New Perspectives on Trade from the Commonwealth

New Perspectives on Trade from the Commonwealth

The recent release of the inaugural Commonwealth Trade Review brings a fresh perspective to debates on global trade issues at a time in which much attention has been focused on negotiating regional and inter- or mega-regional trade agreements.   The Commonwealth Secretariat’s new report effectively frames the particular rôle that the Commonwealth has to play in the global discourse on trade, proposes an agenda for stimulating trade growth, and highlights specific trade policy steps that Commonwealth member nations can take to generate economic gains for Commonwealth members and the global economy alike.  The Commonwealth is an organization of 53 member states, most of which were former constituents of the British Empire.  Its membership is roughly one quarter of the sovereign states in the international system.  Commonwealth member countries account for nearly 15 percent of global exports.  With an extensive focus on social policies, culture, education and sport, trade has not been at the top of the Commonwealth’s agenda of initiatives.  Unlike the EU, ASEAN, SADC or Mercosur, the Commonwealth is not a regional or preferential trading bloc.  But precisely for that reason, the Commonwealth is uniquely positioned to contribute to the contemporary trade debate in three significant ways.

First, the Commonwealth can advocate for the WTO-driven multilateral trade liberalization and diplomacy process, which regularly appears beleaguered in this era of preferential trade agreements (PTAs), regional trade agreements (RTAs), and inter- or mega-regional trade deals such as the Trans-Pacific Partnership (TPP), the Transatlantic Trade and Investment Partnership (TTIP), and the Regional Comprehensive Economic Partnership (RCEP).  The Commonwealth Trade Review makes the point effectively that global trade growth is not an ‘either-or’, i.e. multilateral or regional-preferential, proposition.  Rather, it is very much a ‘both-and’ undertaking: the Review urges Commonwealth members to maximize trade opportunities from PTAs and RTAs even whilst advocating for strengthening the WTO’s capacity to achieve global trade goals.  Second, with its large and diverse membership of nations rich and poor, large and small, scattered around the world, the Commonwealth is well situated to advocate for measures to facilitate trade: measures such as streamlining customs procedures, which can bring disproportionate trade benefits to states that most need to reap gains from additional trade.  Third, with its significant membership of least developed countries (LDCs) and small states, the Commonwealth is ideally suited to argue for increasing the use of trade to promote economic development in states and regions that need it the most.

The Commonwealth Trade Review surveys and highlights major trends and shifts in the contemporary global trading environment.  For example, developing countries’ share of global GDP has doubled, from 20 percent to 40 percent, over the past two decades.  Global value chains, or supply chains, have become more important to production worldwide, but some countries are benefitting from this trend much more than others.  Climate change is exacerbating the difference between large, wealthy countries with the capacity to adapt and smaller, poorer states that are vulnerable to trends ranging from over-concentration in particular agricultural exports to depleted fish stocks and rising sea levels.  Within the Commonwealth, trade and economic growth have been closely linked.  Since the 1990s trade and GDP have tended to expand together, particularly strongly in sub-Saharan Africa.  However, the ratio of exports to GDP in small states in the Commonwealth has declined by six points over the same period, even  the world ratio grew by nine points.

One of the most interesting findings in the Review is the documenting of a ‘Commonwealth effect’ that favours trade between Commonwealth member states.  When bilateral trading partners are both members of the Commonwealth, on average they trade 20 percent more and generate 10 percent more foreign direct investment (FDI) than they would have done otherwise.  Moreover, trade costs between two Commonwealth countries are on average 19 percent lower than average global trade costs.  The Commonwealth effect on trade is all the more striking when one considers that many Commonwealth members belong to numerous RTAs that confer substantial trade advantages upon trade between Commonwealth and non-Commonwealth states: South Africa and Zambia in SADC, Canada in NAFTA, the UK and Malta in the EU, to name just a few.  Reasons advanced for the Commonwealth effect include historical ties, legal systems with common origins, extensive shared use of the English language, and the movement of large diaspora populations between member countries.  Flows of remittances between Commonwealth countries, often an indicator of ties amongst diaspora populations, was estimated at $45 billion in 2014, representing 30 percent of total remittance inflows to the Commonwealth.  All but $3 billion of intra-Commonwealth remittances flowed to the Commonwealth’s developing countries, making remittance inflows a key engine of development.  The Commonwealth effect’s existence underscores the point that, in an era in which average global tariffs are already relatively low and price differentials between major factors of production (labour, land, etc.) narrowing worldwide, decisions about with whom to trade and where to invest are made on the basis of small differences in a wide range of trade-related conditions.

