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Commonwealth free trade is the process or proposal of removing barriers of trade between member states of the Commonwealth of Nations. The preferential trade regime within the British Empire continued in some form amongst Commonwealth nations under the Imperial Preference system, until that system was dismantled after World War II due to changes in geopolitics and the pattern of global trade, and the United Kingdom's entry into the European Economic Community. The idea of promoting renewed inter-Commonwealth trade emerged in the late 20th century as a response to the evolution of the global economy. At one extreme, proposals have been raised for the creation of a multilateral free trade area comprising all member states of the Commonwealth of Nations.
Today, most Commonwealth countries are pursuing regional integration projects, including the European Union (3 members), Caribbean Community (12 members), Southern African Customs Union (5 members), East African Community (4 members), and the South Asian Association for Regional Cooperation (4 members). However, at the 2005 Summit in Malta, the heads of government endorsed Commonwealth members pursuing free trade amongst one another in order to assist the development of poorest members by allowing them duty-free and quota-free access to the markets of developing and developed countries. The heads of government also endorsed looking into ways the organisation can strengthen dialogue, networking, and collaboration on trade and economic issues between Commonwealth members.
The concept of a multilateral Commonwealth free trade area has recently become popularised in Britain among Eurosceptics who campaigned for withdrawal from the EU prior to the UK's EU membership referendum, which resulted in the decision to leave.
Throughout the 17th, 18th and 19th centuries, Britain exercised an informal trade system with her colonies and self-governing dominions.
During the early 20th century, several political figures in Britain, led by Joseph Chamberlain, argued for a policy of Imperial Preference – both to promote unity within the British Empire, and to assure Britain's position as a world power. The policy was controversial as it pitted proponents of Imperial trade with those who sought a general policy of trade liberalisation with all nations.
The schism helped contribute to the defeat of Prime Minister Arthur Balfour and his Conservative-Unionist government in 1906, and had serious ramifications for Conservative prospects in the 1923 and 1929 general elections. One notable victory had been the establishment of the Empire Marketing Board in 1926, which encouraged Britons to 'Buy Empire'.
In 1933, in the midst of the Great Depression, representatives of Britain, the Dominions, and the Colonies met in Ottawa, Canada to hold the Commonwealth Conference on Economic Consultation and Co-operation. There had been an initial agreement on Imperial Preference, but a comprehensive agreement failed to materialise. Many of the Dominion leaders attributed this to the attitude of the British Dominions Secretary J. H. Thomas during the negotiations.
In 1935, the Canadian Prime Minister, R. B. Bennett, a Conservative who endorsed Imperial Preference, was replaced by a Liberal, William Lyon Mackenzie King. King responded to pressure from U.S. Secretary of State Cordell Hull and abandoned Imperial Preference.
In the case of the Commonwealth, the U.S. was hostile to it from its inception, notwithstanding the fact that in the cases of Canada, Australia, New Zealand and South Africa, there was an overwhelming preference for a trade system based on the United Kingdom rather than the U.S.
The conclusion of World War II drastically affected the prospects for an agreement Commonwealth trade. The United States emerged as the foremost political and economic power, and its policy was to promote generalised free trade, primarily through the General Agreement on Tariffs and Trade (GATT). The Bretton Woods conference, held in New Hampshire in 1944, had also created a direct link between the value of gold and the US dollar, thereby establishing it as the world's reserve fiat currency.
The war had also left Britain heavily indebted, economically weakened, and unable to absorb the flow of exports from Commonwealth jurisdictions. The Dominions, primarily Canada, directed their trade more heavily to the US market as a consequence.
The idea of enhanced trade between Canada and Britain was explored in the mid-1950s by the Conservative government of Prime Minister John G. Diefenbaker. The plan, in response to the Canadian government's concern with over-reliance on the United States, was to adopt policies that would see up to 15 percent of Canada's US exports diverted to the UK. Representatives for both Diefenbaker and British Prime Minister Harold Macmillan held exploratory talks, but no agreement was ever reached.
Britain's entry into the European Economic Community (EEC) in 1973, and its evolution as a member state of the European Union (EU) has meant that for practical purposes, the United Kingdom cannot independently enter into negotiations with Commonwealth states to establish a free trade agreement. Instead, the EU, as a representative of all its members, negotiates collectively. However, after the decision on 23 June 2016 by Britain to leave the EU and as the Article 50 of the EU's Lisbon Treaty has been invoked, Britain will be able to negotiate its own trade deals.
In 1997, the Commonwealth Heads of Government Meeting (CHOGM) at Edinburgh was presented with research conducted by Drs. Sarianna Lundan and Geoffrey Jones, and commissioned by the Commonwealth Secretariat. The paper, entitled "The 'Commonwealth Effect' and the Process of Internationalisation", measured whether or not Commonwealth jurisdictions enjoyed a qualitative advantage in trade with one another as opposed to equivalent non-Commonwealth nations. Their research found that even in the absence of trade treaties, there was a clear cost advantage in trade between Commonwealth nations, and that the overhead costs of doing business were reduced by up to 15 percent in comparison to trade outside the Commonwealth.
The Commonwealth Advantage program was a shared initiative between the Toronto Branch of the Royal Commonwealth Society, and the Canadian Advanced Technology Alliance (CATA) which ran from 2004 until 2008. Chaired by the Hon. Sinclair Stevens, a former Canadian International Trade Minister, the campaign was focused on developing strategic partnerships between Commonwealth-based companies.
