Harvard Case - The Eagle and the Dragon: The November 1999 US-China Bilateral Agreement and the Battle over PNTR, Abridged
"The Eagle and the Dragon: The November 1999 US-China Bilateral Agreement and the Battle over PNTR, Abridged" Harvard business case study is written by Charan Devereaux, Robert Lawrence. It deals with the challenges in the field of Negotiation. The case study is 22 page(s) long and it was first published on : Mar 7, 2008
At Fern Fort University, we recommend the US government pursue a principled negotiation strategy with China regarding the Permanent Normal Trade Relations (PNTR) agreement. This approach emphasizes win-win solutions through integrative negotiation techniques, focusing on shared interests and mutually beneficial outcomes. This strategy aims to address China's concerns while securing US economic interests and promoting a stable and prosperous relationship between the two nations.
2. Background
The case study focuses on the US-China bilateral agreement in November 1999, which aimed to grant China PNTR status. This agreement was met with significant opposition in the US, primarily due to concerns about China's human rights record, trade practices, and potential economic impact on American jobs. The case highlights the complex political and economic dynamics involved in international business negotiations, particularly between nations with vastly different political systems and economic priorities.
The main protagonists are:
- The US government: Led by President Clinton, aiming to secure PNTR status for China to boost trade and economic growth.
- The Chinese government: Seeking to gain access to the US market and further integrate into the global economy.
- US businesses: Divided on the issue, with some supporting PNTR for increased market access and others opposing it due to concerns about competition and labor practices.
- Labor unions: Strongly opposed to PNTR, fearing job losses and unfair competition from Chinese workers.
- Human rights activists: Concerned about China's human rights record and the potential for PNTR to legitimize its authoritarian regime.
3. Analysis of the Case Study
This case study can be analyzed through the lens of international relations, game theory, and negotiation strategies.
International Relations: The US-China relationship is characterized by complex power dynamics, conflicting interests, and the potential for both cooperation and competition. The PNTR negotiation highlights the challenges of balancing economic interests with political and social concerns.
Game Theory: The case illustrates a classic prisoner's dilemma scenario, where both countries could benefit from cooperation but face individual incentives to defect. The US government must weigh the potential economic gains from PNTR against the risks of China's potential exploitation of the agreement.
Negotiation Strategies: The case study demonstrates the importance of understanding and navigating different negotiation styles. The US government must adopt a principled negotiation strategy, focusing on shared interests and finding mutually beneficial solutions. This involves:
- Identifying common ground: Both countries share an interest in promoting global economic growth and stability.
- Addressing concerns: The US government must acknowledge and address China's concerns about trade barriers and market access while also ensuring that its own interests are protected.
- Building trust: Establishing a foundation of trust is crucial for a successful negotiation. This requires open communication, transparency, and a willingness to compromise.
4. Recommendations
The US government should pursue a principled negotiation strategy with China, focusing on the following key elements:
1. Engage in Integrative Negotiation:
- Identify shared interests: Both countries benefit from increased trade and economic growth.
- Explore mutually beneficial solutions: This could involve addressing specific concerns about labor practices, intellectual property rights, and environmental standards through joint initiatives and collaborative efforts.
- Focus on creating value: The negotiation should aim to create a win-win scenario where both countries benefit from the agreement.
2. Address Concerns through a Multi-Track Approach:
- Human Rights: The US government should raise human rights concerns directly with the Chinese government while also engaging with civil society organizations and promoting human rights through multilateral forums.
- Trade Practices: The US government should work with China to establish clear and enforceable rules governing trade practices, including intellectual property rights and fair competition.
- Labor Standards: The US government should encourage China to adopt international labor standards and work with Chinese labor unions to improve working conditions.
3. Develop a Long-Term Strategy for US-China Relations:
- Promote dialogue and cooperation: The US government should engage in regular dialogue with China on a range of issues, including trade, security, and climate change.
- Build strategic alliances: The US government should work with other countries to promote a rules-based international order and address shared concerns about China's economic and political influence.
