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RESEARCH BRIEF NUMBER 7, JUNE 2003
EUROPEAN UNION CENTER
OF CALIFORNIA
Negotiating the World Economy
John s. Odell
In December 1999 trade ministers from 135 nations failed to
launch a new global trade round-the famous Seattle debacle.
Yet less than two years later negotiators from these same states
agreed to a remarkably ambitious liberalizing agenda at Doha.
The difference in outcome between these two deliberations could
not be more striking. What accounts for it? What determines the
gains and losses from different international economic negotiations
more generally? Four broad factors must be attended to: market
conditions, domestic politics, negotiators' behavior and beliefs,
and the strategies they choose. This is according to John Odell,
in his recent book Negotiating the World Economy (Cornell University
Press, 2000) . Odell provides insights into each of these influences.
His comparative study of ten major international economic
negotiations teases out general principles showing how creative
bargaining strategies and tactics can raise the chances for success,
even in apparently hopeless encounters. His study, currently being
translated into Chinese and with negotiations for a Spanish edition
underway, generates practical knowledge aimed at improving
negotiating performance and the prospects for successfully realizing
gains in both bilateral and multilateral negotiations.
Research Briifs is a publication of the European Union Center
of California. The series provides summaries of major research
projects concerning Europe and transatlantic relations, written
by the original researchers.
RESEARCH BRIEF
NEGOTIATING THE WORLD ECONOMY
In September 1985 the U.S.
administration of Ronald Reagan
threatened Brazil with economic
penalties if it did not change a program
designed to promote its national
computer industry and displace foreign
firms. In March 1986 the United States
threatened to punish exports from the
European Community if it did not
provide additional compensation for
new barriers to US feedgrains in Spain
and Portugal, restrictions that had just
been raised thanks to the entry of the
Iberian states into the EC. Both Brasilia
and Brussels angrily threatened counter-
retaliation.
Paradoxically, the same American
strategy gained more commercially from
the EC, the largest trading unit in the
world, than it did from the weaker player,
Brazil. The European case ended after
ten months with a written agreement
modifying the enlargement treaty
and making su bstantial conunercial
concessions to the US. Meanwhile the
Brazil-U.S. dispute dragged on for some
thirty-six months, with Reagan finally
gaining only a tacit agreement oflittle
comnlercial value. The same superpower,
with the same institutions, operating
under the same international rules, led
by the same President using the same
lead negotiator during the same period,
reached remarkably different results,
with the apparently weaker negotiating
partner resisting Anlerican demands
more effectively. Why?
Questions like this one (whose
answer will come in a moment) are not
merely of academic concern. Executives
and officials in countri es across the
world would like to see improvements
in the political management of the
global economy. Governments manage
it through negotiations, some bilateral
and some multilateral, and the outcomes
of these negotiations are not wholly
determined by nature. To gain the most
and lose the least possible from these
negotiations, and to improve inter-
national institutions, our representatives
of course need solid knowledge of the
relevant businesses and laws and an
appealing blueprint, but those are not
enough. The successful proponent of an
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international agreement and the effective
defender against external pressure will also
need an effective negotiation plan-
a strategy for gaining other countries'
assent despite opposition. Without a
sound understanding of how the complex
process of international economic
negotiation works, our representatives
would be primed to step into familiar
pitfaUs while overlooking important
opportunities.
Negotiatil1g the World Economy lays
out key diagnostic questions to ask in
planning for any international economic
negotiation. It documents some pitfalls
and some useful general principles by
analyzing ten particular monetary and
trade outcomes of the past. The ten cases
involved the United States and various
partners, including the European
COl1ll1lunity,Japan, Mexico and Brazil.
There are no obvious reasons why the
conclusions should be peculiar to the
United States. The ideas are meant to
be general and interesting to readers
worldwide, to those outside as weU as
inside governments.
