(Cross-posted from LegalNegotiating.com, all rights reserved.)
BATNA, an acronym for Best Alternative to a Negotiated Agreement, is a key element in a successful negotiation.1 Identifying the best choice other than reaching a negotiated agreement is crucial to planning a successful negotiation. On its face it is a simple concept, but applying it is often quite complicated. A few examples might help.
Once Litigation has been initiated, trial is the BATNA. In a criminal prosecution, plea bargaining usually has a very simple BATNA – trial. A Defendant can negotiate a plea, or can roll the dice on a trial. There may be multiple options within the context of the negotiation – a sentence defined in years, a reduced sentence in exchange for testimony, probation, etc. – but those are all negotiated results. In civil litigation, once a lawsuit has been filed, the BATNA is also trial. The case can be settled through negotiation, but hovering above that negotiation is the alternative that both sides must face – putting their fate in the hands of a judge or a jury.
Non-litigation negotiations offer a greater range of alternatives. A buyer haggling over the price of a car has several obvious alternatives, including buying a different car, keeping her own car a bit longer, or leasing a car. Factors in determining which alternative is best might include the shape of the old car, the buyer’s transportation needs, the buyer’s need for a new car as part of her business, the size of a growing family, the cost of a lease, the residual value, and more.
More complex negotiations will have more complex BATNAs, and more complex determinations as well. Large-scale mergers and acquisitions, particularly those involving more than two entities, can have a list of possible alternatives that are pages long, and it is the role of a professional negotiator to work with the client to determine which one is the Best, because the negotiation plan flows from that identification.
The BATNA is important because it forms the basis for negotiation planning. Every party to a negotiation can tell the negotiator, quite easily, what they want. But until they figure out what their best choice is if they walk away, they cannot truly identify what they need. What they need, described in negotiation literature as the “Reservation Point,” is the always just one increment short of the BATNA. If the criminal defendant is willing to roll the dice at trial if the only choice is a ten year sentence in prison, because he wants to be out when his daughter graduates from high school in nine years, his Reservation Point is actually nine years. If a business buyer can buy a similar company and achieve similar results for $1 million, she might want to buy it for $500,000, but she will pay $999,999. What she wants is the “Target,” what her negotiator should aim for. But what she must have or she will walk away is the “Reservation Point.”
One of the most difficult tasks for a negotiator is to determine the client’s underlying needs, their motivation, the details of their business behind the proposed deal. Without knowing the date of the daughter’s graduation, or the price of the alternative business, the negotiator can’t identify the essential benchmarks that lead to a successful negotiation.
If a party has not determined their BATNA, and derived from that the Target and Reservation Point, negotiation is unlikely to lead to a satisfactory result.
Which brings us, once again, to President Trump.
One of Donald Trump’s first acts as President was to reject the Trans-Pacific Partnership, a trade agreement signed on February 4, 2016, among Australia, Brunei, Canada, Chile, Japan, Malaysia, Mexico, New Zealand, Peru, Singapore, Vietnam, and United States, but never ratified. When the United States withdrew, the remaining nations entered into the Comprehensive and Progressive Agreement for Trans-Pacific Partnership, which was effectively the TPP sans the U.S.
The TPP would have cut more than 18,000 tariffs, including tariffs on all manufactured goods and most farm products from the U.S., including dairy products.
One of the primary goals of the TPP was to unite the countries in the Pacific, to reduce the economic power of China. By dropping all barriers to trade among the signatory countries, and by agreeing to shared rules about copyrights, patents, labor standards, regulations, and even dispute resolution, the other countries would increase non-Chinese trade and reduce China’s ability to write environmental and labor rules for everybody.
There were significant criticisms of the TPP, most centering around the belief that it favored companies over workers.
The TPP was a negotiated agreement. When Trump became President, he walked away from the agreement. But did he do so with a BATNA? Did he identify an alternative superior to the agreement? Or did he just walk away because he didn’t think it was good enough, or because he assumed that he could negotiate a better one?
The truth of the matter is, we don’t know. But we do know what happened next.
The President, using a very limited power that is only to be exercised for national security, imposed tariffs on Canada. He argued it was necessary, at least in part, because of Canada’s onerous tariffs on dairy products. But those tariffs would have disappeared if the U.S. had not pulled out of the TPP. Now we are imposing tariffs on Canada to try to compensate for dairy tariffs that would have been dropped with the TPP.
The President also imposed tariffs on Mexico, in response to what he claimed were unfair labor rules that gave Mexico the advantage in attracting manufacturing away from the U.S. Those advantages were surrendered by Mexico as part of the TPP, because Mexico believed it would gain so much from increased trade along the Pacific rim. Now we’re imposing tariffs on Mexico to make up for labor rules that would have been equalized under the TPP.
And this week Japan and the EU signed a huge trade agreement that cuts, or even eliminates, tariffs on almost everything. Cheese and wine will flow from Europe to Japan, tariff-free. Japanese cars and electronics, which have long struggled to Duplicate the success they have enjoyed in the US with sales in Europe, will see barriers lowered. And all this is happening at the same time that the US is threatening trade wars with everybody.
The Japan-EU deal covers one-third of the world’s economy. At the same time the US threatens tariffs on imported cars and car parts, creating panic in an American automotive industry that sources parts from around the world, Toyota, Honda, and Nissan and gleefully preparing to replace Ford Fiestas (top-selling American car in France) with Toyota Corollas and Honda Civics. Napa Valley wine makers and Wisconsin cheese makers can only look on with envy as Japan invites their European competition into their groceries, restaurants, and bars.
We don’t know what President Trump’s long-term plan is for his trade war, other than “winning.” But from what we can observe as negotiators, it does not appear as if we entered into this war with a firm idea of a BATNA, what we would do if we can’t negotiate agreements. And so far, all we have to show for it is a huge new agreement between Japan and the EU that will help the very industries our trade war is supposed to be protecting, the ones we hear the most about, dairy and automotive.
Fom where I stand, that’s not “winning.”
- Samuel B. Bacharach & Edward J. Lawler, Bargaining Power, Tactics, and Outcomes, note 9, at 60-62 (1981); Roger Fisher, William Ury & Bruce Patton, Getting to Yes: Negotiating Agreement Without Giving In, at 104-105 (3d ed. 2011); Roger Fisher, Negotiating Power: Getting and Using Influence, 27 Am. Behav. Scientist 149, 156-57 (1983).