Renewing the UK’s trading relationship with Commonwealth countries

Thomas Brown

The House of Lords is scheduled to debate the following motion on 8 July 2021:

Lord Howell of Guildford to move that this House takes note of the progress made in renewing the United Kingdom’s trading relationship with Commonwealth countries.

The Commonwealth today

The Commonwealth is a voluntary association of 54 countries. Member nations have a combined population of 2.4 billion people—almost a third of the world’s population. More than 60% of Commonwealth citizens are estimated to be aged 29 or under.

Member states are diverse in terms of population size, territorial extent and level of development. Rwanda was the last country to join the association, in 2009. The Gambia and Maldives were readmitted in 2018 and 2020 respectively, having earlier withdrawn.

Irrespective of any differences in size or wealth, all member nations of the Commonwealth have committed to the values and principles set out in the Commonwealth Charter. These range from respect for democracy, human rights and the rule of law, through to promoting good governance, pursuing sustainable development and acknowledging the role civil society can play in communities.

The Commonwealth recently celebrated its 70th anniversary. It was established in its modern form at a meeting of Commonwealth prime ministers held in London in 1949. HM Queen Elizabeth II has served as head of the Commonwealth since the death of King George VI.

Prime Minister Boris Johnson is the current Commonwealth chair-in-office. In this capacity, he is charged with representing the Commonwealth at high-level international meetings and reinforcing the ‘good offices’ role of the Commonwealth Secretary-General in conflict prevention and resolution work. Mr Johnson will hand over the role at the next Commonwealth heads of government meeting (CHOGM), expected to be held in Rwanda on a date yet to be agreed.

Organisations and networks

Three intergovernmental organisations comprise the core of the association. These are the Commonwealth Secretariat, the intergovernmental body that supports member countries; the Commonwealth Foundation, which supports participation in democracy and development; and the Commonwealth of Learning, which supports open learning and distance education.

These central organisations are supported by a network of more than 80 accredited intergovernmental, civil, cultural and professional bodies, often working in specialised areas. These are in turn supplemented by other, less formal networks that may exist between different Commonwealth states and their citizens.

An example of an accredited network body working in the field of trade is the Commonwealth Enterprise and Investment Council (CWEIC). This is a not-for-profit membership organisation with a mandate from Commonwealth heads of government to facilitate trade and investment throughout the Commonwealth’s member nations. It hosts meetings of the Commonwealth Business Forum alongside the CHOGM that usually takes place every two years; though the next CHOGM, due to be held in Kigali, Rwanda, has been postponed. The CWEIC is chaired by Lord Marland (Conservative).

The CWEIC has noted that the Commonwealth represents 1 billion middle-class consumers; comprises 40% of the global workforce; and includes half of the top 20 global emerging cities. In addition, it has noted previous Commonwealth Secretariat estimates that bilateral costs for trading partners in Commonwealth countries are on average 19% lower than those between partners in non-Commonwealth states. These lower trading costs, attributed to member states sharing a common language, democratic principles and respect for the rule of law, are referred to as the “Commonwealth advantage”.

The Commonwealth Secretariat has noted the combined gross domestic product of Commonwealth countries was estimated to be US$10.4 trillion in 2017. This was predicted to reach US$13 trillion in 2020.

Intra-Commonwealth trade and investment

On 6 April 2018, the Commonwealth Secretariat published its most recent Commonwealth trade review. Entitled Strengthening the Commonwealth Advantage: Trade, Technology, Governance, the report estimated that intra-Commonwealth trade and investment was expected to reach US$1.6 trillion by 2020. A media release accompanying the report noted this was projected to comprise:

Trade among Commonwealth countries valued at around US$700 billion, up from “just under” US$600 billion in 2016.
Intra-Commonwealth ‘greenfield’ investment—defined as when a parent company establishes its operations in a foreign country—valued at up to US$870 billion, up from US$700 billion in 2017.

The report itself noted a “formidable trade advantage” enjoyed by Commonwealth countries. It said this was conferred by shared historical ties; familiar administrative and legal systems; the use of English; and “large and dynamic” diasporas. It repeated a finding in the secretariat’s 2015 report that, on average, Commonwealth countries trade around 20% more and generate 10% more investment with each other than with non-member countries.