CORE ARGUMENTS
In a nutsheU, the book argues that
variations in the process of international
economic negotiation, including the
strategies chosen, make a significant
difference to the outcomes. This theme
is developed into a set of specific
propositions designed to help answer
two core questions. First, what
negotiating strategies are available to
international economic negotiators,
and why do their strategy choices vary
from case to case? Second, why do
negotiatdrs gain more in some cases
and less in others, even when using
the same strategy?
The key drivers are market
conditions, domestic politics, negotiator
biases, and their strategies. This list flags
central diagnostic questions that need
to be addressed in any effective nego-
tiation analysis. In order to concentrate
on these factors, thi s study largely sets
aside for other occasions the consid-
eration of contexts beyond the trade
or finance minister's infl uence, such as
the countries' current military security
situations, their government institutions,
and their cultures.
The strategy menu
Negotiation (or bargaining) refers
to a sequence of actions in which two
or more parties address demands and
proposals to each other for the ostensible
purpose of reaching agreement and
changing the behavior of at least one
actor. When engaging in negotiation the
participants must choose from a menu
of alternative strategies, each meaning
a mix of tactics associated with an
overall plan to achieve some objective
through bargaining.
The strategy menu can be thought
of as a spectrum running from purely
"distributive" tactics at one end, through
"mixed" strategies, to purely "integrative"
tactics at the other. These general cate-
gories apply regardless of the number
of parties, the issue under discussion, or
the proposed deal's structure. The most
COlllillon strategy-known as distrib-
utive or "value-claimi ng" -is a set of
actions that promote one party's goals
by claiming value of some kind from
other parties, making them worse off
than before. Examples include tactics
such as opening with high demands,
refusing to make any concessions, exag-
gerating one's minimum needs and
misrepresenting one's true priorities,
manipulating information to one's
advantage, worsening others' alternatives
to agreement, making threats, and
actually imposing penalties. A defensive
value-claiming strategy responds to
such pressure with steps to offset them
and protect against losing value.
At the other end of the spectrum,
strictly integrative or "value-creating"
tactics promise to create joint gains
through negotiations with others whose
objectives are not whoUy in conflict.
T his does not mean merely making
unrequited concessions; it is another
way of making oneself better off than
before the talks. At the outset, when
the chances of reaching a mutual-gains
deal are unclear, integrative players
often take steps to clear away some
haze. They may propose joint research
into a common problem; later, informal
discussions to brainstorm possible
solutions are sometimes held, on the
understanding that no one will be
bound by anything said in such settings.
Generall y this approach favors greater
openness with information.
One of the most potent tricks of
the trade is discovering opportuniti es
for exchanges of concessions that will
leave each side better off on bal ance.
Opportuniti es for such deals exist when
negoti ating parti es privately rank two
or more issues differently in priori ty.
For example, if A and B are negoti ating
about two iss ues, and if A pri vately cares
more about 1 and less about 2 whil e
B cares more about 2 than 1, then an
opportunity for joint gain exists.
Under such circumstances, if A will
compromise on 2 in return for B's
concessi on on 1, both will gain. But
making thi s type of discovery- when
all parti es have incentives to misrepre-
sent their true interests---;-requires that
negoti ators depart from firml y repeating
their offi cial bri efs, and instead ask one
another about actual prioriti es whil e
sharing information about the same.
Before choosing a strategy, then,
the planner needs a sound diagnosis of
the underlying situation, whi ch requires
asking whether the parti es' obj ectives are
compl etely inconsistent or at least partly
consistent with each other. Answering
this questi on accurately is no simpl e task,
though, given the normal incentives to
exaggerate or conceal true obj ectives.
A sensibl e place to start, then, is th e
use of market data to estimate other
countri es' obj ecti ve interests in th e
matter at hand. In monetary affairs,
is the country running a surplus or
a defi cit in its balance of payments; is its
currency under downward or upward
pressure? [n trade, does it export or import
the product or service in question?
