Why the UK’s first port of call should be the Commonwealth if it leaves the EU
16 February 2015
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16 February 2015
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17 February 2015
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In our chapter for the IEA‘s latest monograph Brexit: Directions for Britain Outside the EU, Tim Hewish and I argue that, if Britain were to leave the EU, its first port of call when seeking new international trading partners should be the Commonwealth and Anglosphere nations.
There are a number of reasons for this, some of which I will outline below and others which can be found in the monograph and in Why Trade in Commonwealth Markets.
First and foremost, we should not underestimate the incredible advantage we have in the English language. Around 1.75 billion people speak English to a reasonable level. Those who speak English as a first language are responsible for an estimated 28.2 per cent of global GDP.
As well as generally reducing the costs to businesses from not needing to pay for translators, language training, or pay higher wages to multilingual employees, there are also far more tangible benefits to focusing our initial efforts on English-speaking countries. Pankaj Ghemawat found that two countries that share a common language trade 42 per cent more with each other than two identical nations that lack the same bond.
In a similar vein, our shared legal systems present a huge opportunity for Commonwealth trade. Over 80 per cent of Commonwealth countries use Common Law or have it as the primary factor in their system. Again, there are obvious cost savings to businesses but also clear tangible effects. Roumeen Islam and Ariell Reshef (2006) found that ‘different legal origins do have a detrimental effect on trade, between 10% and 25%.’
The Commonwealth is also a growing market. As the EU continues to struggle register significant growth, Commonwealth countries have an estimated average annual growth of 7.3 per cent and a combined growth of nearly 4 per cent. As a whole it is already slightly larger than the Eurozone.
Many Anglosphere and Commonwealth nations are also remarkably good places to trade with and do business in. The top four countries in the World Bank’s ‘Ease of Doing Business rankings’ are all Anglosphere countries, as are the top five in the ‘Starting a Business’ and ‘protecting investors’ league tables. Similarly, The Heritage Foundation’s Index of Economic Freedom identifies only five countries as ‘entirely free’. The top four are all in the Anglosphere.
Finally, the internet will play an ever increasing role in global commerce in the years to come. Once again there is a significant advantage for the Commonwealth here, not least due to the English language. Almost 85 per cent of home pages and an estimated 55 per cent of all internet content are in English.
Commonwealth countries are also leading the way in internet penetration. In Africa, there are over 89 million Commonwealth internet users, representing 53 per cent of the continent’s total users, nearly 10 per cent more than would be expected compared to their population. The picture is even better in South-East Asia. The regional average of internet penetration is only 31.6 per cent, but the average figure in Commonwealth economies in the region is a staggering 71.2 per cent. Indeed it is only Commonwealth nations which have internet penetration higher than 35 per cent; without them the regional average falls to just 16.7 per cent. The impact on trade should not be underestimated. Changkyu Choi (2010) observed that ‘a doubling of Internet usage in a country turned out to lead to a 2 to 4 per cent increase in services trade.’
To conclude, we suggest that by focusing on Commonwealth and Anglosphere countries the UK can not only avoid or reduce many of the non-tangible trade barriers it might expect to face elsewhere, but also reap the significant advantages of existing trends, incredibly open potential trading partners and the ever growing importance and power of the internet.
For more details, see: Brexit: Directions for Britain Outside the EU.
Ralph Buckle is the Director and Co-founder of Commonwealth Exchange.
There are a number of reasons for this, some of which I will outline below and others which can be found in the monograph and in Why Trade in Commonwealth Markets.
First and foremost, we should not underestimate the incredible advantage we have in the English language. Around 1.75 billion people speak English to a reasonable level. Those who speak English as a first language are responsible for an estimated 28.2 per cent of global GDP.
As well as generally reducing the costs to businesses from not needing to pay for translators, language training, or pay higher wages to multilingual employees, there are also far more tangible benefits to focusing our initial efforts on English-speaking countries. Pankaj Ghemawat found that two countries that share a common language trade 42 per cent more with each other than two identical nations that lack the same bond.
In a similar vein, our shared legal systems present a huge opportunity for Commonwealth trade. Over 80 per cent of Commonwealth countries use Common Law or have it as the primary factor in their system. Again, there are obvious cost savings to businesses but also clear tangible effects. Roumeen Islam and Ariell Reshef (2006) found that ‘different legal origins do have a detrimental effect on trade, between 10% and 25%.’
The Commonwealth is also a growing market. As the EU continues to struggle register significant growth, Commonwealth countries have an estimated average annual growth of 7.3 per cent and a combined growth of nearly 4 per cent. As a whole it is already slightly larger than the Eurozone.
Many Anglosphere and Commonwealth nations are also remarkably good places to trade with and do business in. The top four countries in the World Bank’s ‘Ease of Doing Business rankings’ are all Anglosphere countries, as are the top five in the ‘Starting a Business’ and ‘protecting investors’ league tables. Similarly, The Heritage Foundation’s Index of Economic Freedom identifies only five countries as ‘entirely free’. The top four are all in the Anglosphere.
Finally, the internet will play an ever increasing role in global commerce in the years to come. Once again there is a significant advantage for the Commonwealth here, not least due to the English language. Almost 85 per cent of home pages and an estimated 55 per cent of all internet content are in English.
Commonwealth countries are also leading the way in internet penetration. In Africa, there are over 89 million Commonwealth internet users, representing 53 per cent of the continent’s total users, nearly 10 per cent more than would be expected compared to their population. The picture is even better in South-East Asia. The regional average of internet penetration is only 31.6 per cent, but the average figure in Commonwealth economies in the region is a staggering 71.2 per cent. Indeed it is only Commonwealth nations which have internet penetration higher than 35 per cent; without them the regional average falls to just 16.7 per cent. The impact on trade should not be underestimated. Changkyu Choi (2010) observed that ‘a doubling of Internet usage in a country turned out to lead to a 2 to 4 per cent increase in services trade.’
To conclude, we suggest that by focusing on Commonwealth and Anglosphere countries the UK can not only avoid or reduce many of the non-tangible trade barriers it might expect to face elsewhere, but also reap the significant advantages of existing trends, incredibly open potential trading partners and the ever growing importance and power of the internet.
For more details, see: Brexit: Directions for Britain Outside the EU.
Ralph Buckle is the Director and Co-founder of Commonwealth Exchange.
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