Commonwealth Compact

Not the best time to talk about an almost dead horse - the Commonwealth - but that's what I had to do as the CJA - short for Commonwealth Journalists' Association - wanted yours truly to speak on `Commonwealth - the way forward'. Other panelists were Stephen Cutts, deputy secretary general of the Commonwealth and Vijay Krishnarayan, a West Indian diplomat who now heads Commonwealth Foundation.

Instead of saying what a `great' programme it was, I am posting my paper on the subject here (not that there is any hope for the suggestions made here being `sold' to those who run the Commonwealth. The main stumbling block of course is Great Britain as her  terms of accession to the EU prevents her from joining any other economic `club'):

Commonwealth Compact

By Jayanta Roy Chowdhury

Valetta Harbour

"I believe the Commonwealth is uniquely placed to make the case for trade and to catalyse an increase in investment and trade which quite frankly is the single biggest and most important stimulus we can give our economies right now” - David Cameron (writing in the Global in 2010).

Many believe the Commonwealth is dying a slow death. With a multitude of global and regional multilateral organisations spawning every year, the global grouping of former British colonies is increasingly losing relevance.

Except for Conservative commentators like British economist Ruth Lea and some facebookers who have launched several pages demanding Commonwealth Free Trade pacts, few top leaders if any, now talk of forming a Commonwealth trade compact.

Yet two years back faced with a slowing economy, British Prime Minister David Cameron seemed to suggest a greater role for the Commonwealth than we have seen till now, but with huge economic and political investments in the European Union, Great Britain has till now refrained from making any leaps of faith.

Many have forgotten that just six years and two months back, in November 2005, at the Commonwealth Business Summit in Malta, the final communique urged member countries to consider ‘the possibility of establishing a Commonwealth preferential, or free trade area’ should the WTO’s Doha Round prove fruitless. Doha is still stalemated and the world groping around or regional trading arrangements which can help their economies while not placing their sovereignty at risk.

The British Commonwealth was set up in 1926 and in April 1949, at India ’s insistence, the word `British’ was dropped and the Monarch of Great Britain made the "symbol of the free association of its independent member nations and as such the Head of the Commonwealth". This of course led King George VI to famously remark to the then Indian High Commissioner to London, Mr Krishna Menon, “So, I have become As Such”.

Well the King’s ministers possibly agreed to make him “As Such”, as there was an underlying belief that historical trade and investment ties between member states would be strengthened by the body which emerged from the ashes of a colonial empire.

Britain in the aftermath of the Second World War wanted the Commonwealth to stay alive not only as a symbol of its former glory, but also as a guarantee to the economic ties it then had with its former colonies. According to some accounts, Lord Mountbatten of Burma , the last Viceroy of India, was among other things, tasked to wrangle out of India ’s first prime minister Pandit Jawaharlal Nehru, continued membership of the Commonwealth, to protect British capital in and trade with India, which at that time was substantial.

However, as Britain veered towards European Economic Community in the 1970s, which later, transformed into the European Union, its interest in the Commonwealth as a trading and investment forum, diminished. With the founder losing interest, the rest of the Commonwealth started looking for other regional groupings.

Canada and Australia started becoming America-centric in their policies and in terms of trade - Asia-centric. India quite naturally started looking Eastwards, for its economic and political space. African nations looked towards an African Union, Malaysia and Singapore towards Asean.

Things have changed since then. At least some economists in Britain of 2012 are again debating whether that island nation should remain closely linked with the European Union or should have looser ties with it, which allows it to join either NAFTA or set up a Commonwealth Free Trade Pact.

Whatever the results of the ongoing debate, statistics show it may still make sense, for Mr Cameron and other Commonwealth leaders, to think seriously on the issue of some kind of a closer trade compact. The fact is, that despite accusations that it is turning into a nostalgic talking shop, the Commonwealth, does continue to do serious business without really realising it:

- Between them, Commonwealth countries traded around US$4 trillion worth of goods in 2008. (Royal Commonwealth Society, Trading Places)

- Intra-Commonwealth trade accounts for about one-sixth of total Commonwealth members’ trade, with an average for each member of around one-third.

- The share of intra-Commonwealth trade has grown steadily from around 12 per cent in 1990 to around 16 per cent in 2008.

- The Commonwealth dominates trade in some countries; for example more than four-fifths of Botswana’s and Namibia’s imports come from other Commonwealth countries; and more than 90 per cent of the exports from Saint Vincent and Samoa go to other Commonwealth countries.

- In India 's case - Last year India bought some $ 53.15 billion of goods annually from Commonwealth countries and sold some $ 39.65 billion of goods annually. India ’s exports to Commonwealth countries amounts to 21 per cent of its total exports and imports nearly 17 per cent. (Ministry of Commerce, India, statistics)

- Most member countries do about a third to half of its trade with other Commonwealth countries.

- Two continental economies within the Commonwealth – Australia and South Africa - continue to sell about 22 per cent and 24 per cent of their total exports to Commonwealth nations.

- Studies show trade is easier between the member nations because of shared language, legal systems, corporate culture etc.

To buttress what I am saying I will quote another Cameron, a Canadian author whose first name is Brent and who wrote a book – The `Case for Commonwealth Free Trade’ in 2005, “If the Commonwealth today were an economic bloc, it would be equal in size to the United States; it would have thirteen of the world’s fastest growing economies; it would possess most of the world’s leading knowledge economies outside of the US; it would have one third of the world’s population; and would represent forty per cent of the membership of the World Trade Organisation.”

