Online Training Course

on Trade Negotiations
Review of Negotiations
Theory and Practice
 Principal Points Made in this Presentation
• Trade negotiations are not a single event, nor a series of
deadlines for specific tasks. They need to be approached as
a process in which each step is integrated with the rest.
• The Zone of Possible Agreement (ZOPA) is a key concept in any negotiation,
defining the range of outcomes acceptable to all the parties to those talks.
• Negotiators must understand whether they are in a distributive (win-lose)
negotiation, or an integrated negotiation in which all parties might gain.
• There are often elements of hyperbole or theatricality to bargaining, and
negotiators must learn not only whether to employ these but also to
recognize and respond to them when they are employed by a partner.

Capacity-Building Course: Skills and Techniques for Trade Negotiators

 Point 1:
Trade Negotiations Are not an Event but
a Process — With Multiple Chances to Fail

Capacity-Building Course: Skills and Techniques for Trade Negotiators

 Stages in a Negotiation and the Potential for Failure
Stage Importance Potential for Failure
PerhapsDetailed
Preparations
(Domestic)
the most common
consultations error
with all relevant
stakeholders in the country.
made
decision-makers inandany trade
Most ministry
of the outcome may be
determined before countries meet.
that prepares for a negotiation is to treat each step in the
Preparations Countries decide not just whether to negotiate, but what Countries might merely postpone
process broad
(International) as aobjectives
hurdle thathow
to pursue, needs
to do so,to
[Link] cleared.a showdown
In a truly over their differences.

strategicA ministerial
Launch approach, each
declaration step
will set is seen
the broad terms ofas
the part Strong
of aobjections
process. can block the
agreement to launch negotiations. launch of negotiations
This can be especially difficult if there are significant capacity
Modalities An interim stage might translate the broader mandate into This is where the WTO’s Doha Development Agenda
gaps in government,
somewhat more precise aprinciples;
country thesedoes
might fornot havestalled,
example a good setlaunched
having been of even when some
specify the precise formula to be used in a tariff negotiation. fundamental issues remained unresolved.
consultative mechanisms, etc.; these points are discussed in
the course
Negotiations on
Negotiatorstrade strategy.
bargain over the details until they reach a final
and precise agreement or set of agreements.
Negotiators might fail to overcome their differences;
talks might formally fail or deadlock indefinitely.

Approval All countries have procedures for approval and ratification of An agreement might be rejected by a cabinet, its
agreements. legislature, or by the entire public in a referendum.

Implementation Agreements ultimately depend on the willingness of Agreements are rarely abrogated altogether but often
country’s to abide by the principles to which they agree. result in dispute-settlement cases.

Capacity-Building Course: Skills and Techniques for Trade Negotiators

 The Most Important Terms Concerning
The Highest Level of Strategic Thinking
Best Alternative to a Negotiated Agreement (BATNA): The negotiator’s
back-up plan if the Least Acceptable Agreement cannot be reached. Plan B.
Bounded Rationality: The error by which a negotiator might mistakenly believe
that one’s partner perceives all issues in the same way as the negotiator.
Distributive Negotiation: A form of negotiation conducted along a single dimension, most
typically price. These are usually win-lose cases in which the seller’s gain is the buyer’s loss.
Integrative Negotiation: In contrast to the win-lose distributive negotiation, this type typically
entails two or more issues to be negotiated and may more readily result in win-win outcomes.
Creating Value/Claiming Value: In an integrative negotiation, parties create value by finding
solutions — but then each side will seek to claim the greatest share of that value.

Capacity-Building Course: Skills and Techniques for Trade Negotiators

 Point 2:
The Zone of Possible Agreement
in a Distributive Negotiation

Capacity-Building Course: Skills and Techniques for Trade Negotiators

 Thinking Back on Bargains You Have Made:
Did Any of these Terms Explain Outcomes?
Zone of Possible Agreement (ZOPA): The outcomes in which a potential
agreement would benefit all parties more than their alternative options.
Anchoring: The initial request or offer by which a negotiator begins the process of bargaining.
As a general rule, a seller who anchors high (or a buyer who anchors low) tends to do better.
Least Acceptable Agreement: Also called the “walk-away” or the “reservation price,” this is the
value that a party is prepared to accept.
Low Ball (or High Ball): A tactic by which a negotiator’s offer is on its face unreasonably low or
high, hoping the other side will accept an outcome that an informed negotiator would not.
Negative Bargaining Zones: A situation in which there is no actual ZOPA. No deal is possible
because the seller’s minimum demands are greater than the buyer’s maximum.

Capacity-Building Course: Skills and Techniques for Trade Negotiators

 Did Your Bargaining Process Resemble This?
I AM INTERESTED
IN THAT ITEM.
HOW MUCH IS IT?

A THE PRICE IS $200.

