May 8th, 2020 11.

259 – Entrepreneurial Negotiations

Diego Fernández Briseño Massachusetts Institute of Technology
Prof. Lawrence Susskind

Final Assignment

Negotiating Multi-Lateral Treaties: The U.S. – Mexico – Canada Agreement (USMCA)

Precedents:

My intention with this assignment is to relate the concepts we saw in class to a real-life negotiation that
occurred at the highest level between the leaders of three countries. This idea, to renegotiate the existing
treaty that dated from 1994, had survived along the years and it suddenly became a reality immediately after
the change of administration in the United States in early 2017. This news brought great uncertainty to the
region. In Mexico, the currency fell and a big discussion on whether to continue being dependent on trade
with the United States emerged. The final result from these negotiations did not prove as disastrous as some
thought, but instead it could be said that the resulting treaty helped to solidify the relations within the partner
countries.
I will attempt to illustrate the key moments that occurred during the negotiation process from my personal
perspective and how it can set an example for entrepreneurs that have to deal with complex situations.

Precedents:

- NAFTA came into effect on January 1, 1994 after being signed by Canadian Prime Minister Brian
Mulroney, Mexican President Carlos Salinas de Gortari and U.S. President George H.W. Bush.

- In 2016, trilateral trade among the countries reached nearly US$1 trillion—more than a threefold
increase since 1993.

Timeline:
Negotiating concepts:

- Negotiate how to negotiate: The first round of negotiation consisted in establishing the bases for the
dispute resolution mechanisms. It helped also so each party would lay down and expose the topics
of their main interest. This also helped the teams to outline their ZOPA and indicate clearly what
they were willing to exchange.

- Back tables: Each chief negotiator had extensive back tables behind them, first with their appointed
secretary overseeing the negotiation and ultimately resting with the President / Prime Minister of
their country. Also included, were the key negotiators for each chapter as well as members of the
private sector. Also, the three countries underwent an electoral process that coincided with the
negotiation times, so leaders had to be extra careful as to not entangling policy with politics.

- Buckets: A great illustrating point of this complex negotiation is how the topics were be
compartmentalized and packaged with the intention of being resolved one-by-one. In some cases,
even while there was no agreement on some points, the parties could move forward with others.

- Chain of command, rogue leaders: The President/Prime Minister at any moment could intercede and
even overwrite decisions. By mixing points and agreements from one bucket to another. Creating a
more difficult scenario for the negotiators, but also helping to resolve an impasse.

- Brainstorming: Once the ‘easy’ resolutions were agreed during the initial rounds, then a fourth
round came, where the countries came up with new resolutions and proposed things that were
originally off the script. Catching the others off-guard and delaying the process, while advancing
their ideas. In this sense, I am intrigued by the concept of ‘Overton Window’, which states that the
public will find a polemical policy less outrageous when its discourse is continuously repeated. This
was also an occasion where the teams could deviate in their expectations and expand their ZOPA, in
an attempt to generate more value.

- External backers: The expert business panels that were assembled served as support for the
negotiating parties. In the case of Mexico, this panel was composed of businesspeople from across
the three borders who would advise on business deliberations.

- BATNA: This was a particularly easy point to all but one country, as there exists an asymmetry on
how valuable the treaty is particularly to Mexico. Whose economy depends a great deal on the
exports to the U.S. It was evident that they would then try to minimize the changes to the existing
deal and would concentrate on getting away with as many points from the previous agreement. The
 U.S. and Canada still had a bilateral agreement preceding NAFTA that would be enabled should the
plug were pulled; they had the luxury of exploration by knowing this.

- External events and stakeholders: The three countries eventually would have to turn the agreement
for ratification to a Congress/Parliament controlled by the opposite party. This facilitated an excuse
to the negotiators for not agreeing to any terms that could be too controversial or that did not act for
the good of the majority of the population, which also discouraged the other country from pushing
too hard. A Mexican team soon leaving office meant that, in spite of being a lame duck period, there
was a perceived rush of getting the agreement done before the left-wing incoming government was
sworn in.

- Pursuit of opportunities beyond: A point particularly problematic for Mexico was the sunset clause,
as it would increase the risk profile of the country and inhibit long-term investment by not securing
certainty of future trade upon expiration. It was later reinterpreted by instead introducing a review
period upon sixteen years, where any country would be compelled to enhance the treaty with
modifications rather than terminate it. Which would also discourage future leaders from wanting to
do away with it abruptly, which now proved beneficial and lessened the risk to Mexico.

- Concept of fairness: A very tough one given the hard stance that U.S. President Trump had towards
the treaty, even referring to it as the ‘worst deal in the history of deals’. In here, ego and political
relevance played a very big role in him wanting his country to take a larger share. His efforts, while
effectively leading the conversation in some fronts, in the end were curtailed by the many moving
parts surrounding the deal. It was easier to hand him a quick political win in exchange for getting
most of the deal passed, a win which was not as big or ambitious as he once envisioned.

- Mistakes in my opinion: Mexico was too quick to compromise and failed to make larger demands in
other points that are problematic. Mexico had to do so to protect its other important topics regarding
trade. But it was a missed opportunity regardless to explore other fronts such as immigration,
narcotics, and gun control across the border. It is true that Mexico was the smaller player at the table
and the only emerging economy, but it also failed to capitalize its very strategic position as a key
partner in terms of border security and it seems to me that its interests were short changed.

- Biases: Continuing with the point above, the topic of illegal immigration was not even mentioned,
probably out of fear of having a negative connotation to Mexico. The importance of immigrants to
the American economy was never discussed.

- Gender-bias: Prof. Susskind’s book mentions the importance of having women in a team. In my
opinion, the contribution of Secretary Freeland made all the difference for the Canadian team and
helped create consensus within the business spheres where she already excelled at.

Agreed key achievements by negotiation topic:

- Dairy: Canada to dairy duty-free access to U.S. products.

- Automobiles: Rules of Origin amended to increase U.S.-manufactured components.
- De Minimis: Shipment values raised, making it easier for small businesses to do cross-border trade.
- Labor: Mexico required to increase union bargaining power, Mexico to also raise minimum wages
to $16/hour in automotive factories that serve the US market during a five-year phasing period.
- Intellectual Property: Extend copyright length in Canada. Biotech firms IP enhanced.
- Elimination of Foreign Office: USMCA countries do not need to establish headquarters in another
country anymore, single ‘North American’ entity can now do business in the three countries.
- Dispute Settlement Mechanisms: New regulations introduced such as: anti-dumping clause, a
USMCA arbitration trade panel is established, investor-state dispute settlement survives but Canada
is exempt.
- Beyond The Border Accord: ‘Good regulatory governance’ chapter.
 - Sunset Clause: The continuity of the agreement will be reviewed by the three nations every sixteen
years.
- Currency: Transparency requirements for the three countries in accordance to the IMF guidelines,
which include public disclosure of market interventions. IMF can act as referee if summoned.
- Clause 32.10: An USMCA member that desires to sign a free-trade treaty with another non-member
country will need to notify the other two members three months in advance. These, in turn, will
have the ability to review the deal.

Teams, leaders and back tables: