International Negotiations: the ASEAN-AustraliaNew Zealand Free Trade Agreement - Case Study Example

International negotiations: the ASEAN-Australia–New Zealand Free Trade Agreement Name: Course: Institution: Instructor: Date: Introduction The issues addressed in this paper relate to the complexities involved in international trade negotiations. In particular, the paper addresses the ASEAN-Australia–New Zealand Free Trade Agreement which commenced on January 1st 2010. The research will lay specific interest on how the lead Australian negotiator, Department of Foreign Affairs and Trade (DFAT) through the Trade Negotiating Committee, employed negotiation tactics to get the best deal for Australia and its negotiation partners. Such negotiations are highlights of this era of globalization. It is recognized that as the world becomes more and more globalised and technology advances, the considerations and the number of stakeholders in any trade agreement increases. The characteristic of the negotiations as discussed here are loosely applicable in a number of negotiation scenarios depending on the context. The research will employ theory and relevant literature on the current case study to create a connection between practice and theory in the field of international negotiations. Overview of theory The core idea of negotiations is to get what is perceived fair for all parties or fairest to oneself. Lewicki et al (2010) indicates that the fundamentals of negotiations remain the same at personal, diplomatic, and corporate levels. For this reason, the same principles are applied where the benefits to the parties are the main focus. There are two key functions of negotiations: (1) to create something new that neither party could do on his or her own, (2) to resolve a problem or dispute between the parties. Fisher and Ury (2011) introduce the notion of principled negotiation which they describe as a method by which one “obtains what you are entitled to and still be decent’ (p. xiv). Negotiations are necessary where the attempts to gain what one is entitled are faced with conflict of interest. For this sole reason, negotiations are all about reaching a comprise where there is give and take. Thus negotiations are prompted by interdependence between two or more parties. Free trade agreements provides for the movement of goods and services with no or minimal tariffs. With the rise of globalization and rise in international trade, tariffs on exports and imports form a huge percentage of many governments’ revenue sources. Bilateral trade agreements thus involve governments applying special tariff rates for the movement of goods across their bodies. In essence the involved governments lose revenue in form of tariffs that could have been charged on imports but at the same time benefit from waived tariffs on their exports to the trading partner (Fisher & Ury 2011). To ensure fairness in bilateral FTA’s, the volume of trade between the partners must be balanced. Lewicki et al (2010) indicates that in failing to consider all the issues during negotiations, one party might be trapped. The authors offer a number of lessons for negotiators to avoid entrapment. Cultural differences Negotiators from different cultures or countries use different negotiation and communication strategies in handling negotiations. Such strategies are employed differently when negotiating interculturally from when negotiating cross-culturally. How both parties understand this and the impact that such differences in negotiation and communication patterns have, enhances understanding and determines bargaining power of all parties. Furthermore, the cultural differences influence how the individual negotiators define negotiation, how negotiators are chosen, protocol followed, and risk aversiveness. These issues are better covered under Hofstedes cultural dimensions (Lewicki et al 2010). Entrapment in negotiations Entrapment is a very potent threat to negotiations. It refers to the wiliness to take risks to avert further losses. However, this can be avoided in negotiations through various ways as suggested by Zartman and Faure (2005). The first lesson to avoid entrapment is ensuring that the entities involved in the negotiations have a clear mandate from those who have the legitimate power to issue it, and make sure that internal information flows and communication in all directions is transparent and effective. This will enable the negotiating entities to have a clearer scope of the whole issue on the table. Communication and awareness of the entity’s position in relation to the proposed negotiations will allow the entity to push for a beneficial agreement that will improve his status after the agreement. The second lesson is having a clear realistic perception of the strength of the other party and develops an overall strategy and set deadlines for the agreement. The strengths of the other party should be considered not only about their capabilities and strengths in their field but also in their negotiation abilities. Lesson three is making sure that the negotiator counter checks all assumptions about the agreement and relationships with the other party in order to create a clear working relationship to avoid becoming too close or creating an opportunity for emotional blackmail. The fourth lesson is that all stakeholders and especially those in power are well represented in the negotiation table where their priorities are also well represented by the negotiating team. Where organizations are involved, all departments must be well represented in the negotiation table (Zartman & Faure 2005). Power differences In spite of whatever authority structure is pushing for negotiation, power differences between the two have major influences on the negotiations. Brown and Stern (2005) indicate that fairness in global trade negotiations is not a relevant issue. They argue that some forces in form of powerful nations and multinational corporations have dominated globalization to an extent that they bully small players to accept their terms of agreement. The authors cite the ancient case between the powerful Athenians and weaker Melians who were calling for affair negotiations in sharing disputing territory. On the request to be fair, the Athenians said “"...right, as the world goes, is only a question between equals in power, while the strong do what