One of the Commonwealth’s distinct trading advantages, the Review points out, is in trade in services, which is growing more rapidly than trade in manufactures or agricultural goods.  Whereas globally services constitute 20 percent of global exports, services account for 24 percent of the Commonwealth’s exports.  In successful small states in the Commonwealth such as Malta and Cyprus, services account for over 70 percent of exports.  In developed country Commonwealth members, services account for 29 percent of exports.  Yet for small developing countries, the Review finds that services are crucial drivers of growth.  In the Maldives, for example, services account for 90 percent of export revenue.  The Review identifies factors that make data collection on trade in services difficult, pointing out that better data collection on services trade going forward will play a key part in expanding trade in services worldwide.

The Commonwealth Secretariat identifies barriers to trade growth for Commonwealth member countries going forward and argues for attention to be focused on remedying these obstacles.  For example, some member states face significant gaps in implementation of trade policies and trade agreements, particularly regional agreements.  Improvements in ‘hard’ infrastructure for trade facilitation, e.g. upgrading logistics systems, building out transport networks and ports facilities, strengthening and automating customs procedures, are essential.  But in order for improvements in hard infrastructure to be effective at promoting trade, they need to be paired with upgrades in ‘soft’ infrastructure as well: improving the awareness and capacities of key stakeholders in the trading system.  This need is felt particularly in less developed countries that may have weak governmental and administrative capacities and a resultant lack of capability to coordinate between governmental bodies and between governmental and private actors.  Mobilizing the private sector and facilitating opportunities for the vast majority of firms that are micro, small or mid-sized enterprises to benefit more from trade emerges as a vital part of the Commonwealth’s anticipated growth in annual trade from US $592 billion in 2013 to an anticipated $2.75 trillion by 2030.

The Commonwealth Trade Review identifies a special rôle for the Commonwealth in strengthening the capacity of global trade to promote economic development.  Prioritizing development for the Commonwealth is not a choice, as The Review calls for the WTO to take a leading part in helping countries to use trade to achieve the 2030 Sustainable Development Goals agreed upon earlier this year, including holding triennial reviews in a process analogous to the WTO’s triennial global reviews of  Aid for Trade.  Such benchmarking, or regular highlighting of best practices and achievements, which the WTO has also deployed through its Trade Policy Review Mechanism, has been one of the more effective ways to encourage member states not only to comply with WTO rules but to model and share the most efficient means of doing so.

Amongst its numerous accomplishments, one of the most important achievements of the Commonwealth Trade Review is that it promotes trade-driven economic growth by providing new data, policy knowhow and best practice examples to empower both traders in the private sector and government policy makers.  For example, knowing about the Commonwealth effect should promote interest in new intra-Commonwealth trade that might not otherwise take place.  This trade growth need not be trade diverting (from trade with non-Commonwealth members), which accords with the Commonwealth’s objective of promoting trade on the WTO multilateral platform.  Promoting trade through information sharing will benefit the poorest countries disproportionately, whether Commonwealth members or not, in furtherance of the Commonwealth’s development objectives.  Some argue that the purpose of international trade is (or should be) to promote economic development, to remedy global inequality.  However, whether it be across town or across continents, trade takes place when it makes both parties to the deal better off.  Yet using trade promotion nonetheless is often the most economically efficient way to promote development and close the vast gap between the global rich and poor.  This makes the Commonwealth’s trade agenda a sensible and timely strategy to advance its broader global development agenda, particularly for LDCs and small states.

For more go to The Commonwealth

One Response to "New Perspectives on Trade from the Commonwealth"

  1. Online CFD Trading   April 15, 2016 at 3:50 pm

    Realists view Free Trade as a system which will destroy the environment and kill everything. Marxists view the system as taking away what the worker already owns though green power such as electric,solar, and wind power could be favoured by Marxists. Also recycling. Such could prevent a return to the others.