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
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 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
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 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-than-
competitive 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.

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 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

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 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
Political Consultation strategy & Positions

Stakeholders’ Consultation Negotiations

Further Pre-negotiation
Pre-negotiation with with counterpart Preparation of draft
counterpart agreement
Establishment of neg
machinery 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

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 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

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 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 Dialogue with All

Research: Stakeholders and
• Issue Identification Empirical and Advocacy
Policy
• Analysis 9Macroeconomic
9Regulatory
• Consultations with Domestic Interests 9Foreign Policy/
national security
9Relevant laws, rules
• Consultation with Counterparts

Establishment of Parallel Negotiating Track: on Trade Related Issues

Environment
Labour
IPR
Poverty Alleviation
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 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

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 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

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 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, 12% over 10 years

Financial Services with a 10 year
transition period

ALT 2 Same as ALT 1, but with 10 year 8 % over 10 years

transition

ALT 3 ALT 2 + Health, Education, 6% over 8 years

Professional Services with 7 year
transition

RES Same as ALT 3 but with 5 years 6% over 5 years

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 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
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 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 Eliminate tariff immediately

immediately

ALT 1 Telecommunication, Tourism, 12% over 10 years

Financial Services with a 10 year
transition period

ALT 2 Same as ALT 1, but with 10 year 8 % over 10 years

transition

ALT 3 ALT 2 + Health, Education, 6% over 8 years

Professional Services with 7 year
transition

RES Same as ALT 3 but with 10 year Eliminate tariff in 10 years

transition
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 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 “co-
incidentally” your preferred position)

Coalition Building
Leadership (benefits and Costs)
Free Rider (But Give up control)
Divide and conquer
Defection
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 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
Compare:
• A determination to achieve
an “Acceptable” Outcome
b= Risk Averse/Take Less
With MAX
• A determination to take the
most the other party will give
a = Risk prone/Demand
more
IX. Negotiations
AIM – Estimate the a-b
space
Devise a strategic plan to
Structure of Negotiations optimize your country
interest
Other country’s RES Secure as much surplus as
(will give a or less) is desirable, but do not
penetrate other’s reservation
a outcome
b MAX

Your country’s RES

You are driving (will take a or more) Other is driving
settlement settlement
rightward leftward

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

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 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

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 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 Inferior

Compete
Inferior
Excellent

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 Algorithm of Trade Negotiations
VIII. Negotiations: Competitive Tactics
Opening Negotiations
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
Estimated give a or less)
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

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 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
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 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 Importance Importance Importance

Weight: Weight: Weight: 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
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 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.

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 Algorithm of Trade Negotiations

Thank You for Your Attention!

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