The book di scusses a vari ety of
ways in whi ch market conditions shape
the process of negotiation. Such matters
help guide decisions not only about
the content of proposals but also about
tacti cs-for exampl e, who should be
included and excluded from a nego-
tiating coalition. But governments oft en
pl ace weight on intangibl e obj ectives
like maintaining good relati ons with
one another even when some of their
specifi c interests clash. Wise negoti ators
will be sensitive to these intangibl e
obj ectives and constraints as well .
Matching strategy to situation
Governments natura]jy gain the
most when they shrewdly match their
strategies to the situations they face. For
example, if parti es' obj ecti ves are entirely
inconsistent and cannot be changed, a
di stributive strategy is indi cated. But if
the parties' underl ying obj ectives are
partly consistent or subj ect to persuasion,
mixing integrative tacti cs into the strategy
may gain more (or lose less) than a strict
di stributive strategy, even when some
main obj ectives are in confli ct.
For exampl e, in 1999 members of
the WTO who accounted for the bulk
of world trade said they shared the
obj ective of launching a new round
of negoti ations. Yet during preparati ons
for their fa mous mini sterial conference
in Seattle they adhered overwhelmingly
to distributive tacti cs. The result was
an embarrassing and costly impasse.
The fifteen-nation Cairns group of
agri cultural exporters, for instance,
demanded one-way concessions
from those who protect and subsidize
farmi ng. Cairns insisted on nailing
down substantial gains in the agenda
itself, before the negoti ati on proper
had even begun. The group wanted the
EU and Japan to commit not only to
substantially liberalize agri culture-
which the latter accepted-but also to
bring agriculture under the same rules
as trade in other goods by the end of
this round. They demanded that the
EU concede that the negotiating goal
would be the elirnination of export
subsidies. Meanwhile many Cairns
members showed littl e enthusiasm
for the EU's pri ori ty proposals on
investment, competition, environment
and labor.
For its part , Brussels was adamant on
agriculture and also on including these
ambitious " new issues" for behind-the-
border regulation through the WTo.
The Europeans argued that a broad
agenda including the latter offered
chances for trading off issue areas where
priorities mi ght differ. They al so argued
that WTO agreements regulating nati ons'
domesti c poli cies would be benefi cial in
their own right. [f so, the EU strategy
could be considered partiall y integrative.
Many others, however, viewed these
new schemes as losses, not gains. Despite
widespread opposition in North as well
as South, th e EU held firm for these
demands through the last day in
Seattl e- and beyond.
Negotiators for the US, Japan,
Indi a, and other developing countri es
also held firm to their own vigorous
distri buti ve tactics right to the end of
the Seattl e meeting. The Clinton
admini stration insisted that the WTO
study how domesti c labor practices affect
trade, even though dozens of developing
countri es had decl ared for years that
thi s would be a deal-breaker; at the
same time Washington refused even to
di scuss certain issues of prime interest
to developing countries. Meanwhil e,
Indi a led a small but vocal group that
adva nced demands for renegoti ating
many of the WTO's rules to the
advantage of developing countri es
whil e offering no benefit for the
developed world.
This combination of strictl y
di stributive strategi es resulted in the
sacrifi ce of economic opportunities
that governments could have opened
for many of their businesses. [t also cost
their Organi zati on a serious loss of
credibility. But just two years later the
same governments tried again, with
both the EU and the US shifting from
stri ctl y di stributive to mixed strategies.
Other players reciprocated, and in Doha
they broke th e impasse and launched
the new round in November 2001.
What had changed? To begin with,
Pascal Lamy, chief negoti ator for the
EU, fell back from some of the more
ambiti ous terms he had been demanding
on the " new issues," indi cating that he
could settl e for weaker new rules on
investment and competition poli cy.
The EU and an informal coaliti on
working on competition poli cy agreed
that individual decisions by competiti on
authoriti es would not be subj ect to
WTO dispute settl ement, and suggested
they mi ght even settle for a pluril ateral
agreement from whi ch any WTO
member could opt out . A " Fri ends
of [nvestment " coalition led by Japan
and including the EU discussed an
investment agreement whose principl es
would not be binding except for sectors
that each government chose to offer on
a positive Ji st.
