Trade: With or Without Transaction

•

Protection of Rights

and..

•

Political

Unilateral !

•

Sovereignty and Security

By Number of Parties •

Bi-lateral

•

Plurilateral

•

Multi-lateral 8

Algorithm of Trade Negotiations I. Advantage of Negotiations

Consensual Negotiation Mediation Conciliation

Expert

Arbitration Adversarial

Determination

Win-Win Win-Win

Win-Win

Win-Lose

Win-Lose Win-Lose

Dispute/ Conflict Managed/

Dispute/ Conflict Not Managed/

Problem resolved

Problem Not resolved

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Algorithm of Trade Negotiations Problem/opportunity Identification Interest Identification Formulation of neg strategy & Positions

Political Consultation

Negotiations

Stakeholders’ Consultation Pre-negotiation with counterpart

Further Pre-negotiation with counterpart

Establishment of neg machinery

Preparation of draft agreement Political Approval

Implementation

Continuous Process

Parallel Negotiation Track

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Algorithm of Trade Negotiations II. What to Negotiate: Talking Trade

Individual Trade Issue: Tariff, Non—tariff barriers, trade related issues, trade remedies, trade dispute settlement Comprehensive Trade liberalization: PTA, FTA, Customs Union, Economic Union 11

Algorithm of Trade Negotiations II. What to Negotiate: Problem/Opprotunity Identification

Key Question Is there a problem or an opportunity that can not be resolved or realized only on the basis of domestic action and that may be amenable to intergovernmental negotiations?

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Algorithm of Trade Negotiations II. What to Negotiate: Problem/Opportunity Identification Opportunity: Liberalization of barriers in services trade can boost economic growth and can facilitate poverty alleviation Problem: Countries are protective as regards the services trade Criteria Fulfillment 1. Problem/opportunity exists 2. It can not be resolved or realized only on the basis of domestic action 13

Algorithm of Trade Negotiations III. Who Negotiates and for Whom: Interest Identification

Unlike the business negotiations trade negotiations are conducted by the governments, but not for themselves Interest identification: Key Question Who are to Benefit and Who are to Lose Out of the Negotiations? Stakeholders: Consumers Businesses Civil Society Labour Union Ethnic Group Environmental group Human Right group

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Algorithm of Trade Negotiations IV. Political Consultation: Strong Need and Domestic Support

Assessment of Political Basis for Negotiations. Critical: Have Strong Political commitment to Trade Negotiations by Top Decision Makers: • To be Convinced About the Benefit of Negotiations

• To be sure about Possible Political Risk

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Algorithm of Trade Negotiations V. Ongoing Consultations with Stakeholder Identification of Beneficiaries/Losers for Each Component of the Negotiations Establishment of Institutional Mechanism to Facilitate Consultations among all Affected Groups

Purpose: Build Support Prevent Surprises Bangladesh: WTO Advisory Group, Working Committee, BFTI

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Algorithm of Trade Negotiations VI. Pre-Negotiations/Consultations with Counterparts

Purpose: Determine Interest Test Issues

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Algorithm of Trade Negotiations VI. Establishment of Negotiating Machinery

Appointment of Chief Negotiator Appoint of team of Supporting Officials Ministry of Commerce Ministry of Foreign Affairs Line Ministries Relevant Government Agencies A group of People with Expertise and Interest

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Algorithm of Trade Negotiations VII. Further Consultation for Developing Agenda

Based on • Issue Identification

Research: Empirical and Policy

Dialogue with All Stakeholders and Advocacy

• Analysis • Consultations with Domestic Interests • Consultation with Counterparts

9Macroeconomic 9Regulatory 9Foreign Policy/ national security 9Relevant laws, rules

Establishment of Parallel Negotiating Track: on Trade Related Issues Environment Labour IPR Poverty Alleviation 19

Algorithm of Trade Negotiations VIII. Formulation of Negotiating Positions and Strategies

• Establish Priorities • Assess Value of Trade-Offs • Manage the Negotiating Process

9Interest-Based Vs Competitive Negotiations 9Positions Vs Interests 9Personalities Vs Group Interests 9Zero-Sum Vs Position Sum Approaches 9Hiding Vs Sharing Information 9Judgement Vs Pragmatic Advocacy

Non-Agreement Alternatives Consequences of Inability to Achieve Agreement Estimate for Other Parties Changing Non-agreement Alternatives Improve Value of Own/decrease Other Parties 20

