New Rules Of The Game

SOVEREIGN nations have typically resolved bilateral disputes through formal or informal negotiations. There is invariably some give and take, though sometimes one side may feel compelled to take some coercive action, like trade or military sanctions, against the other. However, not all disputes are stand-alone, like territorial claims. Friction between countries is now more likely to consist of a continuing series of small and mid-level issues, increasingly economic in nature. The information and media revolution has dramatically increased the general level of people's knowledge, involvement and debate on national issues, and governments are now finding  that negotiated settlements (which involve written commitments) may be risky due to pockets of resistance in the home country. The scope for unilateral penal action has also been reduced, or at least its attendant cost has increased, due to global interlocking of interests and the ability of the other side to retaliate. The US could easily impose a total economic embargo on Cuba in 1962 but, under threat of European retaliation, it has just recently been forced to suspend the Helms-Burton bill which would have penalised those overseas companies which profit from expatriate Cuban assets.

Two economics professors from the US, Catherine and Jean-Pierre Langlois, have, in a recently published study, arrived at another model of international interaction which is more suited to the new reality: the Tacit Bargaining model. In tacit bargaining, one state attempts to influence the policy decisions of another not so much through negotiations but through "countervailing actions". These consist of threats, postures, deliberate delays, building allies both within and outside the other country, and linking one issue with another either in terms of deferred payoffs or shrewd establishment of precedents. The aim now is to induce cooperation by manipulating the payoff structure of the other side. A now tries to change the payoff to B so that compliance (with a course of action desired by A) is more beneficial to B than defiance.

Tacit bargaining may not seem very novel at first appearance, and indeed there have been elements of it all along in world history, but there is now a conscious effort by developed countries to think long-term and resolve one issue in favour of the other side in exchange for concessions on another issue. Deadlock is now sought to be avoided at all costs since both A and B invariably lose, and a third party C benefits. European Union companies always benefit in any protracted trade dispute between the US and Japan, and the phenomenal rise in the global market share of Korean semiconductor manufacturers has, at least partially, been due to anti-dumping punitive action by the US against Japanese companies in the '80s. Tacit bargaining works particularly well in international economic relations due to increasing mutual dependency. When President Bill Clinton threatens China with trade sanctions or non-renewal of the Most Favoured Nation status, it is now the US Chamber of Commerce based in Beijing which leads the protest march.

The US recently announced its intention to take India to the World Trade Organisation (WTO) for its failure to implement the 'black box' mechanism which would enable foreign pharmaceutical companies to file for exclusive marketing rights in India.

By itself this is a relatively minor issue for US companies and some writers have commented that the US, through this threat, really wants to pressure us into signing the CTBT. There may be some truth to that, though the US is already using more effective means. It has recently opposed our candidature for permanent membership of the UN Security Council, opposed our entry into the Asia Regional Forum and, through Philippines, has vetoed our entry into ASEAN. A more plausible explanation of the WTO move is this: the US wants to ensure that India adheres to the 2005 deadline, the date by which pharmaceutical product patent laws have to be in force. India has built up a reputation as a wayward nation in the area of international trade, much of it well-deserved, and the WTO move is simply a signal to India about US willingness to ensure Indian compliance with international treaty obligations and respect for the authority of international institutions. The US would probably be happy to abort its WTO move in exchange for a sincere and explicit commitment by the Indian government towards its 2005 obligation.

There is, as a matter of fact, a whole host of issues which are either currently high on the India-US economic agenda or will be in future. Child labour, insurance sector reforms, reduction in import tariffs, trade in services...these are areas where the US wants Indian compliance. As for India, it wants increased aviation rights, textile quotas and support in World Bank funding from the US. It is very likely that the US will make threatening noises now and then about some issue, but the real intent is not to impose sanctions but to increase Indian payoffs for compliance in areas which matter most. And this is the real lesson for Indian policy-makers: tacit bargaining is here to stay, and it's time we understood the new rules of the game. 

The author is a consultant on international business strategy and political risk analysis