Commonwealth free trade

Commonwealth Free Trade refers to process of removing barriers of trade between member states of the Commonwealth of Nations.^[1] The idea of promoting inter-Commonwealth trade emerged in the late 20th century as a response to the evolution of the global economy. It may also refer specifically to the concept of forming a multilateral free trade area comprising all member states of the Commonwealth of Nations.

Today, most Commonwealth countries are pursuing regional integration projects, including the European Union (3 members), Caribbean Community (12 members), Southern African Customs Union (5 members), East African Community (5 members), and the South Asian Association for Regional Cooperation (3 members). However, at the 2005 Summit in Malta, the heads of government endorsed pursuing free trade among Commonwealth members on a bilateral basis.^[1]

The concept of a multilateral Commonwealth free trade area has recently become popularised in Britain among those who are self-styled ‘Eurosceptics’, and wish for the UK to leave the formal political structures of the European Union, to be replaced with a Free Trade Treaty with the EU. But at the moment the UK-Trade relations are not significantly stronger with the countries of the commonwealth. From the Top 10 Commonwealth-Nations, measured by nominal GDP, Britain claim in no single one an import (for Britain an export) share of more than 4%, and only in three countries an export (for Britain an import) share above 4%. Germany for comparison does claim in three countries an import share above 4% (German export), and in three countries an export (German import) share above 4%.

Historical origins

Throughout the 17th, 18th and 19th centuries, Britain exercised an informal trade system with her colonies and self-governing dominions.

During the early 20th century, several political figures in Britain, led by Joseph Chamberlain, argued for a policy of Imperial Preference – both to promote unity within the British Empire, and to assure Britain’s position as a world power. The policy was controversial as it pitted proponents of Imperial trade with those who sought a general policy of trade liberalisation with all nations.

The schism helped contribute to the defeat of Prime Minister Arthur Balfour and his Conservative-Unionist government in 1906, and had serious ramifications for Conservative prospects in the 1923 and 1929 general elections. One notable victory had been the establishment of the Empire Marketing Board in 1926, which encouraged Britons to ‘Buy Empire’.

In 1933, in the midst of the Great Depression, representatives of Britain, the Dominions, and the Colonies met in Ottawa, Canada to hold the Commonwealth Conference on Economic Consultation and Co-operation.^[2] There had been an initial agreement on Imperial Preference, but a comprehensive agreement failed to materialise. Many of the Dominion leaders attributed this to the attitude of the British Dominions Secretary J. H. Thomas during the negotiations.

In 1935, the Canadian Prime Minister, R. B. Bennett, a Conservative who endorsed Imperial Preference, was replaced by a Liberal, W. L. M. King. King responded to pressure from U.S. Secretary of State Cordell Hull and abandoned Imperial Preference.

In the case of the Commonwealth, the U.S. was hostile to it from its inception, notwithstanding the fact that in the cases of Canada, Australia, New Zealand and South Africa, there was an overwhelming preference for a trade system based on the United Kingdom rather than the U.S.

The conclusion of World War II drastically affected the prospects for an agreement Commonwealth trade. The United States emerged as the foremost political and economic power, and its policy was to promote generalised free trade, primarily through the General Agreement on Tariffs and Trade (GATT). The Bretton Woods conference, held in New Hampshire in 1944, had also created a direct link between the value of gold and the US dollar, thereby establishing it as the world’s reserve fiat currency.

The war had also left Britain heavily indebted, economically weakened, and unable to absorb the flow of exports from Commonwealth jurisdictions. The Dominions, primarily Canada, directed their trade more heavily to the US market as a consequence.

The idea of enhanced trade between Canada and Britain was explored in the mid-1950s by the Conservative government of Prime Minister John G. Diefenbaker. The plan, in response to the Canadian government’s concern with over-reliance on the United States, was to adopt policies that would see up to 15 percent of Canada’s US exports diverted to the UK. Representatives for both Diefenbaker and British Prime Minister Harold Macmillan held exploratory talks, but no agreement was ever reached.^[3]

UK entry into the EEC

Britain’s entry into the European Economic Community (EEC) in 1973, and its evolution as a member state of the European Union (EU) has meant that for practical purposes, the United Kingdom cannot independently enter into negotiations with Commonwealth states to establish a free trade agreement. Instead, the EU, as a representative of all its members, negotiates collectively.

Present day

The Commonwealth Effect

In 1997, the Commonwealth Heads of Government Meeting (CHOGM) at Edinburgh was presented with research conducted by Drs. Sarianna Lundan and Geoffrey Jones, and commissioned by the Commonwealth Secretariat. The paper, entitled “The ‘Commonwealth Effect’ and the Process of Internationalisation”,^[4] measured whether or not Commonwealth jurisdictions enjoyed a qualitative advantage in trade with one another as opposed to equivalent non-Commonwealth nations. Their research found that even in the absence of trade treaties, there was a clear cost advantage in trade between Commonwealth nations, and that the overhead costs of doing business were reduced by up to 15 percent in comparison to trade outside the Commonwealth.

