New Series: F'n Trade Negotiations - How do they work? (Part 1)

The great public intellectual Shaggy 2 Dope of Insane Clown Posse famously called on us to ponder "Fuckin' Magnets, how do they work?" 

Like the physics behind magnets, the inner workings of trade negotiations remain a mystery to many, even those outside the Juggalo community. Where trade negotiations are different is there are actually comparatively few accessible explainers on how they work in practice, what goes on and how negotiators approach them. 

Welcome to this new series on how a trade negotiation works.

If you're new here, my name is Dmitry Grozoubinski and at Trade Explained I try to use my modest experience on the front lines of trade policy to accessibly explain what's behind the headlines you're reading. I also make trade puns, and apparently dated pop-culture references. 

New Series: F'n Trade Negotiations - How do they work?

As I write this, trade headlines abound. The NAFTA negotiations are in a state of flux, the UK is fiercely debating what kind of Free Trade Agreements it can expect to have after Brexit and negotiators are working feverishly to finalize the RCEP

Yet for all the interest and passionate debate on trade negotiations, few truly understand how they work in practice. This series will try to shed some light on this often opaque world, where grown men and women spend hours debating where a comma should go only to eventually have someone announce it feels like more of a semi-colon sentence. 

This series will cover three broad and interlinked topic areas:

  1. The 'mechanics' of trade negotiations. Who are the players? What is it like in the room? Whose job is it to bring biscuits? 
  2. The 'tactics' of trade negotiations. How do Chief Negotiators categorize interests? What are some different negotiation approaches? What is the sleep deprivation threshold to earn some juicy concessions? 
  3. The 'politics' of trade negotiations. What are the interests and motivations of the key players? Who has their ear? What is a 'win' for them and what is a 'loss?' 

Part 1 - A Trade Negotiation Team

Every country approaches trade negotiations differently, but many negotiating teams will resemble a variation of the chart below:

A model trade negotiation team, with the agriculture sub-team expanded. 

A model trade negotiation team, with the agriculture sub-team expanded. 

The exact details of this structure will vary from country to country and even from negotiation to negotiation, but the roles played by each 'tier' of this hierarchy will generally fall along similar lines. 

In future posts in this series, I will deep dive on each of these tiers to discuss them in detail. In this introductory post however, I will provide just a brief overview. 

Disclaimer: I have heavily truncated the above diagram, especially with regard to the number of sub-themes like agriculture and industrials. The chart is meant to provide a snapshot not an exhaustive diagram. 

If you are a trade negotiator and I have left out your sector, I am sorry. It's not because I don't love my e-commerce or maritime transport brethren.  

Tier 1: Leader and Cabinet

The decision to launch a trade negotiation is generally made by the full cabinet, with the approval of the country's head of government (Prime Minister, President, Emperor etc.) Whom to negotiate a trade deal with and when is a decision about far more than trade, so Ministers covering Foreign Affairs, Defense, Law Enforcement weigh in. 

Generally speaking, having launched a trade agreement this Tier will take a more passive role until a deal has been completed and requires review. 

On rare occasions, leaders may be asked to intercede directly at a critical point in the process by negotiating directly with their counterparts on a particularly intractable disagreement. 

Particularly high profile negotiations can change the above calculus, with significantly increased engagement from leaders and relevant cabinet officials throughout the negotiations. 

Some leaders take a far more active role. On Twitter. Results so far: Mixed. 

Tier 2: Trade Minister

The Minister responsible for trade is the senior-most figure actively engaged in a trade negotiation. Before launching a negotiation, the Minister will consider and approve a document setting out the offensive and defensive interests of his country for the negotiation.

  • Offensive interests are the concessions the team is trying to secure from the other side. 
  • Defensive interests are the sensitive areas where the team does not want to make concessions. 

The document can set out 'red lines' in both of these categories. Offensive concessions the team isn't allowed to conclude negotiations without securing and defensive concessions it is not allowed to make. 

This document provides an official mandate for the Chief Negotiator and those below them to bargain. Only the Minister has the authority to cross red lines established in this document and so it is often up to them to resolve with their counterparts blocks which arise when one of their offensive red lines directly contradicts the defensive red line of the other party.  They do not appreciate it when you suggest they settle it with pistols at dawn. 

Tier 2: Consultations

Once an intention to launch a free trade agreement with a partner is announced, many governments will conduct either formal or informal consultations with industry and the general public. These are intended to inform the offensive and defensive interests the negotiating team will pursue. 

Consultations can take many forms, from high level meetings with industry leaders through to open door townhalls and online requests for written submissions. 

As you can imagine there is a tremendous amount of variance in how effective these consultations are in soliciting genuine input and the extent to which such consultations ultimately shape policy. 

Guy Fawkes is a frequent and engagement contributor to public consultations. I am told he is Legion and that I am to expect him. 

