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Negotiations and its importance

Negotiations are increasingly becoming important for everyone that it is being perceived by many as an essential skill. Each individual is a negotiator and negotiating is an aspect of each one’s life. Negotiation is a two way communication intended to reach an agreement with the other side on interests that are mutually shared or opposed. Negotiations are evident from the developments occurring all around us.

One negotiates with a seller on the price of his house, lawyers negotiate to finalize a compromise deal subsequent to an accident, or oil companies negotiating a deal to finalize joint ventures; the outcomes of all such negotiations are based on the effectiveness of their negotiation. Probably everyone negotiates on something each day. It might be trivial issues associated to borrowing, repaying, bargaining in terms of time, costs or effort. One might negotiate with his or her spouse on where to go for dinner or even negotiate with the child on when the kid would go to sleep.

Instances of negotiations like negotiating a pay hike with employer, debating a policy in the legislature or even finalizing financial agreements, the ability to get more from the opponent is perhaps a crucial skill. Sometimes the stakes are high on the outcome of the negotiations like when the Secretary of State for US and the former Soviet Union negotiated on reducing nuclear arms. It is important for negotiators to be attentive to what is being said by the other party. While talking, they must also concentrate on being understood, rather than just putting across a point.

Dealing with emotions is very important in negotiating. Emotions should be separated from facts, when sorting out problems. Difficult decisions cannot be overcome in a single meeting, as choices and information available for taking decisions may not be sufficient or satisfactory. To arrive at a satisfactory decision, it is important for every member to negotiate, keeping in mind their own interests and that of the group’s. One should understand the rationale behind each other’s stand; and determine factors that are in agreement or in conflict with their own.

Negotiations may be too common, but however not easy. On most occasions people find themselves dissatisfied and worn out, or sometimes even facing a dilemma. Generally there are two types of negotiators, the soft negotiator and the hard negotiator. The soft negotiator strives to avoid personal conflicts and therefore makes concession to reach a mutually agreed solution, often ending up exploited. The hard negotiator on the other hand believes in taking extremely strong positions to hold on to win, in the course of which he finds himself exhausted and even harms his relationship with the negotiating side.

Although every negotiation is different, the basic elements are the same for all. The ideal method of negotiation is probably that laid down by the Harvard Negotiation Project. The Project suggests that issues must be negotiated based on their merit and not focused on the process of negotiation or what the other party would insist. Principled negotiations attempts to look for mutual gains and whenever there is a conflict of interests, one should insist that the outcome be based on any fair and established standards, rather than each other’s stand.

Without resorting to tricks and adopting postures, the method of principled negotiations helps one to get what one is entitled to, while being decent. Although agreements are formed on the basis of finalized negotiations, there are alternatives to negotiated agreements too, like the BATNA. BATNA is the acronym for ‘Best Alternative To a Negotiated Agreement’. It is the standard against which any proposed agreement should be evaluated. BATNA is not directed at achieving the objectives of a negotiation but rather on the course it would take with regard to unfolding situations.

Often, the negotiating party cannot know the prospects of developments with regard to a situation. Sometimes when negotiating an agreement the negotiating party would not want to take huge risks, while at the same time it wouldn’t want good opportunities to slip away. Thus they adopt BATNA to understand the alternatives and options available to them, based on which agreement proposals could be considered. For instance when one is rushing to catch his flight, he may succeed after crossing several hurdles or making compromises, only to later realize that these were unnecessary.

However he may alternatively weigh the costs and benefits of rushing and making it, against the costs and loss of catching the next flight. Having weighed the pros and cons of both options, he can now decide whether to rush or go patiently in the subsequent flight. To protect against the bottom line outcome, BATNA establishes the worst outcome that would be acceptable. The BATNA safeguards the negotiating parties from the do or die arrangements associated with negotiations. BATNA is more of insurance to the negotiating party, giving more options and flexibility to accommodate and move according to the developing situations.

While the bottom line protects from disadvantageous and poor agreements, it always facilitates proposing or agreeing to favorable solutions. Sometimes having a strong BATNA or a week BATNA can itself influence the progress of a negotiation. It is always advantageous for a negotiator to reveal a strong BATNA and hide it when it is week. When the BATNA is strong the negotiator has several options, which when the opponent party realizes this, would put up a very flexible and compromising stand, for the fear the party might reject it.

