Post-Brexit trading prospects in the Commonwealth
Free trade with the other 52 members of the Commonwealth is one of the government’s top priorities after Brexit.
Michael Lake, the director of the Royal Commonwealth Society based in London reminded us that the Commonwealth is a “little treasure trove” due to its favourable geographical locations:
“Take it from a security point of view – you want a bit of a base in the South Pacific, there’s a Commonwealth country there; you want to know what’s happening in Africa, there are Commonwealth countries there; you want to have a friend in south-east Asia, there are Commonwealth countries there.”
Putting geopolitics aside, the Commonwealth of nations is worth so much more. Free trade with economic powerhouses including Australia, New Zealand, Canada, and India will greatly benefit the UK consumers and producers. In fact, the UK is already an important player in the Commonwealth trade circle as it is the fourth most important Commonwealth export market after the USA, China, and Japan, respectively.
Even without any formal arrangements, trading between Commonwealth countries is 19% cheaper than with non-members. Massive costs cuts come from shared history, cultural links, common legal systems, business practices, and a common language between many Commonwealth countries. This is also known as ‘the Commonwealth advantage’.
When it comes to economic growth, the Commonwealth of Nations surpassed the EU and will continue to do so in the future. In 1973 the EU made up 17% of the world’s real GDP while the Commonwealth accounted for 10%. In 2004, the Commonwealth overtook the EU in terms of its share of the world’s real GDP. Current data shows that in 2015, the EU accounted for 9% while the Commonwealth’s share was 11%. The IMF reported the average GDP growth in the EU is at 1.6%, which is slower than advanced economies’ average at 1.9%. The Eurozone grows at the even slower rate of 1.45%.
The analysis presented in the Commonwealth Trade Review 2015 reveals that, if we exclude any coordinated policy measures (if we don’t consider the option of establishing new trading blocs, for example), the Commonwealth exports is projected to increase by $156billion, or 34% of the current intra-Commonwealth exports. Of this, more than US$35 billion comprised of potential exports from the UK.
The UK and other interested Commonwealth members are free to establish new bilateral deals, of course, but new informal trade and investment opportunities between the UK and Commonwealth countries are possible regardless.
Let’s take a look at more microeconomic benefits; Brexit means that citizens of the UK will save around 10% on their weekly grocery bills after the removal of the Common Agriculture Policy. Imported premium New Zealand wine will also be 20% cheaper. Another good example is the UK Scotch Whiskey industry, which accounts for 25% of total UK’s food and drinks exports. In the first half 2016, export of whiskey to India increased by 41% or by £43 million. A post-Brexit trade deal with India could mean a huge boost to the industry by removing the current tariff of 150%.
A study carried out by the United Nations reveals that fast economic growth coming from the Commonwealth of Nations is partly due to its favourable demographics. Working population in Commonwealth countries is projected to increase by 2050. For examples, Australia’s working population will increase by 23%, Canada’s by 9% and India’s by 45%. On the flip side, the EU’s working population is expected to fall. Germany’s working population will fall by 25%, Italy’s by 21% and Spain’s by 14% with the exceptions of the UK’s to rise by 5% and France’s by 2%. A larger labour force is directly linked to sound economic growth.
A hard Brexit will also give the UK the freedom to relax its immigration policies for citizens from developed Commonwealth countries, such as Australia, Canada, and New Zealand. The UK, Australia, Canada and New Zealand share the same head of state, the same common law system, the same western culture, the same respect for democracy, and the English language. These factors combined allow citizens from the four nations to assimilate quickly and harbour respect for the foreign country as much as their own homeland, which can reduce social conflicts and economic costs.
Hannah is a Mannkal scholar interning at the IEA and studies Economics at the University of Western Australia.
As with all IEA publications, the views expressed are those of the authors and not those of the Institute (which has no corporate view), its managing trustees, Academic Advisory Council or senior staff