B
HOW ABOUT $100? What do we call this approach?
Splitting the difference has two advantages:
I COULD DO $150. What are the advantages and
SOLD! the disadvantages?
1. It looks on its face to be “fair.”
Can you do better than this?
2. It does not take much time or effort.
It does however give a potentially great
advantage to whoever is boldest. What if B
had anchored instead at $300? Or A at $50?
Capacity-Building Course: Skills and Techniques for Trade Negotiators
 The ZOPA in a
Distributive Seller’s Range of Acceptable Prices
Negotiation:
Sale of a Used Watch
Zone of Possible
Agreement

Buyer’s Range of Acceptable Prices

Capacity-Building Course: Skills and Techniques for Trade Negotiators

 Let us suppose both
The have
parties ZOPAbeenin a
more Distributive
or less honest in Seller’s Range of Acceptable Prices
their bargaining, and
Negotiation:
more or less thorough
Sale of a Used Watch
in probing each other. Zone of Possible The ZOPA is not something that
Does this mean they Agreement Anything from the fully
seller’sfrom
minimum
either side knows the
will end up splitting to the buyer’s maximum is possible.
start, but can only find out
the difference evenly? No price is “fair” or “unfair,” but we
through a process of bargaining.
can generally say that the better
Buyer’s Range of Acceptable Prices Evennegotiator
after several rounds,
is the one for whom they
the
might still need
outcome comesto interpret
closest to their
whatfavored
theirnumber.
partner has said.

Capacity-Building Course: Skills and Techniques for Trade Negotiators

 A and B might naturally aim
for the ZOPA’s midpoint,
The ZOPA in a but a better negotiator will
Distributive seek an outcome closer to
the extreme they favor.
A
Negotiation: B
Sale of a Used Watch
Zone of Possible
Agreement

Capacity-Building Course: Skills and Techniques for Trade Negotiators

 The ZOPA in a
Distributive Seller’s Range of Acceptable Prices
Two major conclusions:
Negotiation:
1. Each
Sale sideWatch
of a Used does better according to the depth of its
Zone
knowledge of the other of Possible
side.
Agreement
2. Each side does better according to its ability to engage
not just in the science but the art of bargaining.

Buyer’s Range of Acceptable Prices

Capacity-Building Course: Skills and Techniques for Trade Negotiators

 We might improve our
The ZOPA
chances in a if either
of success Seller’s Range of
Distributive
1. The negotiation goes Acceptable Prices
Negotiation:
beyond this win-lose
dynamic,
Sale of a Usedand/or
Watch
2. The parties adopt There have been many examples in recent
tactics that properly We should
decades also recognize
of trade that in
negotiations there
which might
the not
balance value-creation actuallyfailed
parties be a ZOPA.
to “getThere areItsome
to yes.” negotiations
is difficult in the
with value-claiming. in whichto
abstract theknow
seller’s minimum is significantly
whether
Buyer’s Range of
Let us consider each of
higher than the buyer’s maximum; here we have
1. The parties’ interests were so far apart that
Acceptable Prices instead a negative bargaining zone. Any time
these points in succession. the negotiations were destined to fail, or
that they spend bargaining is just wasted effort.
2. The parties’ tactics were so confrontational
that they failed to resolve their differences.
Capacity-Building Course: Skills and Techniques for Trade Negotiators
 Point 3:
The Zone of Possible Agreement
in an Integrative Negotiation

Capacity-Building Course: Skills and Techniques for Trade Negotiators

 ZOPA in an
Integrative
Negotiation:
A Bilateral
Agreement with
Two Issues Why are most modern trade negotiations integrative
rather that distributive? What is the major difference
between trade as defined today versus trade a
generation or two ago, and what impact does that
change have on the conduct of negotiations?

Capacity-Building Course: Skills and Techniques for Trade Negotiators

 Issues Coverage in Uruguay Doha
Trade Agreements GATT
Tokyo Round
Agreements
Round
Agreements
Ministerial
Declaration
1947 1979 1994 2001
Core Issues
Tariffs    
Antidumping & Countervailing    
Safeguards    -
Uruguay Issues
Agriculture -   
Intellectual Property Rights - -
Services
The definition of the subject matter in this field is
- -




Singapore Issues flexible, and differs from one negotiation to another,
Government Procurement -   
Investment but as a general
- rule- the number
 of issues
 on the
= Full chapter, annex, appendix, or other
Competition Policy
Trade Facilitation
table tends --to grow --over time.-
-
Having more issues
section or side agreement.

 = A plurilateral GATT or WTO agreement.


Other Issues makes it easier for countries to treat negotiations as full articles.
 = One or more
State-Owned Enterprises - -
Environment integrative ─- provided
- that they


are willing

to deal.
= Issues originally covered by the Doha
Ministerial Declaration subsequently taken
Geographical Indications - -   off the table in the Doha Round.
Temporary Entry - -  - - = No explicit coverage (apart from
Electronic Commerce - - -  exceptions clauses such as GATT Article XX).