After surveying Commonwealth trade and investment trends and the position of the Commonwealth in multilateral and regional trade globally, the secretariat’s 2018 report focused on how Commonwealth countries could improve existing advantages yet further. It said this could be done in two main ways:

by harnessing new technologies, especially digitisation, to trigger new trade and investment opportunities; and
by strengthening certain aspects of their domestic trade governance regime to reduce trade costs further.

The Commonwealth’s connectivity agenda

At the CHOGM held in London in mid-April 2018, Commonwealth leaders agreed a goal of expanding investment and boosting intra-Commonwealth trade to US$2 trillion by 2030. This ambition formed part of a wider agenda on prosperity, which included a commitment to pursuing free trade through a rules-based multilateral system; promoting inclusive and sustainable economic growth for women and youth; and recognition of the challenges and vulnerabilities of small and vulnerable states.

The summit communiqué noted that leaders had adopted a Declaration on the Commonwealth Connectivity Agenda for Trade and Investment to underpin the ambition on increasing trade and investment volumes. The declaration affirmed the “role the Commonwealth can play in supporting global growth, creating employment, the sharing of best practices and learning and promoting development among its members”. In addition, it said member countries would structure future dialogue around themes organised into the following ‘clusters’:

Physical connectivity, to reduce the physical barriers to trade.
Digital connectivity, to enable member nations to benefit from digital trade.
Regulatory connectivity, to reduce regulatory barriers and improve the regulatory environment for business.
Business-to-business connectivity, to enhance the private sector’s role in promoting the blue and green economy.
Supply side connectivity, to improve global value chain linkages.

In addition, activity in each of these clusters would be informed by an “inclusive and sustainable” approach that would encourage the participation of women and youth in business activities.

The communiqué also noted that leaders had mandated the Commonwealth Secretariat to develop an action plan to give practical effect to the agreed ambitions. This would consider both “hard and soft connectivity” as part of the new connectivity agenda.

The Commonwealth Secretariat published its action plan in 2019. This listed objectives, actions and outputs under the connectivity themes listed above. The UK has been leading work on the digital connectivity cluster since March 2019, together with South Africa.

Following the onset of the Covid-19 pandemic, in April 2020 Commonwealth Secretary-General Baroness Scotland of Asthal said that strengthening connectivity among countries would be “critical, so that trade flows remain resilient during times of crisis”. She added that digital connectivity would be “especially key, as the need to interact virtually now will transform the way people trade and do business”. Baroness Scotland noted that digital connectivity was by then already a “major area of focus” for the Commonwealth.

In July 2020, Commonwealth leaders issued a joint statement on the pandemic. In it, leaders reaffirmed their commitment to the “multilateral trading system and a free, fair, inclusive, predictable and stable trade and investment environment”. The statement also said officials working on the connectivity agenda would “redouble efforts and identify ways to reduce barriers and promote the adoption of digital technologies as a positive enabler in order to increase resilient, inclusive and diverse trade and investment, and to strengthen global supply chains”.

Renewing UK-Commonwealth trade

The Commonwealth accounted for 9.1% of the UK’s total trade in 2019, around the same as the UK’s total trade with Germany. Trade with five Commonwealth countries—Australia, Canada, India, Singapore and South Africa—accounted for 72% of this. The proportion of UK goods exports destined for Commonwealth countries is lower today than it was in 1970, before the UK joined the then European Economic Community (EEC).

The House of Commons Library briefing Statistics on UK Trade with the Commonwealth (2 December 2020) provides the following summary on the subject:

The UK recorded a trade surplus of £1.7 billion with the Commonwealth in 2019. UK exports of goods and services to the Commonwealth were worth £65.4 billion, while imports totalled £63.7 billion. The UK has now recorded a trade surplus with the Commonwealth every year since 2010. The value of UK exports to the Commonwealth increased by 4% between 2018 and 2019, while the value of imports grew by 15%.
The Commonwealth accounted for 9.1% of the UK’s total trade in 2019 (ie the combined value of exports and imports). This was around the same as the UK’s total trade with Germany—the Commonwealth accounted for a slightly higher percentage of the UK’s exports than Germany, while Germany accounted for a slightly higher percentage of the UK’s imports than the Commonwealth.
UK trade with the Commonwealth is heavily concentrated on a small number of countries. Combined, India, Canada, Australia, Singapore and South Africa accounted for 69% of the UK’s total trade with the Commonwealth in 2019; 44 countries accounted for the remaining 31%.

