The EU and the Commonwealth
By Steve Peers
Professor of EU Law and Human Rights Law, University of Essex
When the UK joined the EU, it reduced its trade ties with many Commonwealth countries in order to sign up to the EU’s common trade policy. It’s sometimes suggested that if the UK left the EU, it could simply reverse that policy, making up for any loss in trade with the remaining EU by increasing Commonwealth trade again.
But this argument rests on a false assumption. In fact the EU does not prevent the UK from trading with the rest of the world – or the Commonwealth in particular. First of all, the EU has no impact on the commercial type of trade deals, like the £9 billion worth of trade deals between the UK and India agreed during the recent visit of the Indian Prime Minister.
On the other hand, because it is a customs union with a common trade policy, the EU does have powers on the sort of trade deals which concern government regulation. But since the UK joined the EU over 40 years ago, the EU’s trade policy has been transformed, in part at the UK’s urging. The EU no longer focusses on trade deals with neighbouring countries only, but has been negotiating deals with states across the world.
For the Commonwealth in particular, this policy change means that the EU has agreed free trade agreements (FTAs), or is in the process of negotiating free trade agreements, with the vast majority of Commonwealth states – a full 90% of the 50 Commonwealth countries that are not in the EU. This includes the six Commonwealth states that accounted (in 2011) for 84% of Commonwealth trade – and many more besides.
More precisely, there are already FTAs in force between the EU and 18 of those 50 Commonwealth states (36% of the remaining Commonwealth). The EU has agreed FTAs with 14 of those countries (28%), subject only to completing the ratification process. It is negotiating or about to start negotiating FTAs with 13 states (26%). That leaves only 5 Commonwealth states (10% of the non-EU total) that the EU is not planning FTA talks with. (For full details of the status of EU trade relations with each of the countries concerned, with links to further information, see the Annex to the blog post on the EU Law Analysis blog).
It’s sometimes suggested that the EU’s trade deals with other countries don’t benefit the UK. But the UK’s exports to Commonwealth countries have been increasing at over 10% a year – with increases (over two years) of 33% to India, 31% to South Africa, 30% to Australia and 18% to Canada. In fact, since 2004, British exports to India are up 143%. Needless to say, this increase in trade with the Commonwealth (while an EU member) must have created or maintained many British jobs.
Is it possible that after leaving the EU, the UK could negotiate trade deals with Commonwealth countries more quickly, or deals which are even more favourable to the UK? First of all, as noted above, the EU already has agreed trade deals with 64% of Commonwealth countries, and is negotiating with another 26%. Some of the latter negotiations are likely to be completed by the time that ‘Brexit’ took place.
So the UK would have to ask perhaps three-quarters of its Commonwealth partners for trade deals to replace those already agreed with the EU. They might agree quickly to extend to the UK a parallel version of their existing arrangement with the EU, since that would not really change the status quo. But they might not be interested in negotiating any further trade liberalisation. If they are interested, they will ask for concessions in return, and this will take time to negotiate.
For the remaining one-quarter or so of states, the UK will have to start negotiations from scratch, in some cases having to catch up with EU negotiations that are already underway. And there is no guarantee that these other states will want to discuss FTAs, or that negotiations would be successful.
Overall then, there’s no certainty that UK exports to the Commonwealth would gain from Brexit. They might even drop, if some Commonwealth countries aren’t interested in replicating the EU’s trade agreements. Alternatively, they might increase – but it’s hard to see how any gain in British exports would be enormous, given the existence of so many FTAs between the EU and Commonwealth countries already, and the uncertainty of those states’ willingness to renegotiate those deals.
It seems very unlikely that the UK’s trade with the EU would be unaffected by Brexit, since the remaining Member States would be unlikely to create an incentive to leave by extending continued unlimited trade access to a departing Member State. So, even if the UK could increase its exports to the Commonwealth, would this make up for any loss in UK exports to the EU following Brexit?
The key fact to keep in mind here is that the UK’s trade with the Commonwealth is less than one-quarter of its trade with the EU. So to make up for even a 10% drop in exports to the EU, the UK would have to increase exports to the Commonwealth by more than 40%. How likely is that, when the vast majority of trade between the EU and the Commonwealth would already be covered by FTAs at that point?
Taken as a whole then, it’s clear that the UK can have it both ways, trading with both the EU and the Commonwealth – and this trade will only increase in future as more EU FTAs with Commonwealth states come into force or are negotiated. Leaving the EU, on the other hand, is liable to lead to reduction in trade with the remaining EU without any plausible likelihood that trade with the Commonwealth would increase by anything near the level necessary to compensate.by