Commonwealth free trade facts for kids

Kids Encyclopedia Facts

Commonwealth free trade is about making it easier for countries in the Commonwealth of Nations to trade with each other. Imagine a group of friends who agree to swap toys without any extra fees or rules – that's a bit like free trade!

For a long time, countries in the British Empire had special trade rules. This was called the Imperial Preference system. But after World War II, things changed a lot around the world. The United Kingdom then joined the European Economic Community (which later became the European Union), and the old system ended.

In recent years, people have started talking again about boosting trade among Commonwealth countries. Some even suggest creating a huge free trade area that includes all Commonwealth members.

Today, many Commonwealth countries are part of smaller trade groups. For example, some are in the European Union, the Caribbean Community, or the East African Community. However, at a big meeting in Malta in 2005, Commonwealth leaders agreed that members should try to trade more freely with each other. This was especially to help the poorer countries by letting them sell their goods without extra taxes or limits in richer countries. They also wanted to improve how they talk and work together on trade.

The idea of a big Commonwealth free trade area became quite popular in Britain, especially among people who wanted the UK to leave the European Union before the 2016 United Kingdom European Union membership referendum.

A Look Back: How Trade Changed

Early Days of Empire

For hundreds of years, from the 1600s to the 1800s, Britain had an informal way of trading with its colonies and self-governing areas around the world.

Last Years of the British Empire

In the early 1900s, some important British politicians, like Joseph Chamberlain, wanted to create a policy called Imperial Preference. This meant giving special trade benefits to countries within the British Empire. Their goal was to make the Empire stronger and keep Britain powerful. However, this idea caused a lot of debate. Some people wanted special trade within the Empire, while others wanted free trade with all countries.

This disagreement even affected elections, leading to defeats for the Conservative-Unionist government in 1906, 1923, and 1929. One success was the Empire Marketing Board, set up in 1926, which encouraged people in Britain to 'Buy Empire' goods.

In 1930, a politician named Oswald Mosley suggested a plan to make the British Empire a self-sufficient trading group. This plan also included big projects to create jobs and better pensions. But the government rejected his ideas because they were too expensive.

The Great Depression and Ottawa Meeting

During the Great Depression in 1933, leaders from Britain, its Dominions (like Canada and Australia), and Colonies met in Ottawa, Canada. They talked about trade and cooperation. They agreed on some ideas for Imperial Preference, but a full agreement didn't happen.

Later, in 1935, the Canadian Prime Minister, R. B. Bennett, who supported Imperial Preference, was replaced by William Lyon Mackenzie King. King decided to stop the Imperial Preference system, partly due to pressure from the United States. The United States was generally against special trade deals like the one the Commonwealth had.

After World War II

After World War II, the world changed a lot. The United States became a very strong economic power. It wanted to promote free trade for everyone, mainly through a new agreement called the General Agreement on Tariffs and Trade (GATT). Also, a meeting in 1944 created a system where the United States dollar became the main currency for international trade.

Britain was also very poor and in debt after the war. It couldn't buy as many goods from Commonwealth countries. Because of this, countries like Canada started trading more with the United States.

In the 1950s, the Canadian Prime Minister, John G. Diefenbaker, tried to get Canada and Britain to trade more. He wanted Canada to send more of its goods to the UK instead of the US. But this plan never worked out.

Britain Joins the EEC

When Britain joined the European Economic Community (EEC) in 1973, it meant the UK could no longer make its own trade deals with Commonwealth countries. The EEC (and later the EU) made trade deals for all its members. However, after the 2016 United Kingdom European Union membership referendum and Britain's decision to leave the EU (known as Brexit), the UK can now make its own trade agreements again.

The Commonwealth Effect

At a big Commonwealth meeting in Edinburgh in 1997, some researchers shared an interesting discovery. They found that even without special trade agreements, Commonwealth countries had an advantage when trading with each other. It was like doing business with them was about 15% cheaper than trading with non-Commonwealth countries. This was called the "Commonwealth Effect."

Commonwealth Advantage Program

From 2004 to 2008, there was a program called the "Commonwealth Advantage." It aimed to help companies in Commonwealth countries work together and form partnerships.