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On another front , the EU announced
a unilateral concession to the least
developed members, cutting import
duties to zero on all their exports except
arms. Lamy and his team also traveled
during the year to several regional
meetings of developing countri es to
woo them. He remained firm on
agri culture, however, and continued to
demand major concessions regarding
the environment, especi aLl y the recog-
nition of the so-call ed " precauti onary
principl e" that could perntit greater
restri cti ons against agri cultural imports.
[n Doha Lamy made additional
compronuses, accepting a deal with
little environment content and which
committed the EU to the eventual
elinunation of farm export subsidi es.
During 2001 the US negoti ating
strategy also became more mixed. The
new R epubli can administration dropped
Clinton's demand to discuss labor rights,
thus weakening the blocking coaljtion.
[n October, recognizing that a number
of developing countries were placing
heavy politi cal weight on the issue of
publi c health within the context of
the WTO agreement on inteLl ectual
property rights, chief US negoti ator
R obert ZoeLli ck offered two limited
concessi ons on that issue. After the
developing country coalition resisted
thi s attempt to spJjt them, Zoelli ck
feLl back still further in Doha on this
iss ue and another-anti-dumping
poli cy- where serious gaps remained,
in exchange for gains on other issues.
Given thi s leadership by the trade
superpowers, the nuddle and smaLl
trading powers reciprocated by falling
back quite substanti ally from th eir
opening positi ons as well . Developing
countri es accepted a new round that
some of them thought was premature,
and without much tangibl e gain on
agenda items they had said would be
criti cal for their assent. But the result was
that by late 2001, with strategies better
matched to the situation on the ground,
negotiators gained more than in 1999.
Adding domestic politics to the mix
In practi ce the situati on is al ways
more complex than trus bri ef sketch has
so far suggested. Thinking of countri es as
undivided wholes with onl y " national "
interests is a fine way to mi ss maj or
opportunities and barri ers to agreement.
Econonuc negotiators normall y work
in the presence of politi cal divisions
back home, and must therefore bargain
with constituents whil e talking to other
governments. These internal divi sions
often pose seri ous barri ers to inter-
national agreement. The path foll owed,
and the eventual gains or losses at the
internati onal level , al so depend on
domesti c political conditions and how
they are managed.
First, choices made during internal
bargaining can inj ect counterproductive
tacti cs into international talks. Earl y in
2002 George W Bush granted increased
protecti on to US steel producers, a move
that generated widespread protests and
contradi cted the President's own policy
of negoti ating lower trade barriers in
the world. At thi s time Bush lacked
authority from Congress to conduct
those international negoti ati ons in the
most efficient manner, so call ed "fast-track"
authority. Some legislators reportedly
demanded new steel protection as their
pri ce for granting that authority, while
others demanded increased subsidi es for
US farmers. Bush decided to grant both
demands, taking "two steps backward,"
as a means of gaining an authority that
was expected to help eventually to ratify
multilateral trade agreements that open
trade again. Congress did authori ze
fast-track authority that summer, by a
tiny margin .
Likewise at the end of the process,
domesti c constraints can limit the gains
that the nuxed- integrative strategy could
theoreti call y achieve. As discussed earlier,
dovetailing two countries' different
pri orities can create joint value. But
setting national pri oriti es impli es
downgrading some demands, and most
constituencies hate being sacrifi ced.
This can make it awkward for the nego-
tiator to engage in open logrolli ng with
her counterparts abroad, even if nati onal
interest mi ght so di ctate-unl ess the
process is kept secret. This is a reason for
attempted secrecy, and one reason why
trades of mutual concessions are often
delayed until a last-minute frenzy just
before a negotiating deadlin e. Whil e it
would be more effi cient to get these
trades on the tabl e earli er in the game, in
order to scrutini ze the costs and benefits
more accurately and to all ow time for
expl orati on of ways to improve j oint
gains even more, sometimes domesti c
politi cal conditi ons make thi s impossibl e.