- Invest in education and cultural exchange: Promoting understanding and cooperation between the two countries through education and cultural exchange programs is crucial for building a more stable and prosperous relationship.
5. Basis of Recommendations
These recommendations are based on the following considerations:
- Core competencies and consistency with mission: The US government's core competency lies in promoting economic growth and national security. The PNTR agreement aligns with this mission by fostering trade and economic integration while also promoting a stable and prosperous relationship with China.
- External customers and internal clients: The US government must consider the interests of both US businesses and labor unions, as well as the broader public. The negotiation strategy should aim to balance these competing interests and find a solution that benefits all stakeholders.
- Competitors: The US government must consider the potential impact of the PNTR agreement on its global competitiveness. The strategy should ensure that the agreement does not lead to a significant loss of US jobs or a decline in US economic power.
- Attractiveness: The potential economic benefits of the PNTR agreement, including increased exports, investment, and economic growth, are significant. However, the US government must also weigh the potential risks, such as job losses and unfair competition, before making a final decision.
6. Conclusion
The US government should pursue a principled negotiation strategy with China regarding the PNTR agreement, focusing on integrative negotiation techniques and win-win solutions. This approach requires a multi-track strategy that addresses concerns about human rights, trade practices, and labor standards while also securing US economic interests and promoting a stable and prosperous relationship between the two nations.
7. Discussion
Alternative approaches to the PNTR negotiation include:
- Positional bargaining: This approach focuses on negotiating from a fixed position and making concessions only when necessary. This strategy could lead to a stalemate or a suboptimal outcome for both sides.
- Confrontational approach: This approach involves using threats and pressure tactics to force concessions from the other side. This strategy could damage the relationship between the two countries and lead to a less stable and prosperous future.
Risks and Key Assumptions:
- Risk of China's non-compliance: There is a risk that China may not fully comply with the terms of the agreement, undermining its effectiveness.
- Risk of job losses and unfair competition: The agreement could lead to job losses in the US if Chinese companies gain unfair advantages in the US market.
- Assumption of China's willingness to compromise: The success of the negotiation depends on China's willingness to compromise on key issues.
8. Next Steps
The US government should take the following steps to implement the recommended strategy:
- Establish a high-level negotiating team: This team should include experts on trade, economics, international relations, and human rights.
- Develop a clear and comprehensive negotiation strategy: This strategy should outline the US government's objectives, key negotiating points, and potential concessions.
- Engage in regular dialogue with China: This dialogue should focus on building trust, identifying common ground, and addressing concerns.
- Monitor the implementation of the agreement: The US government should closely monitor China's compliance with the terms of the agreement and take appropriate action to address any violations.
By following these recommendations, the US government can navigate the complex political and economic dynamics of the PNTR negotiation and secure a mutually beneficial agreement that promotes a stable and prosperous relationship between the US and China.
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Case Description
This is an abridged version of note NR14-04-1771.0. On December 11, 2001, China became a member of the World Trade Organization. Many say the 1999 US-China bilateral trade agreement and the vote in Congress to permanently establish normal trade relations with China paved the way for China''s WTO accession. Even though China was not a WTO member, the United States had granted China Most Favored Nation trading status (MFN) since 1979. However, under US law, China''s trade status required an annual renewal that often became a focal point in Congress for protests over human rights issues, security concerns, and the growing US trade deficit with China. In order to support China''s WTO accession, the United States had to commit to non-discriminatory treatment by agreeing to make China''s MFN status permanent-known as PNTR or Permanent Normal Trade Status-thereby giving up the right to annual reviews. The vote in Congress generated a lobbying battle on Capitol Hill of historical proportions. Why did PNTR pass? What role should trade agreements play in promoting human rights, enhancing domestic reform, encouraging the rule of law, and promoting national security? How were the US-China bilateral agreement and the PNTR vote linked to other key negotiations? What is the role of trade in advancing America''s economic interests? (Revised August 2005) HKS Case Number 1771.3
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