In response to the lack of progress achieved in the Doha round of trade liberalisation negotiations in the World Trade Organization, Commonwealth Heads of Government, at their 2005 Summit in Malta, endorsed the idea of pursuing trade agreements among Commonwealth member states.
Because of their very different economic profiles Commonwealth countries' interests are not always aligned. In principle, resource exporters such as Canada, Australia, and most of the Caribbean and African Commonwealth countries are complementary to resource importers such as the United Kingdom and India. However, the historical trade ties between them were based on terms which were dictated by the Colonial Office in Britain. Since the former dominions and colonies have achieved independence, they are free to refuse British initiatives and seek better deals elsewhere. Specifically, agricultural exporters in the Cairns Group (including members Australia, Canada, New Zealand, Pakistan, and South Africa) are at odds with the importing countries at the World Trade Organization. These countries pursue independent trade policies. Notably Australia (2005) and Canada (1988), and Singapore (2004) have free trade agreements with the United States, and New Zealand (2008) has one with China. Meanwhile, New Zealand and Singapore are already members of the Trans-Pacific Strategic Economic Partnership, which Australia, Canada and Malaysia are attempting to join (along with major non-Commonwealth countries). Furthermore, the proposed Comprehensive Economic Partnership for East Asia would include Malaysia, Singapore, Brunei, India, Australia, and New Zealand.
Commonwealth trade, as such, has not been a notable policy position in Canada since the failed Diefenbaker proposal of the 1950s. Instead Canada has pursued deep economic integration with the United States on the one hand (including a free trade agreement in 1988), and a generalised diversification of trade on the other hand including the "third option" policy of the 1970 (a failed attempt to diversify Canada's trade via negotiations with Japan and the European Economic Community). This has been reinforced with a new wave of free trade agreements following NAFTA in 1994, including five Latin American countries, the European Free Trade Association and more recently the European Union, as well the failed Free Trade Area of the Americas in the early 2000s, and negotiations towards the Trans-Pacific Partnership since 2012.
In 2005, Canadian writer and political activist Brent H. Cameron wrote 'The Case for Commonwealth Free Trade', which argued the merits of establishing a trade and investment agreement that would initially combine the most developed member economies (Australia, Canada, New Zealand, Singapore) but could eventually include developing members such as India and South Africa. Cameron conceded that UK participation would be difficult with European Union (EU) membership, but suggested that it be included if Britain were to exit that agreement:
"It is proposed that a CFTA membership and expansion be conducted in four distinct phases: Phase 1 would see the creation of an initial grouping of four nations - Australia, Canada, New Zealand, and the United Kingdom. This grouping represents the most affluent and industrialized economies of the Commonwealth. Combined with stable political, judicial and social institutions, their ability to quickly integrate into a CFTA is vitally important if the organization is to have the ability to expand and succeed."
As of 2013[update], 75% of Canadian trade takes place with countries which Canada has a free trade agreement, but this does not include any Commonwealth members. As of 2013[update] Canada is currently in negotiations with the Caribbean Community (primarily Commonwealth countries), the European Union (UK, Malta and Cyprus are Commonwealth members), as well as India and Singapore.
Winston Peters, the leader of the New Zealand First political party, called in February 2016 for a Commonwealth Free Trade Area modelled on the one in existence between Australia and New Zealand. In his comments, he suggested the inclusion of the UK, Canada, Australia and New Zealand in this area, with the possibility of adding South Africa, India, or others, referring to the putative free trade area as a 'Closer Commonwealth Economic Relations' area, or CCER. CCER was included as New Zealand government policy in the Labour-NZ First coalition agreement.
The United Kingdom has been a member of the European Union and has therefore been unable to negotiate its own trade agreements for several decades. However, after the United Kingdom formally leaves the European Union, it may again be able to negotiate its own trade deals. While the UK has been in the EU it has actively pressured the EU to pursue trade agreements with other Commonwealth countries. In part, this has resulted in the EU initiating negotiations on free trade agreements with a number of Commonwealth countries. At present, Canada and India are both in the midst of negotiating free trade agreements with the European Union. Furthermore, a number of Commonwealth countries, including South Africa, Cameroon, Zambia, and the 12 commonwealth members of the Caribbean Community, already have free trade agreements with the EU. The EU, through the Lome and Cotonou Agreements, have extended some preferential trade access to developing Commonwealth countries.
However, the idea of establishing a free trade area within the Commonwealth has garnered interests in the UK amongst politicians and parties that advocated leaving the European Union who cite the development of a Commonwealth free trade policy as an important step in reshaping the UK's trade policy. The UK Independence Party has included a call for a Commonwealth Free Trade Agreement in its policy manifesto during the 2010 British general election. In addition, some members of Britain's Conservative Party, including MEP Daniel Hannan and MP Andrew Rosindell, have written extensively on the merits of expanding trade within the Commonwealth and the broader Anglosphere.
On October 8, 2012, Tim Hewish and James Styles released their paper "Common Trade, Common Wealth, Common Growth" at the UK Conservative Party Conference in Birmingham, England. The following day saw British Foreign Secretary William Hague comment upon how the Commonwealth, which had been 'neglected' by previous UK governments, presented "enormous opportunities" for the nation.
Supporters of Britain's membership of the European Union have criticised the proposal for a Commonwealth free trade area as unlikely in practice to come to fruition.