Re-energising Commonwealth Trade Policy

Delivered to the Commonwealth Trade Ministers’ Meeting, Lancaster House, London, March 9 2017

Shanker Singham; Chairman, Legatum Institute Special Trade Commission

Chairman, My Lords, Ladies, Excellencies, it is a huge privilege to be here because although I was born and grew up in Britain, and spent the last twenty plus years in the US, I am a child of the Commonwealth, both my parents having come from Sri Lanka.
I would like to talk about some high level issues that affect the whole of the Commonwealth and then some more specific issues that apply differently to different members because the Commonwealth consists of many different members at different levels of development and one size does not fit all. 

High Level Commitments

At this time of increased protectionism, nationalism and populism, it is vital that the Commonwealth as a whole recommits itself to those economic pillars that lift people from poverty to prosperity – open trade, competition on the merits as an organizing economic principle and property rights protection.  Since the GATT was agreed in 1947, we have made tremendous progress on the first and third of these pillars.  It is the crucial second where we have failed.  People do not generally live in environments where competition prevails, and it is this that has fed crony capitalism, and the consequent push back from our publics against what they perceive to be the unfairness in international trade liberalization and globalization. 

It makes sense for the Commonwealth as a whole to recommit itself to these foundational principles that deliver wealth creation, growth, and opportunity for our peoples.  Our Legatum Institute Prosperity Index shows a Commonwealth Effect on Prosperity.  Countries fare better in our Index as against their comparator countries.  For example, Australia, Canada, the UK and New Zealand do better than their comparator countries in Western Europe and the Nordic region.  African Commonwealth countries consistently score higher than the sub-Saharan average.  The data shows that the source of this Commonwealth effect is freer markets (a more competitive business environment), freer peoples and stronger civil society.

Specific Actions

I would now like to outline some specific actions that members of the Commonwealth can take individually or in groups as Britain moves to have its own independent trade policy.  The question is how should the Commonwealth membership interact with the UK as it evolves in this way.  In order to understand this, we need to understand how the UK will develop its own trade policy.

We see UK trade policy as consisting of four fundamental pillars.  

First, there are actions the UK can take on a unilateral basis.  These include a reduction of applied tariffs and quotas where possible (for example for nuisance industrial goods tariffs of less than four per cent, and for agriculture which we do not produce, or where there is no directly competitive or substitutable product).  The UK can and should also move towards mechanisms to develop pro-competitive regulatory systems itself.  There are precedents from the Commonwealth here. Australia and New Zealand integrate their competition agencies into the regulatory promulgation process to ensure pro-competitive regulatory promulgation.

Second, the UK should act bilaterally with some countries.  Clearly a bilateral agreement with the EU is a very important part of this pillar.  But it is not the only part.  The US administration has just announced an intention to negotiate a bilateral agreement with the UK.  We are discussing agreements with the countries where the UK’s rights and obligations were negotiated by the EU.  Of the forty or so EU agreements, about seven or eight concern countries where significant UK trade is affected. This would include countries like S. Korea, Mexico, Canada, Singapore (when that agreement is ratified) and South Africa.Then there are bilaterals with countries the EU does not currently have an agreement with.  This includes the big emerging markets such as India, Brazil and China.  Finally, on the bilateral pillar, and very relevantly for Commonwealth members, there are the less developed countries in Africa, Caribbean and Pacific which currently benefit from trade preferences to account for the fact that the EU market is closed to many agricultural products otherwise.  In some cases, the UK will want to replicate programs like Everything But Arms (EBA), and Generalized System of Preferences (GSP, and GSP+), but it is important for the UK to take advantage of its ability to be a genuinely open market in agriculture by having real economic partnership agreements with these countries, many of whom are Commonwealth members.  These partnership agreements could comprise openness in agriculture for the types of products produced by these countries (which are usually not produced by the UK) and regulatory reform in country, something which is important for the people of those countries. While concerns about preference erosion must certainly be managed, including through the use of safeguards if a poor country’s access is threatened by exports from a larger distorting market, the benefits of moving to a freer trade setting should not be lost.  The UK can support industry transitions which result from this through targeted support via DFID and other government funds as long as they are designed to ease a transition to a more innovative industry. 

Third, and most importantly, the UK should advance plurilaterally with a like-minded group of countries.  It is important here to develop this pillar in a sequenced fashion, starting with the most likeminded so a high level ambitious agreement that deals with behind the border barriers, regulatory distortions and conditions of competition can be secured. This can be an open accession agreement that others can join.  If the Commonwealth effect is as pronounced as we believe it to be, it is likely that such an agreement will be able to attract a disproportionate number of Commonwealth countries in due course, allowing the Commonwealth to demonstrate leadership.  The core requirement here is for the members to be fully committed to the principles of open trade, competition on the merits as an organizing economic principle, and property rights protection.

Fourth, the UK will need to rectify its position within the WTO, understanding that the UK is a WTO member, and where its schedules exist but need to be discovered.  Part of this process will lay the foundation for the free trade agreements and plurilaterals that have been discussed above. The UK’s role in the WTO is not simply about this rectification.  It is also about our forward looking advocacy of greater liberalization in WTO agreements like the Trade in Services Plurilateral Agreement, and in other WTO councils such as the TBT Committee, and others.  The UK should be the consistent voice of free trade and openness in all WTO councils.

Our analysis suggests that the plurilateral pillar is the one where the biggest economic gains are to be found both for the UK and the rest of the world.  We believe that such an agreement can lead to the creation of a global economic engine at a time when it is sorely needed and conspicuously absent.  The realization of this agreement could unleash significant global growth – good for the developing and developed worlds alike. It will set a target for others to follow.  The UK is in the perfect place to lead this not because of history, but because of the nature of its economy. An economically significant country whose economy is dominated by services will need to deal with behind the border barriers and regulatory distortion for its very survival – for the UK, resolution of these issues is mission critical and not an optional extra, as it is for some.

We stand at an inflection point – one of history’s unfrozen moments, where a very positive path could be taken, and the stalled global trade agenda unlocked.  The road ahead will be challenging, but with leadership from Commonwealth members in different ways, recognizing our differences, but also ensuring that our deeds match our words, we can set out a global vision and a global standard which will lift our peoples out of poverty and into prosperity.  

Thank you.