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EU Negotiating Technique: Post-Soviet Aluminium

6th July 2012

Here's a story I haven't told before.

Back in the Moscow Embassy in 1994 or thereabouts a bizarre telegram arrived from London. The EU had to negotiate aluminium trade quotas with the new Russia and the EU team was coming to Moscow to do so. But, unusually, the EU aluminium boffins in Brussels had failed to agree a starting-position for our side of the negotiations. So under an obscure provision of the Treaty it was up to those EU member states Embassies represented in Moscow to do so for them! Get on with it.

In vain our remonstrations that we knew nothing at all about aluminium, let alone trade quotas therefor.

Thus a meeting took place in Moscow between those EU member states represented in Moscow and some crafty folk from the European Commission (ie EU bureaucratic HQ in Brussels) with a view to agreeing a negotiating mandate.

Basically, there were two extreme positions. At the radical No Quotas end were the Germans, who had taken over a load of cheap dirty factories in former East Germany that depended on cheap dirty former Soviet aluminium to keep going.

At the No Trade if Possible end were (yes!) the Belgians: they had a pampered aluminium industry that could not face cheap competition from Russia.

In the middle were the rest of us. London told me to negotiate towards the No Quotas end of the spectrum.

The Commission had some good levers to pull to compel an agreement. Basically, they argued airily that the opening mandate did not matter that much, if at all: it was just a first shot to get things going. As the negotiations with Russia intensified in the weeks and months to come, capitals plus Brussels would get their act together and formulate a joint stance acceptable to all.

I don't recall now how it happened. But the Commission cleverly picked us off one by one, with the Zone of Possible Agreement drifting inexorably towards the narrow Belgian end of the argument.

Maybe the purist free trade Germans did not care what happened that day and were happy to let the Belgians score a puny tactical victory, on the grounds that they would demand a stern recount back in Brussels whatever the Commission agreed with the Russians.

The Belgians tenaciously insisted that their precious aluminium works had to be protected at all costs as a European asset, but were nudged towards some minimal flexibility on the plausible grounds that not everyone in the EU was Belgian.

I argued that it made sense to be very flexible. The EU's aluminium arrangements had developed during utterly different Cold War conditions. It was possible that somewhere out there in Siberia existed a vast aluminium complex capable of supplying the whole world once it got going under normal market conditions or something like them. The world had changed when the Cold War ended and we all had to help Russia get moving. EU consumers were entitled to expect us to negotiate for the cheapest possible aluminium.

Plus, I insisted that the EU starting position did matter, even though the Commission insisted it did not. It in a psychological sense it defined the part of the battlefield the issue would be fought over. If we went with the Belgian position now, it was bound to be much harder to claw back a freer trade position later.

Gradually the Commission people persuaded everyone but me to accept a mandate that was very favourable to Belgium. I called London to ask for advice. The DTI aluminium experts in London did not much mind one way or the other - there was not much reason for the UK to take a hard line on the immediate technical substance of this aluminium trade issue - and told me to decide.

I found myself torn. Free-ish market principles come what way? Or caving in when there were few direct UK industry concerns at stake, as otherwise the talks with the Russians would have to be canceled and the EU and maybe HMG would look ridiculous.

Why block?, whispered the siren Commission voices. Yes, principles are vitally important. But so is real life. Here you get nothing important for the UK by holding out, and you deny something important to the EU as a whole. Others are happy enough. Why be awkward?

Reader, I ducked and weaved. Then I caved.

And the aluminium talks proceeded with the Russians on a Belgium-driven mandate, disappearing off into the jungles of EU procedure whence they briefly had emerged.

This negotiation was superbly handled by the Commission. They cunningly played off Positions against Interests and Short-term v Long-term. They raced up and down the Layers in a virtuoso manner, not least because they realised that in a situation where some cared a lot and others not so much it would be those who cared who would decide.

Here the Belgians cared intensely about something immediate: their jobs and factories.

The Germans cared no less about their jobs and factories, but were content to leave the real battle to be fought on a different battlefield at a later date. So whereas they cared a lot on longer-term substance, they were happy not to bother with shorter-term form.

And so to the Eurozone 16 years later.

Finland today has dropped a pretty blunt hint that it is not prepared to write other EU partners a blank cheque, and indeed may have to leave the Eurozone if things are pressed too far in that direction.

Wow.

The negotiating technique point is simple.

At the most recent Summit, the French and Italians and Spanish really wanted German money to bail them out. Germany really wanted not to give them German money on the scale needed. But Germany was torn - if German did not edge in their direction the WHOLE EU PROJECT MIGHT GO BUST AND GERMANY WOULD BE BLAMED.

Blackmail worked. Germany folded. Angela Merkel allowed herself to be the Sucker of Last Resort.

But lo!, along come the Finns. They are (a) small enough credibly to threaten to leave the Eurozone, as Germany (apparently can't), and (b) small enough to know that if a 'debt union' is formed there will no real way to keep a handle on what happens to Finnish money - the Germans and the southern Eurozone Bigs will do whatever suits them and Finland will be told to shut up.

Heads the Finns lose. Tails they don't win. So, No! Life on these terms is not worth living, if you're a diligent honest Finn. Helsinki Shrugs.

Negotiation. In the end when things are incredibly tight it comes down to Who Really Loses (and therefore Cares), and (for lack of a better word) Intensity. Not to forget Mass v Velocity - the physics of diplomacy.

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