- Commonwealth factor
- Trade relationships
- Commonwealth initiatives
The Commonwealth factor
There is wide agreement within the Commonwealth that trade is a critical to economic growth, overall income and employment. The Commonwealth believes that access to international markets presents tremendous opportunities for poor countries to trade their way out of poverty. It also believes that an open trading system will help increase income levels and reduce poverty. Most Commonwealth countries are net importers with net imports* averaging 11% of GDP. Relatively speaking, Singapore and Malaysia are the greatest net exporters in the Commonwealth with net exports of 28% and 18% of GDP respectively (2010). Malaysia is highly dependent on trade, with trade volumes 85% of GDP**. Singapore, Malaysia’s neighbour, is the country most dependent on trade in the Commonwealth; its trade volume is twice its GDP. For over 30 years, both Malaysia and Singapore, have to an extent, been successful at harnessing the benefits of an export-oriented economy.
Commonwealth countries traded around US$4 trillion worth of goods in 2008, according to a study commissioned by the Royal Commonwealth Society. The study found out that intra-Commonwealth trade accounts for about one-sixth of total Commonwealth members’ trade, with an average for each member of around one-third. Commonwealth trade is dominant in some parts: more than four-fifths of Botswana’s and Namibia’s imports come from other Commonwealth countries. Indeed, the value of trade between pairs of Commonwealth member states is between 38 and 50 per cent higher than between pairs of countries where one or both are not Commonwealth members, controlling for other factors.
*Net exports= Exports minus Imports. When this is negative they become Net Imports
** Trade volume= (Gross imports + Gross Exports) divided by 2
Virtually all Commonwealth countries are members of the World Trade Organization, an international organisation which supervises and liberalizes international trade. The EU and African Caribbean and Pacific (ACP) countries have historically formed important trading partnerships in the organisation. A key issue that has created trade dilemmas amongst Commonwealth developing member states is the disbanding of the EU-ACP Cotonou preferential trade treaty in 2008. The treaty afforded ACP member states favourable EU market access. The successors to the treaty, the Economic Partnership Agreements (EPAs), are mostly free trade agreements allowing the unbridled and reciprocal movement of goods and services between the EU and ACP. Critics argue that EPAs create an unfair environment in the area of trading, where the EU naturally enjoys a significant economic advantage. Cheap EU goods and services, it is strongly argued, will flood developing country markets thereby making it impossible for locally produced goods and services to compete, ultimately destroying local primary and secondary industries in developing countries. The European Union has in its defence argued that EPAs provide free access (no duties, no trade quotas) to the EU market of half a billion people, provide permanent protection for some the most sensitive 20% of ACP goods from competition, and that an EPA process is gradually implemented over a period of 15 (and up to a maximum of 25 years), with safeguards and support on offer for ACP countries that encounter problems. To date (2011), more than half of Commonwealth countries within the ACP have signed an EPA. It is still too early, perhaps, to determine whether or not EPAs have been successful in benefitting developing countries.
Commonwealth countries exist within eight distinct regional trading blocs the Association of Southeast Asian Nations, Southern African Development Community, Economic Community Of West African States, East African Community, European Union, South Pacific Regional Trade and Economic Co-operation Agreement, Caribbean Community and the South Asian Free Trade Area and the North American Free Trade Agreement. With the exception of the European Union which includes Commonwealth members Cyprus, Malta and the UK the above listed blocs are not hard and fast since many countries have signed exclusive trade treaties with others in the region or outside. The World Trade Organisation estimates that there are over 200 active regional trade agreements in the world today.
Most ‘trade for development’ initiatives are promoted and led by government. Fairtrade is the most prominent trade initiative led by a non-governmental and private sector lobby. Fairtrade requires big companies from the industrialised world to pay sustainable prices for commodities which must never fall lower than the market price. Its principles are centred on better prices, decent working conditions, local sustainability, and fair terms of trade for smallholder farmers and SMEs in the developing world. Beneficiaries of the scheme are in fact mainly Commonwealth countries – including Dominica, Malawi, Pakistan, India, Sri Lanka St Lucia, St Vincent and the Grenadines and South Africa – and a few Central and South American countries.
A developed country will often have the expertise and general capacity to represent itself at the WTO and other trade negotiations, which come in at a high cost, including the employment of a panel of high-powered private sector lawyers. Most developing countries cannot match this. The Hub & Spokes project, a programme partly administered by the Commonwealth Secretariat, exists to address some of these imbalances. The project’s purpose it to promote effective ACP participation in international trade negotiations and strengthen ACP country capacity to formulate and implement trade policies. The project is structured around experienced trade policy advisers and analysts that have been deployed across the ACP region.
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