However when a week BATNA is revealed, the opponent party would know the compulsions and the lack of other options available with the negotiating party, and therefore expect to succumb to its terms. Having a week BATNA and keeping it undisclosed, while being able to understand that the opponent party too has a week BATNA, can produce a totally different situation among equals. One mistake most negotiators make is a psychological one by seeing alternatives in the aggregate. They see the available alternatives in case an agreement is not reached, in a distorted way.

When there are many happy alternatives, the negotiator may be psychologically carried away by the sum of all alternatives rather than anyone or the best among them. Similarly in the case of several unhappy alternatives, the sum of all these alternatives give the negotiator a poor picture of the consequences that lay if the negotiations fail. Such distorted assessments of the available alternatives influence an individual’s negotiation and its results. One of the most complex negotiation and decision making process is observed in the policy making of the governments.

Political negotiations are difficult due to the number of diverge views and affiliation of the politicians to the various groups they mentor and their party ideologies. There is much debate on the effects of policies to be implemented, with politicians bringing in divergent views either in support or against till the final vote is taken. One such trade agreement in the US which saw heated debate not only in the House and Senate, but also among the public is the North American Free Trade Agreement (NAFTA).

NAFTA is an agreement on trade, negotiated between US, Canada and Mexico in 1993. NAFTA is undisputedly among the most debated and negotiated trade agreements effected in recent US history. Democrats and Republicans found themselves differing with each other and among themselves. There were several groups and lobbyists either supporting or opposing the agreement. Among those favoring the agreement were US based export establishments and those with political and economic interests in Mexico, who together spent an estimated $25 million lobbying in the US to get NAFTA approval.

However among those who opposed it were the former presidential candidate Ross Perot and industry groupings representing sectors that stood to lose from the agreement. The opposing camp too took up the political battle and spent considerably to defeat NAFTA. The idea of free trade was first considered in the discussions between President George Bush and his Mexican counterpart Carlos Salinas in 1990. With negotiations in 1991 and subsequent signing in 1992, it was the new President Bill Clinton who submitted the agreement for approval.

As the earlier president had sought the fast track way, Clinton made no changes in the agreement but added side agreements dealing with environmental and labor issues. The Bill was passed in the House on November 17 and three days later in the Senate. NAFTA is a fifteen pound document which is very detailed and complex, containing specific obligations on goods, financial services, investment, intellectual property rights etc. The five volume agreement needed to be very detailed as no back up legislation was planned. The combined economic strengths of Canada and Mexico is only about one-tenth of that of US.

A treaty between a dominant economy and two dependent ones, the driving force behind NAFTA is the business and commercial enterprises rather than political interests. The NAFTA differs considerably from the European Union as there are no political, social and security aspects. There are also no institutions to oversee the functioning of the NAFTA. Since the economic cooperation is not reflected by any further political unity, establishment of a regional bureaucracy wasn’t considered necessary. Economy and commerce are the basis for all other sectors; therefore commercial agreements should not be made independent of other sectors.

When agreements are made between unequal partners on equal terms, the agreements should address the needs of all sectors and its development. Even if it doesn’t address them directly, there must at least be a provision to ensure that the interests of the effected sectors would be considered. Through NAFTA, the government intended to remove most restrictions on foreign investments and many other tariffs and non-tariff structures. The cooperation in trade is directed to achieving a free market without intending to bring a free movement of labor like that of the European Union.

It was argued that commercial markets and labor have historically been together and therefore approaching them differently is bound be induce major realignments and social upsets. A view endorsing the NAFTA particularly with respect to the financial sectors has been that the US financial industry is comparatively strong in service sectors of finance and banking. It was believed that when the financial sectors are liberalized, US banks and financial companies can contribute to the development of the economies of Mexico and Canada.

However ironically, the Texas Consortium on Free Trade too supported the idea of liberalization but for opposing reasons. The Texas Consortium recommended free trade with Mexico on the grounds that Texas based banks and financial institutions need a level playing ground to compete effectively with their Mexican counterparts. This was because Mexican banks were getting a national attention in the US, due to their entry into Texas border areas, through acquisitions. The systems and practices followed in the three countries needed to be abandoned to meet the new free trade market requirements.