CHOGM 2005 – Malta Meeting

In 2005, at another big meeting in Malta, Commonwealth leaders decided to explore trade agreements among themselves. This was because global trade talks weren't making much progress.

Trade After Brexit

Since deciding to leave the European Union, the United Kingdom has started making new trade deals with many countries, including several Commonwealth members. For example, the UK has signed agreements with countries in the CARIFORUM group, Fiji, Papua New Guinea, and Australia. They are also talking with Canada and New Zealand. However, these are separate deals, not one big Commonwealth-wide free trade agreement.

Commonwealth Free Trade as a Policy Idea

Commonwealth countries have very different economies, so their trade interests don't always match up. For example, countries that export natural resources, like Canada and Australia, could trade well with countries that need those resources, like the United Kingdom and India. But in the past, trade rules were set by Britain. Now, independent countries can choose their own trade partners.

Many Commonwealth countries have made their own trade deals. For instance, Australia, Canada, and Singapore have free trade agreements with the United States. New Zealand has one with China. Also, some Commonwealth countries are part of other large trade groups that include non-Commonwealth nations.

Canada's Trade Focus

Since the 1950s, Canada has mostly focused on strong economic ties with the United States. This includes agreements like the North American Free Trade Agreement (NAFTA) and the United States–Mexico–Canada Agreement (USMCA). Canada has also tried to trade more with other parts of the world, like Japan and the European Union.

In 2005, a Canadian writer named Brent H. Cameron suggested creating a "Commonwealth Free Trade Area" (CFTA). He thought it should start with the richest Commonwealth countries like Australia, Canada, New Zealand, and the United Kingdom. He believed it could then grow to include other countries like India and South Africa.

As of 2013, about 75% of Canada's trade was with countries it had free trade agreements with, but this didn't include many Commonwealth members. However, Canada has since signed trade deals with the European Union (which includes Malta and Cyprus, Commonwealth members) and directly with the UK after Brexit.

New Zealand's View

In 2016, Winston Peters, a New Zealand politician, suggested a Commonwealth Free Trade Area. He thought it could be like the successful trade agreement between Australia and New Zealand. He proposed including the UK, Canada, Australia, and New Zealand, and possibly adding South Africa or India. This idea became part of New Zealand's government policy. As of 2021, New Zealand is negotiating a free trade deal with the UK.

United Kingdom's Trade Policy

Before Brexit

For many years, the United Kingdom was part of the European Union, so it couldn't make its own trade deals. However, the UK encouraged the EU to make trade agreements with Commonwealth countries. As a result, the EU has deals with some Commonwealth nations like South Africa, Cameroon, Zambia, and the Caribbean Community members. The EU also gave some special trade access to developing Commonwealth countries.

Despite this, many politicians in the UK who wanted to leave the EU believed that a Commonwealth free trade area would be a very important step for Britain's trade future. Parties like the UK Independence Party and some members of the Conservative Party supported this idea.

In 2012, a paper called "Common Trade, Common Wealth, Common Growth" was released at a Conservative Party meeting. The British Foreign Secretary, William Hague, then said that the Commonwealth offered "enormous opportunities" for the UK.

However, those who supported Britain staying in the EU often said that a Commonwealth free trade area was unlikely to happen in reality.

After Brexit

Since leaving the EU, the UK's policy has been to be an independent trading nation. It is looking for trade deals not just with Commonwealth countries, but also with major economies like the United States. This shows that the UK now has wider trade interests than just within the EU.

More to Explore

Publications

Books

The Choice: A Fable of Free Trade and Protection
Free Trade Reimagined: The World Division of Labor and the Method of Economics
Free Trade
Free Trade and Prosperity: How Openness Helps the Developing Countries Grow Richer and Combat Poverty

Podcasts

What's the Commonwealth good for?-The Indicator From Planet Money-By Wailin Wong, Darian Woods, Corey Bridges, Kate Concannon

Images for kids

A vision of trade within the British Empire.
A map showing countries with which the EU has, or is negotiating, free trade agreements.

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