they can and the weak suffer what they must” (Brown & Stern, p. 1). The case of equals negotiating with equals has locked out several developing and underdeveloped countries from fair participation the global trade (Zartman & Faure 2005). This calls for a comparative analysis on economic and possibly military grounds when nations seek to engage in international trade agreements. Negotiation laws under GATT/WTO Negotiations must be conducted within a set framework of rules. For international trade negotiations, the world trade organization (WTO) and the General Agreement on Tariffs and Trade (GATT) provide the framework for which negotiators work with. Three key areas that the WTO/GATT are most effective in legislation is protection of intellectual property, environmental protection and the rule of most favored nation (MFN) (Bagwell & Staiger 2005). The GATT, which was formed earlier dealt in trade of goods and services only leaving the issue of intellectual property rights open to abuse. WTO on the other hand brought about laws on intellectual property rights keen on protecting the abuse of intellectual property rights in foreign countries. This is because a country’s individual laws on intellectual property rights cannot be enforced or implemented in another country as part of trade agreement. Therefore, WTO bridges the gap in laws in multilateral or bilateral trade. The law on environment a policy is effected under the UN Conventions of climate change. It seeks to enforce order in the trade of goods involving environmentally harmful goods such as radioactive materials. The law of most favoured nation stipulates that all member nations of WTO shall be treated as equal partners. However, there are certain exceptions to this rule especially where less developed countries are involved. Under this law also, each member country shall offer every other member equal access to its markets on non discriminatory terms. In some special circumstances the rule on MFN is relaxed. In some cases, countries are allowed to impose higher than normal MFN rates on products from certain countries. In other cases, a lower than rate than normal MFN rate may be imposed on goods and services from a particular country. These are termed as tariff preferences and are put in place in order o encourage or discourage exports from a given country. Under this rule also, countries are allowed to impose total embargos on other countries for a variety of reason. For instance countries such as Syria, Iran, and North Korea are faced with trade embargos on accusations of sponsoring terrorism. The rule of reciprocity and non discrimination as a key structure of GATT/WTO faces opposition from several quarters. Proponents of globalization have opposed regional or bloc trading as they pose the risk of forming regional protectionism polices as opposed to fostering free trade (Schaffer, Agusti, Earle 2008). Furthermore, regional trade blocs pose threats to non member nations (Crump 2006). However, the plight of non member countries is protected from abuse as long as the laws of reciprocity and non-discrimination among members is observed (Bagwelll & Staiger 2005). The opposition to regional blocs is also based on the possibility of bilateral opportunism. This involves the case where member countries of a regional trading bloc may enter into future international trade agreements with other countries where the interests of the previous bloc are not protected. In such a case, the GATT/WTO stipulates that bilateral opportunism, which pertains to members seeking additional agreements with members of non members to circumvent a requirement, violates the terms of international trade agreements. Case study- ASEAN, Australia, New Zealand free Trade Agreement The ASEAN, Australia, and New Zealand for a Free Trade Agreement began operations in 2010 after the 12 members countries concluded their negotiations which had begun early in 2005. The agreement was to cover trade between ten ASEAN member countries (Brunei, Burma, Cambodia, Indonesia, Laos, Malaysia, Singapore, Thailand, the Philippines and Vietnam), Australia and New Zealand where Australia and New Zealand negotiated jointly. Given that the ASEAN countries provided a combined population of 570 million people, Australia and New Zealand would be opened up to new markets for their exports. The preliminary studies also indicated that Australia would benefit by an additional US$19.1 billion injected into the Australian economy with New Zealand getting a further US$3.4 billion (Mugliston, 2009). O’malley (2009) observes that around 20 000 Australian companies do business with ASEAN member countries. The Commonwealth government of Australia holds the ultimate authority in any international trade negotiations and agreements involving Australia. This is enshrined in section 61 of the constitution that bestows executive powers on the commonwealth government. Treaty making and trade agreements, though widely discussed in parliament is the role of the executive. The commonwealth government however does not make decisions unilaterally but rather consults widely all major stakeholders. In the current case, among the chief stakeholders that the government, through the Minister for Trade and DFAT engaged are the state and territory governments. Implementation of such agreements also falls within the jurisdiction of the commonwealth government as per the World Trade Organization provisions. Still, this may require correspondence and cooperation from state and territory governments. This includes other ministries and government departments (Mugliston, 2009). The negotiations carried out by a team from DFAT created a plan for the negotiations. The negotiations for the planning of the agreements were made in light of the other international trade agreements that Australia is a signatory. For instance, before, the current FTA was signed, Australia already had other existing bilateral FTA with countries such as New Zealand, Singapore, Thailand, the United States and Chile. Therefore, the planning for the AANZFTA had more shareholders in the names of these countries that had FTA with Australia and others. The planning for the negotiations by the DFAT was organized into five major phases; (1) feasibility assessment; 2) decision to launch negotiations; 3) substantive negotiations; 4) conclusion of negotiations