EconoMatters, Rethinking Europe

UK: Commonwealth Hype — A Reality Check

Probing the economic wisdom of the UK leaving the EU’s “Common Wealth” for former imperial shores.

Credit: Visit Britain www.flickr.com

Takeaways


  • The new hot suggestion from the Brexiteers is to rejoin the earlier Crown colonies with an intense web of trade deals. This makes the Commonwealth of Nations the UK’s new promised land.
  • The Commonwealth accounts for 32% of the world’s population and 13.6% of global GDP. That sounds great, but is mainly due to India which is known to be a very prickly negotiator.
  • Excluding India and the UK, the Commonwealth only produces 7% of global GDP.

As a growing number of Britons look ever more anxiously at the enormous economic costs of Brexit, Brexiteers are unfazed. They promise to make Great Britain great again. They remain adamant about exiting from the “common wealth” of the European Union.

That is a market of 508 million people, with a combined GDP equal to 24.1% of the world’s total. Not only that — the UK economy is also very well integrated into that economic bloc and has benefited considerably, not least in terms of productivity increases.

The May government says it is eager to leave, so that it is finally liberated to determine its own destiny. That sounds good, until one realizes that the UK Department for International Trade is currently in the job market, busily advertising in The Economist magazine and elsewhere to find trade negotiators(!).

In a country that has historically put a great deal of stock in traditions, the new hot suggestion from the Brexiteers is to rejoin the earlier Crown colonies with an intense web of trade deals. This makes the Commonwealth of Nations the UK’s new promised land.

The advocates of this approach point to the Commonwealth having 53 member countries (which is more than all of Europe has). The Commonwealth also accounts for a whopping 32% of the world’s population and 13.6% of global GDP.

That sounds great. It becomes even more impressive with the growth figures bandied about by the Brexiteers. They say the EU grew a measly 2% since Britain joined in 1973, while the Commonwealth clocked in at 4.4%.

A closer look

But how about some closer look at those numbers? First, that growth differential, tantalizing as it sounds, is predominantly due to the economic performance of one country, India.

And indeed, India is a big prize in the trade game for any country or economic bloc to partner with. The trouble is the Indians know that full well. The Indians are also known to be very prickly negotiators when it comes to any international agreement, and especially so on trade and investment matters.

For Britain to get to a deal at all is thus going to prove fiendishly difficult, if not impossible. From a UK perspective, it doesn’t help that the Indian side is adamant about obtaining visa rights. That, however, flies in the face of the Brexiteers’ promise to have very strict controls over who gets to come into the UK.

The EU’s experience is a case in point. Negotiations on a free trade agreement with India began in 2007, were suspended in 2013 and were just recently picked up again. Obstacles remain formidable.

In what must be a blow to British ambitions, some Indian negotiators see such an agreement as a possible entry point to more trade with the UK after(!) Brexit — rather than imagining a possible bilateral agreement with Britain to give the country better access to EU markets.

Thus, a deal with India might not even be in the cards, not least because colonial hurt from British rule still lingers. At a minimum, it would take a long time to negotiate. Then, the Commonwealth (ex-India) encompasses only 15% of the world population.

A reality check

As to the numbers’ game the Brexiteers like to engage in, a reality check leads to further sobering news. Beyond India, one also cannot really include the Commonwealth’s second-largest economy, the UK itself.

Ex-India and ex-UK, the Commonwealth only produces 7% of global GDP. Without the third- and fourth-largest economies, Canada and Australia, the Commonwealth’s economic heft shrinks further: The remaining 49 countries produce a measly 2.6% of world GDP.

The entire UK approach to making up for what it loses with abandoning EU membership will also prove very inefficient. Remember that the EU already has a free trade agreement with Canada, the Commonwealth’s third-largest economy. The UK will no longer be a party to that agreement after Brexit and will have to negotiate a new one. That, too, will take years.

As to Australia, the Commonwealth’s fourth-largest economy, the EU is already negotiating an agreement with the country Down Under.

What about the much-mythologized New Zealand, where the entire movie trilogy of The Lord of the Rings was filmed? For all it beauty, that country accounts for 0.06% of the world population and 0.2% of world GDP.

It is also important to note that the country’s Prime Minister, Jacinda Ardern, just visited Angela Merkel in Berlin, where they talked about a free trade agreement between the EU and New Zealand.

All of those points are facts. Just don’t let them get in the way of Brexiteer enthusiasm.

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About Uwe Bott

Uwe Bott is the Chief Economist of The Globalist Research Center. [New York/United States]

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