Guy Fawkes is a frequent and engagement contributor to public consultations. I am told he is Legion and that I am to expect him. 

Tier 3: Chief Negotiator

Generally a highly experienced and senior trade negotiator from the country's trade ministry, the Chief Negotiator is in charge of the team and their strategy. Their objective is to reach an agreement with the other side without crossing any of the red lines in their Ministerial mandate, maximizing their offensive gains and minimizing their defensive give aways. 

The Chief Negotiator will regularly brief the Trade Minister on the negotiations progress and advise them when an intervention at Ministerial level is tactically prudent. 

During the course of a negotiation round, the Chief Negotiators will regularly receive briefings from negotiators below them so as to have a birds-eye view of the negotiation as a whole. 

Only the Chief Negotiator has the information and authority required to make trade-offs between sectors (like Goods and Services). For example, the Chief Negotiator might agree to make a concession on beef tariffs (Goods) in exchange for improved access for their country's lawyers (Services).  

As noted above, even a Chief Negotiator can't unilaterally make these trade-offs if they cross the red lines established by their Ministerial mandate. 

This is anecdotal but 100% of the Chief Negotiators I've known have dressed really well. I don't know if that's a prerequisite for the job or a coincidence, but feel free to congratulate the next snappy dresser you see for successfully steering CPTPP to completion. 

"If we can resolve the ISDS chapter by noon we can both make our tailoring appointments." 

"If we can resolve the ISDS chapter by noon we can both make our tailoring appointments." 

Tier 4: Leads

In a major negotiation, a Chief Negotiator will sometimes put certain negotiators in charge of major sections of the negotiations such as 'Goods' or 'Services'. 

This serves two purposes. First, it concentrates expertise. Types of trade vary considerably in how they operate, with goods presenting an entirely different set of issues than services or legal matters like dispute settlement provisions. Splitting these into streams puts similar issues under the leadership of someone with experience in handling them. 

Second, it provides a level of leadership below the Chief Negotiator which can make tradeoffs within a sector but not across sectors. For example, a lower tariff on steel in exchange for the other side lowering their tariff on beef. Neither the agriculture nor the industrials teams could have reached that deal on their own, but a Goods Lead with authority and visibility over both can. 

A third, hidden purpose is to create a generation of civil servants with cool resume entries. 

Tier 5: Sector Teams

These are the negotiators directly working at the coalface in each sector (such as agriculture) and sub-sector (such as agricultural tariffs). These teams will generally be led by a mid-level trade negotiator and consist of more junior trade negotiators and individual specialists from other relevant government departments (such as the Department of Agriculture) who provide specialist expertise.

Sector teams do the bulk of the direct negotiations, working through a proposed agreement text line by line to try to arrive at a consensus on as much as they can. Issues they are unable to resolve are elevated, first to their Leads, then to Chief Negotiators and finally to Ministers. 

The work of sector teams is generally divided into three types:

First, they try to convince the other party to accept their country's position. There are many ways to go about this, from thumping the table and yelling (not generally very effective) to explaining with reference to the other side's own legislation or statistics why what's being asked is reasonable.

Often this latter role consists of trying to equip one's counterparts across the table with the facts and arguments they'll need to make a case to their own government. 

Sector teams will generally have a limited amount of freedom to make trade-offs within their own sector (for example beef tariffs in exchange for sheep meat tariffs) in order to make progress. 

Second, they try to find creative textual solutions to disagreements. Because trade agreements are essentially legal commitments being made by a government for the indefinite future, every word is carefully poured over for its implications. Oftentimes, a negotiating team will be unable to agree to a proposed paragraph not because they oppose the substance, but because the wording itself carries legal implications they can't live with. Finding ways to phrase things so both sides are happy is a huge part of a negotiator's day. 

Third, sector teams are responsible for liaison with their country's relevant Ministries to ensure those Ministries are comfortable with the evolving text. Even in the most cohesive, well functioning government this can be challenging. Almost by definition, a trade agreement has the potential to limit regulator or impact the policy freedom of a Ministry. Managing these relationships and negotiating domestically can be as big a challenge of a negotiating team's skill as anything the other party throws at them. 

The average amount of sleep a trade negotiator in a Sector Team gets during a negotiating round is minus 12 hours, if you count time spent dreaming about text as negative rest. 

Final Thoughts

The above provides a snapshot of the general negotiating team structure. You'll have likely noted its something of a pyramid, with those at each level empowered to make trade-offs only in the areas over which they have authority. This is deliberate. 

The more can be resolved at lower levels, the fewer issues drift upward to complicate final deliberations among Chief Negotiators and Ministers.

Hopefully this provides you the first glimpse inside a trade negotiation.

If you have any feedback, comments or questions please don't hesitate to reach out in the comments below, on twitter, or by contacting me directly.

I'd also be really interested in any areas you would like me to cover in upcoming posts in this series.