This required changes to the domestic system, even if they were progressing on a growth path. Established and successful systems were redone on new norms. For instance in Canada, the financial services sector is divided between the federal and state, which required to be broken down directly to an international level. For the Canadian negotiators, financial services were not a priority while it was a priority for the Americans. The Americans were too emphatic on increased access to the banking sectors, while acknowledging that Canadian financial sector offered more protection compared to the American one.

Wanting access to the Canadian banking system even while acknowledging the weakness in the US banking, only opens doors for dilution of Canadian practices. Systems including banking should have been opened to free trade only when the standards and policies of all participating countries are compatible. The finalizing of NAFTA involved much negotiation, even on the lines of BATNA. Countries demanded more on what they are likely to gain and compromised less on what they expected to lose. The crux of NAFTA as seen by most is the development of the MNCs.

Many saw NAFTA as an excuse for the growth of MNCs. The MNCs now took to expanding their market share compared to their European and Japanese rivals. The MNCs will now be able to shift to lower wage-based production regions like Mexico in order to grow bigger through mergers and acquisitions, apart from serving larger markets. Many note that MNCs are governed by clear and transparent rules and regulations to help them protect their investors’ rights, and that there are appropriate measures to ensure their proper functioning. They see NAFTA as an opportunity for development of workers in Mexico.

However NAFTA would only enable MNCs to grow larger at an unprecedented pace, carrying with them their influence and interests. MNCs more often ignore issues, like environment, ethics and even law in their efforts to make profits. Big companies most often strive to get favorable conditions by manipulating trade pacts and agreements to get larger profits using cheap labor. Paying the work force is perhaps the biggest factor in their productions costs for the corporations. International agreements for the MNCs are already increasingly directed at cheap labor.

Whenever a nation takes steps to improve their worker’s conditions, which obviously mean more costs to companies, the companies pack up. They hunt for places with cheap labor and lesser restrictions. Improving the working conditions of its labor force is not in the interests of the corporations. The offer of Mexico to the MNCs through NAFTA carries the prospect of further reducing wages in Mexico. NAFTA also has provisions for MNCs to sue host governments, through the World Bank’s International Center for Settlement of Investment Disputes.

It was felt by many that MNCs should not be given this right to sue governments, just because they are not allowed to make profits in ways that compromise the interests of the society. A systematic elimination of barriers like tariffs and non-tariffs is expected to be implemented with NAFTA. Tariffs on goods produced in North America are expected to be removed by 15 years for over 9000 different type of goods, while protecting the property rights of companies making investments in any of the three countries. NAFTA also gives special protection to certain domestic producers like Mexican oil and gas industry and the US shipping industry.

When selected sectors in certain countries are given special protection, it sets of a cycle of manipulated economy. The special protection is converted to economic benefits which are further passed to its suppliers and clients. However such translated benefits may not be available to competitive suppliers and clients, servicing other sectors. The debate on NAFTA was mainly centered on three issues namely its possible effects on employment in the US, its effect on environment on both sides of the US-Mexican border and Mexican immigration into US.

The opponents of NAFTA saw it as symbol appropriate for everything they despised in American politics. The working of executive secrecy, power of foreign lobbyists in Washington, disturbing domestic affairs with international obligations and the general disregard of economic hardships by behind the scene policy drafters. They saw Mexico being projected as a sign of new growth and progress for the US, to beat global competition, through low cost labor. It is expected that Mexican labor would not be looking to the US, given the economic development of Mexico and the employment opportunities brought by NAFTA.

The changes that NAFTA could possibly bring to the employment scenario in the US were perhaps the most debated aspect of the NAFTA. The topic dominated in all Senate Finance Committee hearings. It was widely perceived and accepted that NAFTA could lead to job loss in some sectors while creating new ones in other sectors. This general perception should be considered important, since even if the number of jobs created by NAFTA could be much higher than that lost by it, the government had a responsibility of addressing the concerns of those to be rendered jobless by NAFTA.

Committee members, the public and administration had varied opinions on the future of employment in US under NAFTA. Senator Donald Riegle Jr. , in his statement to the Senate Finance Committeee hearings on September 8, 1992, said that the main export US could ship to Mexico under NAFTA would be US jobs. Thomas R. Donahue of the AFL-CIO also noted in his statement that NAFTA when adopted would seriously harm US economy, leading to loss of several thousand jobs and cause a decline in the country’s living standards.