Capacity-Building Course: Skills and Techniques for Trade Negotiators

 Point 4:
Information, Honesty, and
Theatricality in Negotiations

Capacity-Building Course: Skills and Techniques for Trade Negotiators

 Negotiators Often Need to Strike More than
One Balance when Dealing with Partners
Creating value from the negotiation as a whole, so that all parties win
One way that negotiators deal with these balancing acts is to
exaggerate in their talks, with must
eachbe side
balanced againstrecognizing
implicitly
Claiming value forofone’s
that neither them own side,
will such that
always youall
share win as much of that
information value
about as possible.
their
Theown side,
desire nor expect
to anchor theiropening
one’s own maximum position
position to be to
high enough accepted.
start from an advantage
There are some well-established bitsbalanced
must be of theater that negotiators
against
Themay
risk employ
that if oneinbegins
pursuit of too
from these aims. The
unrealistic greatest
a position difficulties
the other side may be alienated.
may arise in knowing which of these approaches might be most
Theeffective
need to be seen
with as an
any honest
given negotiator
partner, and who
alsowill abide bywhen
knowing any agreements
a that are made
partner means what they saymust or isbemerely
balanced againston an act.
putting
The perceived need to withhold some information and to shape a partner’s perceptions.

Capacity-Building Course: Skills and Techniques for Trade Negotiators

 What Do We Call the Types of Numbers Here?
Suppose We Know that a Typical Price is $100.

I’M WILLING TO PAY $5.

THAT’S RIDICULOUS!
THESE SELL FOR $500!
B
A $5, NOT A PENNY MORE.

THE PRICE IS $500. If we see both high-

balling by the seller and
low-balling by the buyer,
what does this imply
about the chances for a
successful negotiation?
Capacity-Building Course: Skills and Techniques for Trade Negotiators
 What Maneuver Does B Seem to Be Trying?
WE REALLY NEED TO RESOLVE
OUR DIFFERENCES IN ANNEX 3.

YOU KNOW OUR POSITION.

A BUT YOU KNOW WE CAN’T

ACCEPT IT. CAN WE THINK OF
B
SOME SOLUTION? What do we call this
YOU KNOW OUR POSITION. approach?
THERE MUST BE SOME WAY TO
What are the advantages
RESOLVE OUR DIFFERENCES. and the disadvantages?
YES. YOU CAN DROP IT. Can you do better than
THIS IS NOT HELPING.
this?

YOU KNOW OUR POSITION.

Capacity-Building Course: Skills and Techniques for Trade Negotiators

 How Should B Interpret What A Is Saying?
YOUR PROPOSAL IS NOT SERIOUS.
BECAUSE THERE IS NO POINT IN
CONTINUING, YOU CAN CONSIDER THESE
A NEGOTIATIONS OVER FOR GOOD!
B

There is a subtle
difference between
A’s walk-out in this
scenario and what B
does in the next one.

Capacity-Building Course: Skills and Techniques for Trade Negotiators

 What Is B Thinking about Here?

A
YOU ARE PROVING TO BE TOO
DIFFICULT A PARTNER AND
THERE IS NO POINT TRYING TO
B
DEAL WITH YOU. WE WILL
NEGOTIATE INSTEAD WITH How does this example
COUNTRY C.
involve a BATNA?
What types of BATNAs
might B have, beyond
negotiating a bilateral
agreement with C?

Capacity-Building Course: Skills and Techniques for Trade Negotiators

 Suppose We Know that A Does Not Mean This

A B
YOUR POSITION IS SO
UNACCEPTABLE THAT WE
ARE NOT ONLY ENDING What do we call a threat
THE NEGOTIATIONS, BUT
MIGHT IMPOSE
that may not be real?
SANCTIONS ON YOU. What are the advantages
and the disadvantages?
How can we respond?

Capacity-Building Course: Skills and Techniques for Trade Negotiators

 The Most
Tactics Important
may be Terms
highly situational, Concerning
and their effectiveness
The
may Conduct and
depend on such Theatricality
diverse of Negotiations
factors as asymmetries in
the two parties’ economic vulnerability, their different
domestic
Splitting political constraints,
the Difference: The two sidescultural differences, riskcompromise.
seek a down-the-middle
tolerance, etc. Countries can work to reduce
Stalling: A negotiator claims that more time is needed.
these
disparities through training, preparation, and experience,
Bluffing: Pretending to be prepared to do something that one has no intention of doing.
but cannot eliminate them altogether.
Brinkmanship: A negotiating style based on threats of a walk-out or other precipitous action.
Good Cop/Bad Cop: A negotiator tells the other party that it can go only
Canaswe
farsay
as athat
real or
any of
imagined authority figure will allow it to go.
these tactics are
Stonewalling: A negotiator indicates an unwillingness to consider newalways
or proposed
likelysolutions.
to work?
Walking Out: One party abruptly leaves the negotiating table and threatens
Can we never
say to return;
that any of
the walk-out might be either real or theatrical. them are never likely
to work?
Capacity-Building Course: Skills and Techniques for Trade Negotiators
Thank you!