5.4 Side payments
In situations where an issue – the outcome of a set of negotiations for instance – places one country in a winning position and the other in a losing position (such as the situation in Activity 10), any voluntary agreement (and most international agreements are voluntary) will fail. At point A in Activity 10, China was making losses and simply would not sign any agreement unless coerced, so the United States wouldn’t realise its potential gains either. Could the United States do anything to persuade China to cooperate? One possibility is that it could offer to use some of its gains to offset China’s losses turning it into a genuine win–win outcome.
Let’s explore how this might come about.
The country that stands to gain (in this case the United States) can make a side-payment that incentivises the other (China) to cooperate. Here the United States might give up, for example, US$20 million of its gains, transforming China’s US$–10 million loss into a US$10 million gain. The United States would gain US$30 million, still much better than if no agreement took place. The parties move to point B, a win–win situation, and cooperation takes place.
In reality this kind of deal making might involve one party giving concessions to another in the matters under discussion (the trade deal) or might give a concession in a different policy area.
A possible example in China–United States relations might be over intellectual property rights (IPR). Many in the United States accuse China of not protecting IPR – patents, copyrights and the like – with Chinese companies benefiting from this ‘cheating’. However, both states have pledged to make progress on this issue. In negotiations in the US–China Strategic Economic Dialogue – one of the multiple forums of discussion and cooperation between the two governments – the United States and China agreed the following:
Both sides commit to further strengthen capacity building in, and resources devoted to, law enforcement against intellectual property rights (IPR) infringement. China is to improve IPR related laws and regulations and study further strengthening of measures for the pursuit of criminal liability for IPR infringement.
China’s critics claim that China wouldn’t actually benefit from bringing about this change while US companies would benefit from better protection. But, China might agree to a deal in this issue area if it were to get concessions from the United States on other issues. The same press release from the US–China Strategic Economic Dialogue forum noted that:
‘The United States commits to give full consideration to China’s request that it be treated fairly as the United States reforms its export control system.’
This was a reference to the fact that China feels it is treated unfairly by US rules about what sort of products can be exported to China, preventing China from getting access to certain types of technology. By rolling together different issues, countries may be able to use a variety of side-payments and bargains to turn areas of potential conflict or non-agreement into areas of cooperation. In fact, if you read press releases of negotiations like the one just quoted, they contain a large number of commitments that each side is making to the other. World Trade Organisation agreements are much the same: a huge package of agreements and trade-offs. When engaged in such negotiations across a range of issues, each side tries to ensure that it comes out in overall terms with positive gains.
So, while there are undoubtedly a large number of specific issue areas where actors on both sides of the relationship think they are losing out economically, a judgement of the overall costs and benefits of the relationship has to take a broader and more all-encompassing view. Indeed, this is part of the task when thinking about the potential for cooperation and conflict between China and the United States.