On changes in goods trade over time, the briefing added:

In 1970, the then EEC [European Economic Community] accounted for 22% of UK goods exports, while the Commonwealth accounted for 19% and the USA for 12%. At this point, the EEC consisted of 6 countries, while the Commonwealth consisted of 31 countries.

In 2019, the EU [European Union] accounted for 46% of UK goods exports, while the Commonwealth accounted for 9% and the USA for 16%. At this point, the EU consisted of 27 countries, while the Commonwealth consisted of 53 other countries.

The Commonwealth Secretariat has said Brexit signifies an “opportunity for trade growth between Commonwealth countries”.

Government policy

In respect of the Commonwealth as a whole, the Government has said it works closely with Commonwealth partners on the shared agenda agreed at CHOGM 2018. In a debate on the Commonwealth held in the House of Lords in March 2019, Baroness Goldie, speaking on behalf of the Government, said this was done via work with the association’s ‘three pillars’. These were listed as fellow member states; the Commonwealth Secretariat; and relevant organisations and networks. She added that this work was being supported by over £500 million in funding for projects, which included support for activity relating to the connectivity agenda for trade and investment.

In May 2021, Lord Ahmad of Wimbledon, Minister of State for the Commonwealth at the Foreign, Commonwealth and Development Office, commented on the role of the Commonwealth in boosting trade. He said the Government would use its continuing role as Commonwealth chair-in-office to “ensure that the ambitions to enhance trade and cooperation and boost intra-Commonwealth trade—for example, through the Commonwealth connectivity agenda—remain key priorities”. He also reiterated the ambition to achieve $2 trillion of trade between Commonwealth countries by 2030.

The Commonwealth featured in the Government’s integrated review of security, defence, development and foreign policy published on 16 March 2021. This described the Commonwealth as:

[…] an important institution in supporting an open and resilient international order, bringing together states with a national interest in promoting democracy, sustaining individual freedoms, driving sustainable development and enabling cross-border trade in goods and services that supports economic growth.

The review described an ambition to put trade “at the heart of Global Britain”. In respect of trade agreements with specific Commonwealth countries, it said the Government would use its independent trade policy following Brexit to seek bespoke free trade agreements with Australia, Canada and New Zealand. To date, the Government has agreed a trade deal with Australia; agreed a trade continuity agreement with Canada pending new trade deal negotiations; and has completed a fifth round of trade talks with New Zealand.

In respect of India, the review said the Government would seek “transformation in our cooperation across the full range of our shared interests” over the next 10 years. It elaborated as follows:

Trade between the UK and India more than doubled between 2007 and 2019, our investment relationship supports over half a million jobs in each other’s economies, and the UK is India’s second-biggest research partner. The ability to strike our own trade deals will allow us to grow our economic relationship further, including through increased bilateral investment flows.

Our vision is for re-energised trade and investment, rooted in [science and technology] and supporting levelling up in the UK and India alike […] We will take a major step towards achieving this vision in 2021 when we launch our enhanced trade partnership with India as a roadmap to a potential comprehensive trade deal.

The Government has previously said it has agreed economic partnership agreements with the Southern African Customs Union and Mozambique; Eastern and other Southern African states; Pacific states; and CARIFORUM states. These groupings include Commonwealth countries. The UK-EU trade and cooperation agreement covers Commonwealth and EU members Cyprus and Malta.

A trade working paper published by the Commonwealth Secretariat has predicted the benefits arising from free trade agreements the UK may sign with countries such as Canada, Australia and New Zealand may negatively affect other Commonwealth countries. The paper forecast that any negative effects of these agreements on the gross domestic product and trade, investment and employment levels of other Commonwealth nations would be more pronounced in least developed countries (LDCs). The Government has said it has “provided for duty-free, quota-free access for LDCs and put in place a trade preference scheme for other developing countries”.