Finally, the stri ct distributive
strategy also depends on certain domestic
politi cal conditi ons for its effectiveness.
For instance, impl ementing an econornic
threat will always be costly to some
interests in the threatening country,
and so negoti ation analysts always ask
whether the threatener is bluffi ng.
The credibi li ty of the threat depends
on domesti c political conditions in the
threatening country.
As a rule, the more domesti c pl ayers
there are withjn a threatening country
expressing oppositi on to impl ementing
their own negoti ator's threat, the less
credibility that threat will have in the
target country- and hence the small er
the concession the targeted country
will make, other things being equal.
This general proposition helps account
for the different outcomes when the
R eagan administration employed the
strict value-clainung strategy in two
trade episodes between 1985 and 1988.
A key explanation for the apparently
paradoxical outcome-with Washington
gaining more from the giant EC than
from Brazil-was thatWasrungton's
threat against Brazil was less credibl e
than that directed at Europe. And the
difference in credibility derived in large
measure from much greater domesti c
U.S. oppositi on to impl ementing the
threat in the Brazil case. Several of the
same U.S. computer firms that were
thought to be the benefi ciari es of
R eagan's strategy indi cated pri vately
to the Brazili ans that they did not
support carrying out the threat.
But the expansion of the Common
Agri cultural Poli cy to Spain drove
U.S. farmers into a unifi ed fury, and
very few US interests spoke out for
restraint in that sector.
Negoti ators for Brazil and Europe
monitored Ameri ca's domestic politi cs,
estimated the credibili ty of th eir
Ameri can counterpart 's threat, and
acted accordingly. The first Ameri can
threat fa il ed- for domesti c reasons-
to convince Brazili ans unambi guously
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RESEARCH BRIEF
that their alternative to a deal with the
US really had worsened very much. But
the second threat, coupled with apparent
unity in the US private sector, left no
doubrs in Europe that a high price would
be paid without substantial concessions.
Offsetting negotiator biases
Another key influence on outcomes
is the biases the negotiators bring to the
table. Some pre-conceived mental map is
of course essential in order to construct
interpretations of incoming data, which
reach the negotiator surrounded by
much noise. But familiar cognitive biases
can also lead to sub-optimal results. For
example, experimental studies document
that sellers tend to frame a transaction
as losing something they already own,
and they tend to price the object higher
than independent observers with the
same information. Many other studies
have confirmed partisan bias, such as a
tendency of partisans (absent debiasing
mechanisms) to over-value their own
concessions and under-value those of
counterparrs, compared with values
assigned by neutral observers having
all the same information. It is easy to
see how biases like these could impede
negotiated agreement, even when a
deal could benefit objective interests.
Thus the potential gains from bargain-
ing, regardless of the strategy employed,
increase to the degree that the negotiator
uses tactics to compensate for his or her
own biases and to take advantage of
others' biases.
A final comparison bears out thi s
point. In the late 1970s, the Mexican
government engaged in two bilateral
trade negotiations with the United States,
the first concerning natural gas and
the second vegetable exports. In the
first instance, an effort by Petr61eos
Mexicanos (PEMEX) to secure
Washington's agreement for large gas
exports ended in an impasse. In the
second case, Mexi co's representatives
persuaded Washington to settle a dispute
threatening its exports of vegetables,
mostly tomatoes. Competing Florida
growers had filed a complaint under the
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US anti-dumping statute. In the end,
Washington determined that Mexican
producers had not engaged in dumping
and did not impose any new duty.
Mexico's tomateros succeeded in keeping
the U.S. market open, thus evading a
loss that surely would have befallen them
had they not responded effectively to a
new threat.
