Daily Telegraph: After Brexit, the UK should explore the ‘Commonwealth advantage’

In 1973, when the UK decided to join what we now call the EU, for many British people the fate of our ties with the Commonwealth figured large. They felt uneasy about the severing of close relations with countries that had fought alongside the UK in two world wars and shared its core values. Not that the UK establishment seemed to mind, of course.

After all, economics supposedly trumped all this. People had to face the fact that what was then referred to as the Common Market was an international economic powerhouse. By contrast, the Commonwealth amounted to next to nothing.

Is this still true? Or could a revival of Britain’s Commonwealth ties and an expansion of trade with it make up for whatever we are going to lose when we leave the EU? Last week’s Commonwealth Heads of Government Meeting served to underline the contrast between two abiding key features of this rather strange organisation.

First, it is a gigantic talking shop with no power or even joint policies of significance. Second, between its members there is an atmosphere of warmth, co-operation and sense of shared heritage and values.

Many Commonwealth countries look with optimism and enthusiasm on opportunities for increased UK trade and co-operation post-Brexit. Indeed, I expect a far-reaching UK/Australia free trade agreement (FTA) to be signed very soon after Brexit. Contrast this with the tortuous negotiations that the EU went through over its deal with Canada and the fact that it still hasn’t signed a deal with the US.

Contrast this also with the stonewalling, hostile timetable and haggling of the EU Commission over Brexit. The EU‘s recent flat refusal to entertain the UK’s proposed technological answer to the Irish border issue was a blatant example. This is a purely political move designed to outmanoeuvre the UK and/or scupper Brexit.

It seems that goodwill, shared heritage and enthusiasm for a warm future relationship may amount to more than just words after all – and the lack of them for still more.

Nevertheless, given that the Commonwealth does not constitute an effective unit of governance, and certainly not a free-trade zone or customs union, it cannot possibly mimic the EU or directly replace the UK’s EU relationship when we leave. But that isn’t exactly a drawback. After all, we are leaving the EU for a reason. Most Brexit supporters do not want to be part of a wider political entity.

But the size and significance of the Commonwealth’s membership is frequently under-estimated. Its combined population is about 2.4bn (about half of whom are Indian), not much less than a third of the world’s total.

Moreover, its relative weight in the world economy has been rising, in contrast to the EU. In purchasing power parity (PPP) terms, in 1980, what we now call the EU accounted for about 30pc of world GDP, compared to about 20pc for the US, and about 15pc for the Commonwealth. By last year, the US share had fallen to about 15pc, and the EU‘s to about 16.5pc. Meanwhile, the Commonwealth’s share had risen to about 17pc. Furthermore, according to the IMF, by 2022, the US and the EU will both have fallen further to about 15pc, compared to the Commonwealth’s share of almost 19pc.

Looking further ahead, there is every reason to expect the Commonwealth’s share to continue to rise and the EU‘s to continue to fall. While the EU‘s population is set to stagnate or fall, the Commonwealth’s is set to continue rising. Over and above this, productivity growth in Commonwealth countries looks likely to continue to be higher than in the EU, not least because so many of the Commonwealth’s members are still fairly low on the development ladder where rapid productivity growth is easier to attain.

At least one study has uncovered what it calls “the Commonwealth advantage”, that is to say the fact that because of shared history, the predominance of the English language and legal systems based on English common law, the costs of doing business when trading with other Commonwealth countries are some 10pc to 15pc lower than for trade with non-Commonwealth countries. Even so, if this Commonwealth advantage exists, it does not apply equally across all countries.

Doing business in India can be a nightmare, whereas doing business in the Netherlands is comparatively easy.

And no one should imagine that the Commonwealth is going to suddenly spring to life as a replacement for the EU. Despite the Commonwealth advantage, although they have grown faster than exports to the EU, the recent growth of the UK’s exports to Commonwealth countries has not been spectacular. Moreover, as a share of the UK’s total exports, exports to the Commonwealth currently amount to only about 9pc, compared to over 40pc for UK exports to the EU.

Yet Britain’s EU exports are not going to drop away just because the UK is leaving.

Rather, most UK exports to the EU are going to continue post-Brexit, and even to grow. It is just that they are likely to grow more slowly than exports to other countries, including the Commonwealth.

We are most unlikely to find ourselves expanding our trade through a direct Commonwealth initiative. More likely, trade growth will come naturally as markets expand and through the conclusion of bilateral FTAs with individual members. These can then serve as the template for deals with others.

Could ties with the Commonwealth become closer still? This was the suggestion of Lord Howell in his book Old Links and New Ties. There have even been suggestions to create a new Commonwealth investment bank, a Commonwealth business visa and a Commonwealth airport queue. I am sceptical about whether this is possible and/or desirable.

Nevertheless, I am enthusiastic about the possibility for closer links and more trade. The EU/ Commonwealth comparison pitches geography against history. It is about the importance of proximity versus culture – political, legal, linguistic and business. I am decidedly on the side of history and culture.

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