Cover of the 2018 Commonwealth Trade Review.
[This is an excerpt from an article appearing in the current edition of The Round Table: The Commonwealth Journal of International Affairs.]
In all three cases (Canada, India and Australia/New Zealand) trade has declined since the Global Financial Crisis in 2008, which indicates that general economic conditions can have a substantial impact on the trade between these countries. It also shows that although some individual nations of the Commonwealth will become more important trading partners with the United Kingdom it is not necessarily true that they all will. Also, although Europe is declining in importance as an export destination as its share of world imports declines, the Commonwealth nations are not rising to any substantial degree. Instead, the main growth in import demand is coming from the countries of the Asia-Pacific region (i.e., China, Japan, South-East Asia, etc.), which are growing rapidly and have rising incomes.
At an individual country level, United Kingdom–Commonwealth trade linkages can be very significant. The United Kingdom, for instance, makes up about 18 per cent of the developing countries of the Commonwealth’s exports to the European Union, making it especially important. These goods are made up of a diversified range of products and in some cases, individual countries have a high reliance on the UK market. In addition, there are also cases of countries where the United Kingdom does not take a great overall share of a country’s exports but have some sectoral exports that are especially dependent on British markets. Examples of these countries include the following which all export over 10 per cent of their total world exports to the United Kingdom: Botswana (54.4%), Belize (22.7%), Seychelles (19.3%), Mauritius (13.1%), Saint Lucia (10.8%), Cyprus (10.2%), Sri Lanka (9.8%) and Bangladesh (9.5%). There are also a range of other countries that have significant exports to the United Kingdom, another nine Commonwealth developing countries, taking between 5 and 10 per cent of their total world exports.
These high levels in individual cases seem to indicate that there is in some cases a discernible ‘Commonwealth effect’; that is there a propensity of Commonwealth members to trade with one another, or at least with the United Kingdom. There are, however, two problems from the perspective of the United Kingdom in being able to take advantage of this effect. First, this effect greatest is among the poorer and smaller of the nations of the Commonwealth. Second, it is still not possible to prove empirically that the Commonwealth effect does not just reflect past relationships and not some enduring characteristic which is an under-utilised resource which can be leveraged. However, it still might be an important factor in promoting trade between the United Kingdom and the nations of the Commonwealth, and might also be more pronounced in the case of the trade in services and investment flows where the use of a common language and common institutional arrangements may promote stronger economic relations.
Discussion
From the material provided in the previous sections, a number of points can be made.
- First of all merchandise goods trade between the United Kingdom and the countries of the Commonwealth has in the past been promoted by the dissimilar merchandise goods export mixes of the various nations. These mixes are based on the different comparative advantages of the nations concerned. In all likelihood, therefore, trade of this sort will increase as the artificial political barriers between the countries are reduced through bilateral trade agreements.
- Also, important will be the degree of openness of the various countries to international trade. In recent years, most Commonwealth countries have accepted that they should promote the establishment of an internationally competitive economy, and the degree to which this trade grows, will be influenced by the degree to which this continues. This is also true of the United Kingdom, especially in the case of its post-Brexit attitude towards trade in agricultural products. Reductions in restrictions to trade since the late 1980s through the Uruguay round of GATT has meant that there has been growth in United Kingdom-Commonwealth trade since those years.
- Merchandise trade, however, is also reliant upon the amount of economic growth in the various countries. The sluggish economic performance of the United Kingdom’s economy since the Global Financial Crisis in 2008 has been a major impediment to growth in trade between the Commonwealth and the United Kingdom. Future trade between the various countries will be influenced to a degree by the general economic climate in each country, including the more recent impact of the coronavirus on international trade.
- It could be, however, that the greatest scope of a deepening in the economic relations between the countries of the Commonwealth and the United Kingdom comes in the services sector and that of investment flows. Already these aspects of trade are important in the relationship between the countries (especially trade in services) and they are expected to grow and develop over time. Investment flows have probably not been as high as one would expect but this might change in the future.
- Much of the future negotiations between the United Kingdom and the Commonwealth likely will take up a range of issues associated with investment and the trade in services and much of the prospects for growth in trade might depend on the success of these negotiations.
- One vital point that needs to be noted is that the Commonwealth is not a unified bloc of similar countries with identical economic performances. In all likelihood, the United Kingdom’s trade with some members of the Commonwealth will grow substantially, while in other cases it will stagnate and perhaps even decline.
- Finally, it is unlikely that in the near future the economies of the Commonwealth will import on the scale that the European Union does, and although Commonwealth trade will become more important to the United Kingdom it is not substantial enough to replace it. What is apparent, however, is that the United Kingdom’s trade with the regions outside of Europe is growing in importance, both in absolute terms, and relative to European trade. Non-European and non-Commonwealth countries such as Japan, Korea, and China are all becoming more important (while the United States is retaining its importance), and it might be wiser for the United Kingdom to promote enhanced economic relations with the Commonwealth as part of an overall strategy to promote economic relations with all countries outside of Europe. Non-European trade is most likely to be the most important growth area in the future and a focus on the United Kingdom’s trade strategy in the future might be on developing its links there.
Malcolm Abbott is an Associate Professor of Economics, Swinburne University of Technology , Melbourne, Australia.
Related articles:
The United Kingdom’s Economic Relations with New Zealand and Australia after Brexit – Malcolm Abbott, 2019
Statistics on UK trade with the Commonwealth – House of Commons Library
Commonwealth Trade Review 2018