Commonwealth Advantage

The Commonwealth Advantage program was a shared initiative between the Toronto Branch of the Royal Commonwealth Society, and the Canadian Advanced Technology Alliance (CATA)^[5] which ran from 2004 until 2008. Chaired by the Hon. Sinclair Stevens, a former Canadian International Trade Minister, the campaign was focused on developing strategic partnerships between Commonwealth-based companies.

CHOGM 2005 – Malta

In response to the lack of progress achieved in the Doha round of trade liberalisation negotiations in the World Trade Organization, Commonwealth Heads of Government, at their 2005 Summit in Malta, endorsed the idea of pursuing trade agreements among Commonwealth member states.^[1]

Commonwealth Free Trade as policy

Differences between Commonwealth members

Because of their very different economic profiles Commonwealth countries' interests are not always aligned. In principle, resource exporters such as Canada, Australia, and most of the Caribbean and African Commonwealth countries are complementary to resource importers such as the United Kingdom and India. However, the historical trade ties between them were based on terms which were dictated by the Colonial Office in Britain. Since the former dominions and colonies have achieved independence, they are free to refuse British initiatives and seek better deals elsewhere. Specifically, agricultural exporters in the Cairns Group (including members Australia, Canada, New Zealand, Pakistan, and South Africa) are at odds with the importing countries at the World Trade Organisation. And of course each of these countries is free to pursue other trade policies. Notably Australia (2005) and Canada (1988), and Singapore (2004) have free trade agreements with the United States, and New Zealand (2008) has one with China. Meanwhile New Zealand and Singapore are already a members of the Trans-Pacific Strategic Economic Partnership, which Australia, Canada, Malaysia, are attempting to join (along with major non-Commonwealth countries). Furthermore, the proposed Comprehensive Economic Partnership for East Asia would include Malaysia, Singapore, Brunei, India, Australia, and New Zealand. Notably, all these proposals exclude the UK, the place where the concept of "Commonwealth free trade" is most popular, since the UK is an EU member states and cannot negotiate independently, which is why the proposal is often tied to Euroskepticism.

Canada

Commonwealth trade, as such, has not been a notable policy position in Canada since the failed Diefenbaker proposal of the 1950s. Instead Canada has pursued deep economic integration with the United States and on the one hand (including a free trade agreement in 1988), and a generalised diversification of trade on the other hand including the "third option" policy of the 1970 (a failed attempt to diversify Canada's trade via negotiations with Japan and the European Economic Community). This has been reinforced with a new wave of free trade agreements following NAFTA in 1994, including five Latin American countries and the European Free Trade Association, as well the failed Free Trade Area of the Americas in the early 2000s, and negotiations towards the Trans-Pacific Partnership since 2012.

As of 2013, 75% of Canadian trade takes place with countries which Canada has a free trade agreement, but this does not include any Commonwealth members. As of 2013 Canada is currently is in negotiations with the Caribbean Community (primarily Commonwealth countries), the European Union (UK, Malta and Cyprus are Commonwealth members), as well as India and Singapore.

United Kingdom

Although the terms of Britain's membership in the European Union precludes it from unilaterally negotiating for a CFTA, the idea has garnered interest. In particular, those politicians and parties that advocate leaving the European Union cite the development of a Commonwealth Free Trade policy as a first step.

The UK Independence Party has included a call for a Commonwealth Free Trade Agreement in its policy manifesto during the 2010 British General Election.^[6] In addition, some members of Britain’s Conservative Party, including MEP Daniel Hannan and MP Andrew Rosindell, have written extensively on the merits of expanding trade within the Commonwealth and the broader Anglosphere.

The EU is in the process of negotiating, or already has, free trade agreements with many Commonwealth countries.

On October 8, 2012, Tim Hewish and James Styles released their paper "Common Trade, Common Wealth, Common Growth"^[7] at the UK Conservative Party Conference in Birmingham, England. The following day saw British Foreign Secretary William Hague comment upon how the Commonwealth, which had been 'neglected' by previous UK governments, presented "enormous opportunities" for the nation.^[8]

However, the EU is currently in the process of negotiating free trade agreements with a number of Commonwealth countries. At present, Canada and India are both in the midst of negotiating free trade agreements with the European Union.^[9] Furthermore, the Caribbean Community (comprising 12 commonwealth members) and South Africa already have free trade agreements with the EU.^[10][11] The EU, through the Lome and Cotonou Agreements, have extended some preferential trade access to developing Commonwealth countries.^[12]

Critics of Commonwealth free trade have characterized it as "the ultimate Eurosceptic fantasy."^[13]

References

External links

• Commonwealth Secretariat
• UK Independence Party
• Canadian Advanced Technology Alliance (CATA)
• The Case for Commonwealth Free Trade
• Home-Commonwealth Trade