Algorithm of Trade Negotiations VIII. Formulation of Negotiating Positions and Strategies

Issue(s) in a Negotiation • Different Outcomes Possible • Parties Differ on What the Outcome Should Be • One or More Insist that the Issue be Negotiated

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Algorithm of Trade Negotiations VIII. Formulation of Negotiating Positions and Strategies

Outcomes and Priorities Ranking Issues: Relative Importance Less Important/more Important Importance Weight (0 – 1)

For Each Issue Maximum Outcome – Opening Position Reservation Outcome – Bottom Line Alterative Outcomes for Each Issues 22

Algorithm of Trade Negotiations VIII. Formulation of Negotiating Positions and Strategies Services Liberalization

Tariff Reduction for NAP

IW

0.6

0.4

MAX

No Sector will be Opened

Maintain current 14% indefinitely

ALT 1

Telecommunication, Tourism, Financial Services with a 10 year transition period

12% over 10 years

ALT 2

Same as ALT 1, but with 10 year transition

8 % over 10 years

ALT 3

ALT 2 + Health, Education, Professional Services with 7 year transition

6% over 8 years

RES

Same as ALT 3 but with 5 years

6% over 5 years 23

Algorithm of Trade Negotiations VIII. Formulation of Negotiating Positions and Strategies

Outcomes and Priorities for Other Parties Ranking Issues: Relative Importance Less Important/more Important Importance Weight (0 – 1)

For Each Issue Maximum Outcome – Their Opening Position Reservation Outcome – Their Bottom Line: The most they will give or the least they will take Alterative Outcomes for Each Issues 24

Algorithm of Trade Negotiations VIII. Formulation of Negotiating Positions and Strategies Services Liberalization

Tariff Reduction for NAP

IW

0.3

0.7

MAX

All Sectors will be opened immediately

Eliminate tariff immediately

ALT 1

Telecommunication, Tourism, Financial Services with a 10 year transition period

12% over 10 years

ALT 2

Same as ALT 1, but with 10 year transition

8 % over 10 years

ALT 3

ALT 2 + Health, Education, Professional Services with 7 year transition

6% over 8 years

RES

Same as ALT 3 but with 10 year transition

Eliminate tariff in 10 years 25

Algorithm of Trade Negotiations VIII. Formulation of Negotiating Positions and Strategies

Special issues in case of Multilateral Negotiations If your position is in between the other parties, mediate or broker a compromise ( which “coincidentally” your preferred position) Coalition Building Leadership (benefits and Costs) Free Rider (But Give up control) Divide and conquer Defection 26

Algorithm of Trade Negotiations VIII. Formulation of Negotiating Positions and Strategies Issues

Alignments Allies

Adversaries

Uncommitted

Issues for Trade-offs

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Algorithm of Trade Negotiations IX. Negotiations Compare: • A determination to achieve an “Acceptable” Outcome

Structure of Negotiations

b= Risk Averse/Take Less With

Other country’s RES (will give a or less)

MAX

• A determination to take the most the other party will give

a

AIM – Estimate the a-b space Devise a strategic plan to optimize your country interest Secure as much surplus as is desirable, but do not penetrate other’s reservation outcome

a = Risk prone/Demand more

b

You are driving settlement rightward

Your country’s RES (will take a or more)

MAX

Other is driving settlement leftward

a – b is the zone of potential agreement and the potential surplus to be shared 28

Algorithm of Trade Negotiations VIII. Negotiations:

Strategic Choices

Competitive Strategy: Convince the Other Party to Concede Arguments to Encourage Concessions Firm Commitment to Demands Refuse to Reveal/Share Information Delay Misinterpret Reject the Others’ Demands for Concessions Withhold Concessions Refuse to Exchange Offers Threaten Walkout or retaliation 29

Algorithm of Trade Negotiations VIII. Negotiations:

Strategic Choices

Cooperative Strategy: Identify Outcomes to Satisfy Both Problem Solving Signal Desire for Agreement Exchange Information about Needs/Priorities Brainstorm Options Jointly Assess Utility of Each

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Algorithm of Trade Negotiations VIII. Negotiations: Reciprocal and Sequential Behaviour Best Choice depends on Expected Behaviour of Other Good

Excellent

Cooperate Good

Poor

Your Choice Poor

Compete

Inferior

Inferior Excellent

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Algorithm of Trade Negotiations VIII. Negotiations: Competitive Opening Negotiations