Two key differences explain this
difference in outcomes. First, the market
circumstances had changed between the
two events, and the United States'
objective alternative to an agreement
with Mexico had worsened. The 1979
oi l crisis accelerated US inflation, which
added an argument against imposing
anti-dumping duties that would raise
prices further. And second, Mexico's
team in the first case fell victim to
several classic judgment biases. The
second Mexican negotiating team used
de-biasing tactics to a greater extent
and with greater effect, and added
partially integrative tactics to devise
a soluti on that met key White House
objectives.
POLICY IMPLI CATI ONS
Negotiati ons between governments
and international organi zations are
central to the management of the global
economy, and the economic and political
outcomes depend on how these official
negotiations are conducted. Running
through this book, whose ideas this
Briifhas only sampled, are practical
impli cations for economic negotiators
and those who direct them.
The most general lesson is that
sophisticated negotiation analysis will pay
off. This means usi ng some independent
checklist of diagnostic questions, like those
developed in this book, to determine
where the immediate case fits in the
known patterns of bargaining situations
and to help anticipate possible pitfalls.
This means negotiators should
determine the type of situation they face
before choosing a strategy, and they
should recall the full range of strategy
options, not only strict distributive
tactics, which dominated in the WTO
in 1999 but less so in 2001. At the same
time, a sophisticated analysis warns of
the opposite dilemma . Adding integrative
tactics to the mix inherently opens the
economic diplomat to expl oitation,
a different type of cost which must also
be guarded against.
Whatever strategy is used, the
international outcome will depend on
prevailing domestic political conditions
and how they are nunaged. It is common-
place to observe that politicians face
constituency pressures when negotiating
over international debt and trade, but
how constituents behave also depends
on how their leaders act toward them.
For instance, leaders can consider forms
of side payment to domestic constituents
that do the least harm to international
negotiations. They can avoid th e pitfall
of making an external threat or counter-
threat when they lack the domestic
support to carry it out. They can launch
international talks in order to create
incentives for special interests to accept
reforms at home. In addition, when
attempting to create joint value through
negotiation, part of the plan can include
tactics and proposals to build support
inside the domestic politics of partner
countries.
Finally, leaders should structure
negoti ations to help offset normal
judgment biases that can reduce the
gains. What we can best control in a
negotiation is our own decision. The
lead negoti ator can be asked to defend
her plans before internal meetings of
equals who play the role of deviJ's
advocate. Leaders can structure nego-
tiation teams so that some member has
the sole job of reporting on the other
parties' beliefs.
In sum, leaders should prepare their
future economic negotiators with training
not only in economics and the substan-
tive issues on the tabl e, but also in
negotiation itself.
John S. OdeLL is Projessor, School
oj In temational Relations, University oj
Southern California.
Negotiating the World COI101"I"I)' is
available from Cornell University Press
at www.comellpress.cornell .edu
RESEARCH BRIEFS OF THE EUROPEAN UNION CENTER OF CALIFORNIA
Number 1, June 1999, The Geography cif Money, Benjamin J. Cohen
Number 2, September 2000, The Myth of the Global Corporation, LouisW. Pauly
Number 3, December 2000, Fellees and Neighbors:T1le Political Geography of Immigration Control,Jeannette Money
Number 4,June 2001, Markets and Moral Regulation: Cultural Change and the Single Market, Paulette Kurzer
Number 5, September 2001, Reshaping National Intelligence for an Age ~ hiformation, Gregory F. Treverton
Number 6,June 2002, Constituting Federal Sovereignty, Lesli e Friedman Goldstein
The opini ons expressed in Research Briefs are those of the authors, and do not necessaril y represent
the views of the European Union Center of California or its affiliates.
For more information, please contact
EUROPEAN UNION CENTER OF CALIFORNIA
SCRIPPS COLLEGE
1030 COLUMBIA AVENUE
CLAREMONT, CALIFORNIA 91711- 3948
TEL: (909) 607-8103 FAX: (909) 607-1192
e-mai l: eucenter@scrippscol. edu
www.eucenter.scrippscol. edu
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