With the Global economy on a slowdown mode, on the back of recession in the developed West, the role of the Commonwealth, a grouping which links the First world with the Third could well turn critical in a Global Economic Recovery.

The three advanced economies - UK , Canada and Australia need the markets of Asia and Africa to survive the coming recession, while the Less developed and developing economies of Asia and Africa need market access in the west to improve their quality of life.

Under these circumstances, perhaps it does make sense to have a trade, investment and even a financial markets compact between Commonwealth nations. The commonwealth already has some of the fastest growing emerging economies - including India , South Africa , Malaysia , Singapore & Bangladesh - in its fold. Energising them by creating an institutional trade arrangement could well act as a catalyst for growth for many member countries.

It may be recalled that at one stage late Indian Prime Minister Rajiv Gandhi had floated the idea of an Indian Ocean Rim pact, this would have more or less encompassed most major commonwealth nations with the exception of the U.K and Canada . The basis of the idea came from India ’s engagement with Australia and South Africa , two major commonwealth powers.

Being spread around the world and not in a geographically contiguous area is possibly the biggest drawback that the Commonwealth has in transforming itself into a trading agreement. However, in the light of giant regional trade bodies being contemplated such as the Asia-Pacific Free Trade Pact, where countries are separated by huge oceans, the distance between the Commonwealth nations could well be of little importance. Current trading arrangement where Ivory Coast sells timber to China for furniture which sells in Europe give lie to the old adage that trade compacts between neighbours are the most economically efficient.

The fact that these Commonwealth nations share linguistic links in the form of English being the language of governance and business, a similar system of law, existing strong trade and diaspora ties and of course a shared history even it be of a colonial nature, helps bind them together.

Indian business for instance has traditionally focussed on English language knowing East Africa rather than on Francophone West African states. Similarly, Indian investors have tended to invest more in the UK despite Spain, Hungary or Croatia offering better incentives and cheaper labour, again mainly because of the ease of doing business in a known language, functioning under a legal system which is known and easily understood, with institutions which are very similar to the one’s inherited by independent India.

According to the British High Commission in New Delhi , India is the 3rd largest investor in UK. In 2011 (till end October) UK exports to India increased by 45 per cent, making India, the UK’s largest non EU market and the High Commission's website says UK aims to double its bilateral trade with India by 2015. India’s Tata group which owns Jaguar Land Rover, Corus Steel and Tetley Tea among other assets in the UK , was described as the largest manufacturing employers in that island nation, by Financial Times.

With Australia, India’s trade and investment ties have similarly deepened, in preference to say non-Commonwealth African mineral rich nations, which could have been India’s alternate trade partners . Today, India is Australia’s 4th largest trading partner. Growth in two-way trade reached $ 22 billion in 2010-11 and is expected to reach $ 40 billion in the next 3 years, when India would replace the US as Australia’s third largest trading partner (Australian Trade Commission). Indian investment in Australia has now reached an estimated $ 10 billion ( though of course it still remains a fraction of Britain’s total investment of over $ 65 billion and USA’s over $ 100 billion, the two largest investors in that country but then that was over a longer period of time. )

All this leads us to the case for a Commonwealth trading and investment compact. Even if a Free Trade Pact between diverse countries who make up the membership of the Commonwealth seem a difficult and daunting proposition, a move to give a Commonwealth preference to trade and investment flows between member countries could well see respective economies gaining in economic terms which in turn could strengthen existing trends where Commonwealth nations seem to prefer doing business with each other.

However, these moves need to start now or else the Commonwealth will be one of the `also ran’ as various multinational trading arrangements come into being. There is the promise of a free trade zone springing from the East Asia Summit which could encompass India, China, Asean, Japan, Korea and Anzus countries, though there are fears and rivalries between China on the one hand and Japan, Korea and Asean on the other which is delaying a deal; there is the US idea of an Asia-Pacific Trade Pact, which may not take off because of Great Power rivalry between the two super powers – US and China; there is Nafta itself and a reformed EU with free trade deals with growing economies like India; there is also the African and Latin American trade blocks coming up.

What can the crystal ball hold if the Commonwealth were to really manage to come up with something akin to a free trade pact?

The Canadian Brent Cameron whom I quoted earlier, in a separate paper also wrote :“If an agreement were achieved (among Commonwealth nations) and (through mutually beneficial trade and investment flows) it could bring per capita incomes up to a level comparable with the developed world, the Commonwealth would have an economy valued at over US$45 trillion - the equivalent of adding the combined GDP’s of the European Union with that of NAFTA - then doubling it.” Maybe that’s food for some thought.

Bibliography

- Trading Places: The `Commonwealth Effect’ Revisited by J Bennett, Paul Chappell, H Reed & D Sriskandarajah ( Royal Commonwealth Society, 2010)

- The Case for Commonwealth Free Trade by Brent Cameron, 2005

- Britain and the EU - The ultimate Eurosceptic fantasy: putting faith in the Commonwealth by Bagehot (The Economist, Oct 30, 2011)

- The Euro Masquerade by Fraser Nelson (The Spectator, Oct 26, 2011)

- As the EU squabbles, the Commonwealth looks even more enticing by Ruth Lea (Conservative Home, Oct 30, 2011)

- Britain Should Aim for a Swiss-style free trade relationship by Ruth Lea (Conservative Home, Jan 8, 2012)

- Annual Report 2011, Department of Commerce, Government of India

- Economic Survey 2010-2011, Ministry of Finance, Government of India