Tactics

Begin Negotiation on any issue with a position that is beyond your estimate of the other party’s reservation outcome Your estimate of other country’s RES (believe it will give a or less)

Estimated MAX

a

. . b

MAX1

MAX 2

Your country’s RES (will take a or more)

a – b is the zone of potential agreement and the potential surplus to be shared 32

Algorithm of Trade Negotiations VIII. Negotiations:

Competitive Tactics

Persuasion Develop arguments to persuade other to modify its positions Firmly commit to your positions (but leave an escape route) Deny legitimacy of other's demands Withhold/Delay concessions Mislead Refuse to reveal/share information or exchange views Refuse (or delay) to state/reveal position on issues Misrepresent (but use language carefully to preserve integrity) Exaggerate the importance of small differences 33

Algorithm of Trade Negotiations VIII. Negotiations:

Sophisticated Competitive Tactics Reciprocation

If other adopts a cooperative strategy in response to your competitive tactics, then you should respond by shifting to a cooperative strategy, but only for as long as the other remains cooperative Concession Making After delaying, concessions should be made first on least important issues Concessions should be at a pace that matches the concessions rate of the other party, according to the increments identified earlier

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Algorithm of Trade Negotiations VIII. Negotiations:

Tracking Concessions

LIST ISSUES ACROSS THE PAGE IN DESCENDING ORDER OF IMPORTANCE

ISSUE:

ISSUE:

ISSUE:

ISSUE:

Importance Weight:

Importance Weight:

Importance Weight:

Importance Weight:

Circle Each Position Below AFTER offering It MAX

MAX

MAX

MAX

ALT 1

ALT1

ALT1

ALT1

ALT 2

ALT 2

ALT 2

ALT 2

ALT 3

ALT 3

ALT 3

ALT 3

ALT 4

ALT 4

ALT 4

ALT 4

.

.

.

.

.

.

.

.

.

.

.

.

RES

RES

RES

RES

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Algorithm of Trade Negotiations VIII. Negotiations:

Managing Sophisticated Competitive Tactics Linkage

Use concessions in other negotiations to extract concessions here Avoiding Stalemate Improve the utility of your own non-agreement alternative, and diminish the utility of that of the other party Logrolling – link issues New solutions to satisfy the interests of the other and your company Tactics to Avoid Threats – warnings are better, and best directed to the prospect of impasse and non-agreement alternatives Broken promises – always honour your commitments Adversarial stance/confrontation Anger/belligerence Demonstrating lack of respect for the other party or its representatives In short, Avoid a general lack of professionalism 36

Algorithm of Trade Negotiations VIII. Negotiations:

Managing Sophisticated Competitive Tactics

STRATEGIC AND TACTICAL PLANNING CHECKLIST 1 Non-Agreement Alternatives What is the relative utility of your NAAs? Low †

High †

What is your estimate of the utility of the NAAs of the other parties? Low †

High †

Low †

High †

Is the utility of your NAA sufficient to warrant withholding/demanding concessions? Low †

High †

Low †

High †

Can the utility of your NAA be improved? No †

Yes †

Specify How

Can the utility of the other parties’ NAAs be decreased? No †

Yes †

Specify How

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Algorithm of Trade Negotiations VIII. Negotiations:

Managing Sophisticated Competitive Tactics

STRATEGIC AND TACTICAL PLANNING CHECKLIST 2 Alternative Outcomes Have various alternatives outcomes been identified for each issue No †

Yes †

If no, why not?

Misleading Identify any positions or specific information that will be with held in negotiations Argumentation Have cogent arguments been developed to: Support your positions Support your positions

No †

Yes †

Specify

Refute Other Positions

No †

Yes †

Specify

Linkage Can concessions in other negotiations be used to extract concessions here? No †

Yes †

Specify

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Algorithm of Trade Negotiations Last Two Points How to handle Ultimatums •Don’t be pressured into take it or leave it ultimatums •Say “I realize you have put much thought into the development of the proposal. •I would like to do it justice by reviewing it with the same care and consideration with which you prepared it.

How to handle dirty tricks •Bring dirty tricks, strong arm tactics and rude behaviours to the attention of the negotiating partner •Identify the offending behaviour and indicate that you do not believe it is conducive to a successful outcome of the discussions •Build your own reputation for fairness and professionalism. 39

Algorithm of Trade Negotiations

Thank You for Your Attention!

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