and legal verification; and 5) Ministerial signing and parliamentary scrutiny (Mugliston, 2009). Consultations by the government involved economists, private consultants and the political class at different levels before the actual negotiations began. The Regulation Impact Statement (RIS) team prepares a report that is presented to the cabinet for further analysis. The report analyzed the projected growth curves of all member countries and their political stability. The study also comprehensively assessed the types of goods that the country exported and imported. This was critical in understanding the market potential of each member country and cost benefit analysis tariff reduction or exemption. With the approval of the cabinet and the parliament, a Trade Negotiating Committee (TNC) was established to carry on negotiations. DFAT acknowledged the influence that cultural difference of the negotiators had on the negotiations. For this reason, some members of the TNC were from foreign DFAT offices. This was important in that such individuals had experienced foreign culture of given countries where they were posted and thus had a better grasp of the negotiators bargaining techniques and communication patterns. Other than that, using Australian DFAT expatriates working in ASEAN countries eliminated over-reliance on interpreters thereby minimizing chances of misunderstandings and misinterpretations. Although Australia and New Zealand formed one team on the negotiating table, each team held separate bilateral negotiations with each ASEAN-member nation. This was critical in ensuring reciprocity and non-discrimination. Each country presented to Australia its commerce potential in terms of rules pertaining to FDI, intellectual property laws, taxation, and tariffs among others. Countries were thus required to come to individual terms on how each country was to benefit from the other as opposed to perceiving ASEAN as a single homogenous unit. Individual negotiating parties agreed on the timeframes on which to implement commitments of the agreements. This is a critical ideal of trade agreements. In some cases, some trade agreements, some parties bargain for extended time in which to implement commitments as they handle internal issues such as laws. In some cases, the rule of MFN operates under time frames. There was extensive bargaining on parts of tariffs for Australia and New Zealand. The two countries had relatively lower tariffs prior to the negotiations compared to their ASEAN counterparts except for Singapore. ASEAN members were negotiating for some tariffs on imports to be retained in order to protect their local industries and also ensure sustained government revenue. Australia and New Zealand on the other hand were pushing for elimination or minimization of the tariffs close to zero. Countries such as Burma even proposed an extended deadline within which to implement the agreement to allow its local industries to build capacity and steady up to face foreign competition. All these proposed deals were bargained to acceptable standards mutually beneficial to all. Conclusion While the magnitude of the AANZFTA negotiations is big, the principles of negotiations are still retained. From the above research and subsequent case study discussion, there are obvious links in how theory on negotiations can be applied at different levels. While the information on the actual composition of the members if the negotiating team, it can be deduced that the government consulted extensively and widely on the issue. Furthermore, factors such as the cultural background of the other negotiating parties were included with the inclusion of foreign DFAT officials. Future research into this topic will require a case study of smaller magnitude that will allow closer perusal of the individual members of the negating teams to ascertain their negotiating and communicating skills among other factors. Recommendations Given the cultural distance between Australian and some of the ASEAN members, it is important to give culture more credence in trade negotiations. Lewicki et al (2010) cites Weiss who says that a better understating of the other party’s culture gives a negotiator an upper hand in that he can anticipate reactions and responses during negotiations. DFAT should have included professional negotiators in the actual TNC rather than relegating professional negotiators to consultancy roles. This is very important in cases where negotiations have stalled which makes professional negotiators very handy in restarting communication between parties and also in neutralizing the mood (Bagwell & Staiger 2005). It is recommended that the government of Australia, through DFAT should make more information pertaining to such negotiations more readily available to students and scholars for academic purposes only. This will give students enough practical materials needed to develop competent future negotiators. References Bagwell, K. & Staiger, R. 2005. Multilateral trade negotiations, bilateral opportunism and the rules of GATT/WTO Journal of International Economics 67, 268– 294 Brown, A. & Stern, R. 2005. Concepts of fairness in the global trading system. Research seminar in international economics. Gerald R. Ford School of Public Policy, The University of Michigan. Discussion Paper No. 544 Crump, L. 2006. Global Trade policy development in a two-track system. Journal of International Economic Law, 9(2), 487–510. doi:10.1093/jiel/jgl005 Fisher, R. & Ury, W. 2011. Getting to yes: negotiating agreement without giving in. New York: Penguin Group Lewicki, R.J., Saunders, D. and Minton. J. 2010. Essentials of negotiation 2nd Edition. New York: McGraw-Hill/Irwin Mugliston, M. 2009. Negotiating the ASEAN-Australia–New Zealand Free Trade Agreement. Paper submitted to the Intergovernmental Relations 2009 Conference - A Practical Approach in a Changing Landscape Session: External Intergovernmental Relations O’Malley, S. (2009). Aussie companies to do it easier in Asia. The Sydney Morning Herald. http://news.smh.com.au/breaking-news-business/aussie-companies-to-do-it-easier-in-asia-20090227-8kcw.html Schaffer, R., Agusti, F. & Earle, B. International business law and its environment. London: Cengage Learning Zartman, I. W. & Faure, G. O. 2005. Escalation and negotiation in international conflicts London: Cambridge University Press Read More