Country A’s Report to Home Government

Country B:

New Information: Even though Country B asserted to cooperate with us to correct our trade imbalance
with them, we still anticipate a certain amount of difficulties and uncertainties regarding whether we
can have them give up more E values to us. Country B wants us to cut our tariffs on their shoes, shirts,
motor vehicles and medical instruments. The sectors which they are protecting domestically are wheat,
fruits and motor vehicles which we will face some difficulties when we ask them to cut their tariff on.

Suggestions: We will strive to justify our request to correct our trade deficit with Country B by pointing
out that their trade surplus has a lot to do with their non-tariff barriers. We would also make a point
that if they are willing to cooperate and shrink the gap of our trade deficit with them, they will also
benefit because our domestic constituency will be happy and will support our Country to continue this
benign and productive trading relations with them. We will then advocate for the flat-rate percentage
reduction formula that we originally advocated for, which is to cut all sectors’ tariff by half except for
some sensitive sectors. Since shirts and shoes are sensitive sectors for us domestically, we will first leave
these two sectors aside and propose to impose 50% tariff cut on dyes, motor vehicles, hospital
equipment and medical instruments. By making this concession, we will give up 3,800 E values. We
understand that Country B is going to push for our cut on shoes and shirts as well, so we also calculate
the E values when we have to cut our tariff on those sectors to as far as we can go according to our
confidential brief. And under that scenario, we would give up 4,583 E values which is our reservation
value; we can only give up E values as much as that. On their side, we are going to ask them to cut their
tariff rate across board by half, in addition, 100% cut on wheat and that means they will give up 5,080 E
values to us and we believe that is their reservation value. We will maneuver inside this zone of
agreement. As long as we get more E values from them, we can agree on that.

Country X:

New Information: We learned from our negotiations that country X would most like to gain access for
shirts, shoes, and cotton fabrics to our market, and that they would like to avoid making concessions on
motor vehicles and refrigerators. No concessions were made on our sensitive sectors, but it seems fairly
clear that a flat out refusal to negotiate on these items would lead to country X walking away from the
deal. Country X would prefer to break the goods up into two separate tariff categories, agricultural
products and industrial/textile products, with higher tariff cuts made on the latter category than the
former. We did not come to an agreement on these items, but did agree to coordinate on our approach
to country B, given that we both export fruit and cotton fabrics to them.

Suggestions: We believe that, given the importance of our deal with country B, we should strategize
even more closely with country X and provide them certain special and differential treatment in
exchange for their pushing our 50% cut across the board strategy with B. In our next meeting, we intend
to offer them a good faith gesture of only needing to match our E-Value concessions by 90%. Then, for
every 50% tariff cut concession they receive from B, we will offer to reduce the percentage of their
concessions by 5percentage points (up to 65%). We are willing to do this even for the products we do
not both export to B, because we want to push our tariff reduction methodology. We believe pushing
our methodology with B for these negotiations is more important than the concessions we receive from
X, with whom we conduct far less trade. Using this strategy, we expect to gain between 325 to 840 Es
from country X, who will receive 530 E’s from B on cotton fabrics and 290 on fruits. In return, we will be
making concessions of between 500 to 1290 Es to X. We are unlikely to reach our minimum demands of
16% on construction equipment and 10% on tractors from X without greater flexibility in our sensitive
sectors of shirts, shoes, and cotton fabrics. We therefore request an additional 3-5 percentage points of
flexibility in any of these areas. Flexibility in cotton fabrics would be most preferred, as concessions in
this area would not require any MFN concessions to country B.

Y’s Position:

Y is seeking to have zero tariff access to our market. They also may have considered slight cut in
hospital equipment and tractors sectors.

Our Interest:

At least, 10% ad valorem tariff cut in the tractor sector.

Common ground:

Y is open to negotiate in Tractor and Hospital Equipment sectors in exchange of preferential

access to our country in their export products.

Strategies based on possible tariff cut:

Options E Values Sacrificed by Us Equivalent D from Y( Only

take into account of imports
value of Tractors)
Cut 100% tariff on Ys all 820 1.57
interested Products (Fruit,
Coffee, Tea, Vegetable oil)
Cut 100% tariff on Ys 3 640 1.23
products (Coffee, Tea,
Vegetable oil)
Cut 100% tariff on Ys 2 520 1
products (Vegetable , Coffee)
Cut 100% tariff on Ys 2 440 0.84
products (Vegetable , Tea)
Cut 100% tariff on Ys 2 320 0.61
products (coffee, Tea)
Cut 100% tariff on Ys 1 320 0.61
Product (Vegetable oil)
Cut 100% tariff on Ys 1 200 0.38
Product (Coffee)
Cut 100% tariff on Ys 1 120 0.23
Product (Tea)

Suggestions: Give Country Y full access to our market in exchange for a 10% tariff cut on tractor.