The US Trade Representative Carla Hills, the administration witness stuck to her views expressed in 1992 that the agreement would produce more jobs with better pay for the the Americans. She expressed her confidence by saying that the 600,000 Americans employed in jobs associated with exports to Mexico, would soon increase to 1 million in 1995 due to NAFTA. When NAFTA was expected to develop the economy of Mexico by increasing employment there, the governments’ version that employment would increase in US and that too with increased pay doesn’t seem eligible.

The employment aspect of NAFTA raises many ethical questions. The question raised is whether the MNCs are justified in moving their production bases to Mexico for cost advantage. Apart from denying work to the people of US, getting the work done by low wage labor, with reduced concern for their health and welfare is indeed debatable. The working conditions and mandatory regulations prevailing at low wage countries can be easily met or even done away with, compared to those actually required and stipulated by the developed countries.

Another fiercely debated topic was the anticipated effects on environment due to NAFTA. There were two main arguments with regard to this view. One was that Mexico only had lax environmental law enforcement which would only worsen as a result of increased trade with the US, particularly along the US Mexican border. Another argument was that a free trade agreement like the NAFTA with Mexico would encourage American manufacturers to relocate to Mexico, to escape stricter environmental standards at home.

Environmentalists were however split on their views with groups like the Greenpeace, Sierra Club and the Friends of the Earth being vehemently against the agreement while others like the World Wildlife Fund, National Wildlife Federation, and the National Audubon Society backing the agreement. NAFTA also got the approval of the US Environmental Protection Agency which saw NAFTA as the greenest trade agreement ever finalized. Although NAFTA became the first commercial agreement to incorporate environmental protection measures, the absence of an exclusive environmental enforcement bureaucracy, pitied environmentalists against industry.

NAFTA addresses environmental concerns with regard to both plant and animal health. Each country was authorized to formulate its own levels of protection with respect to sanitary and phytosanitary necessities. Countries were entitled to stop the import of products which failed to meet its standards. By linking trade with environment, NAFTA saw economists and environmentalists against each other, with the economists’ saying that environmental regulations can be implemented once the Mexican economy takes off and prosperity is evident.

However environmentalists wanted development and environmental regulations to go hand in hand. Their stand was that prosperity may or may not be achieved by the commercial dealings subsequent to production, but loss to environment is evident from the early production stages itself. The economic activity after production, its success or failure, cannot be correlated to environmental concerns. The third topic widely debated was the effect on Mexican immigration into the US, which NAFTA would produce.

One of the supporting arguments for NAFTA in this regard is the fact that free trade with Mexico would contribute to the expansion of its economy. The growth of Mexican economy was obviously expected to end the influx of Mexicans into the US. This view was supported by the US Senator McCain who said that maquiladoras have generated several thousands of jobs for the Mexicans, who would otherwise be looking for jobs in the US. Although it was certain that jobs would come to Mexico, it was also sure that wages would be less compared to that in the US.

Hence this wouldn’t have deterred immigrants from moving to US, although it would reduce the number of immigrants. It was widely expected that NAFTA would be very beneficial to all the countries involved, since free trade would start reallocation of resources between industries. Realignment of infrastructure and process throughout the NAFTA territory would lead to improved efficiency and rationalize product availability and costs. However such realignment requires considerable costs and time, though benefits may be worth the costs of the realignment.

Also the realignment process can upset local economy. One of the most debatable, agreeable and disagreeable international agreements, NAFTA stood out at least for its debate and negotiations. NAFTA and its implementation were indeed controversial from its very basics. When implemented, people soon learnt with time what had been taken away or given to them by their leaders, as a result of their negotiations for NAFTA. With unfolding events and performance metrics, the realities of NAFTA are consistently compared to the expectations it held when it was negotiated.

REFERENCES Leo Kahane (1996) Congressional voting patterns on NAFTA: an empirical analysis – North American Free Trade Agreement. The American Journal of Economics and Sociology. October 1996. http://findarticles. com/p/articles/mi_m0254/is_n4_v55/ai_18910967/pg_1? tag=artBody;col1 Roger Fisher, William Ury and Bruce Patton (1991) Getting to Yes. Houghton Mifflin Books, http://books. google. com/books? id=sjH3emOkC1MC&dq=ury+getting+to+yes&printsec=frontcover&source=bl&ots=3jK7I8Hw0c&sig=TC-1Rh9tABycTgB1ibDrPobhjwE&hl=en&sa=X&oi=book_result&resnum=3&ct=result#PPA6,M1

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