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The Case for Commonwealth Free Trade: Options for a New Globalization -Chapter 8, Network Trading

This is a chapter from the author’s book. You can purchase the book in full here.

A Commonwealth Free Trade Agreement would resemble a ‘geodesic’ model of cooperation, with each member state functioning as a support point in and of itself. That this is a much improved approach over the old Imperial and Empire Preference systems has been addressed.

The one important distinction between a CFTA and its predecessors, however, deserves more specific examination – that of its openness.

The Imperial system and Empire Preference existed in the pre-GATT / WTO world. That meant that trading blocs had a dual purpose – to erect tariff walls around the whole as it sought to lower or eliminate them internally.

The GATT put an end to that practice which, after the experience of the Great Depression and a decade of ‘beggar thy neighbour’ trade policies, had been shown to be corrosive to economic growth and, by extension, geopolitical stability. Even if the desire was to replicate Empire Preference circa 1932, it could not erect protective tariffs around the bloc without its members running afoul of their treaty commitments under the WTO.

Something else, however, has changed – something arguably more important.

In 1932, and prior to that date, the rationale for such trading partnerships was political and strategic. If economics factored into the equation, it was as a means to an end. British political and geostrategic power hinged on economic clout, and vice versa. Colonial development was seen in the light of maintaining the whole by buttressing the hub and reinforcing some of the larger spokes. Prior to 1932, it was about maintaining an imperial advantage over peer competitors. At the Ottawa Conference, it was more about surviving the Depression. In this light, trade policy can be seen as less about building and enhancing than it was about staying ahead of the pack and ensuring the survival of the Empire.

In 2018, there is no Empire, no hub, no spokes, and no advantage to maintain – only affinities and shared attributes and interests. In short, what remains are the perfect conditions to design a new system that works more effectively, more intuitively.

Technology has transformed our economy, and our society. The ubiquitous nature of computing and telecommunications gives the current generation more potential and opportunity than what would have been imagined a couple of decades ago.

Central to this revolution has been the prevalence of networks – both physical and virtual. Our telephones, computers and all manner of devices connect to one another via networks, but as individuals we also mirror those tendencies. We connect to others using social media, but we also join all manner of associations, organizations and communities. Whether you join a local Rotary Club, Chamber of Commerce, or post your resume on a service like LinkedIn, you are becoming an intersecting point in a larger web.

Like their human counterparts, physical networks depend upon the ‘compatibility’ of internet protocols and software. When connected devices set up the parameters to communicate with one another, it is referred to as ‘handshaking’, and it serves the same purpose as the more conventional understanding of the term.

Human networks have their own ‘protocols’ to regulate interactions. Countries have constitutions and legal codes, clubs have bylaws and rules for memberships. Even the most basic of these networks – the nuclear family – has rules about dinner time, use of the television, and when the lights get turned out.

The ‘Commonwealth Effect’ should be considered as analogous to an internet protocol for an online network. Member states are akin to devices that, having that software installed, are able to connect to and access the broader network. They can connect and interact with other devices, no differently than cell phones using a network to place and maintain a call.

The purpose of a network is to connect and to sustain transactions between parties. At this level of understanding, trade between nations functions no differently. The quality of the connection dictates the quality of the relationship. Shared affinities and compatibility serve the same purpose in international trade as they would in a phone call – the stronger the signal, the clearer the conversation.

Network Density

As previously discussed in Chapter 5 (What Went Wrong), the advantage of the ‘geodesic’ model that a CFTA would entail is that it increases the number of intersectional points compared to the old Imperial ‘hub and spoke’ architecture.

In the computing world, this phenomenon is referred to as ‘network density’, with each entity being described as a ‘node’:

“For any set of nodes in a network, there is a finite number of relationships possible. Each node can serve as the source or the target of a relationship with every other node.”[1]

Simply put, for every one node you add to a network, you can potentially add an additional relationship to every other node already in the network.

This assumes a ‘dense network’, which a CFTA would be, as opposed to a ‘sparse network’ where each node connects to only one or two other points. The Imperial system was a sparse network, with the UK being the one node that all others connected to.

Measurement of network density is an important factor in the design of computing and telecommunications, as the denser the network, the more information that flows. According to IBM:

“The density statistic represents the proportion of possible relationships in the network that are actually present. The value ranges from 0 to 1, with the lower limit corresponding to networks with no relationships and the upper limit representing networks with all possible relationships. The closer the value is to 1, the more dense is the network and the more cohesive are the nodes in the network.”[2]

If every entity in this sample had relationships to each other (55 potential connectors), the network would have a density value of 1. As we can see in Fig. 5, only 10 relationships exist, but in Fig. 6 with the same entities, there are 55 distinct possible relationships. Assuming for the purposes of this sample, 55 is the optimal density, and has a value of 1.0, then the hub and spoke network’s density would be only 0.19.

If we were to extrapolate this to the full Commonwealth membership, the hub and spoke model would consist of Britain maintaining 51 individual relationships with other member states. A full geodesic / dense network for a modern Commonwealth Free Trade Association with full participation would produce 1326 distinct relationships. One can calculate this by the following formula:

X= n(n-1)/2

where n is equal to the number of members.

It is important to bear in mind that this reflects a simple network of Commonwealth member states and their potential interactions with one another. The number includes Malta, for example, who by virtue of their membership in the European Union, would be precluded from direct connection to this core network.

‘Clustering Coefficients’

The above model, while very useful on a macro level, does not fully reflect the nuances of the connections. That is to say, not all connections are created equal.

The geodesic schema above shows a collection of nations and regions interconnected by a web of relationships, like a series of wires on a circuit board. We know, of course, that not all wires and circuits are created equally.

Your home contains a multitude of wires, breakers and fuses. Together, they form a wiring system that provides power to every electrical device within it. But the need for power is not equally distributed. The power required to operate your water heater is different from your cell phone charger. Treat the two equally and you will end up with cold water, a burnt out cell phone, or both. Each appliance and device makes unique connections to your household grid, using a specific amount of wattage, voltage and amperage to work within its design parameters.

A CFTA, at full participation, would have individual members whose population ranges from less than 100,000 to over 1 billion, and GDP’s that inhabit a range from the size of a medium sized US city to that of a G7 peer. Physically, they can be as small as an island or as large as a continent. The capacity and the capabilities of each individual member, like the examples above, can vary dramatically. Some members and connections, like household appliances, will operate on very high voltage on wiring designed to withstand the currents. Others will not require as much to operate, and the connections will not be as heavy.

Like appliances in a house, despite the differences in their operation and function, they all depend upon the electricity supplied to the whole. It is not about the volume, the frequency, or the mass of the trade per se, but the access to it. A CFTA ideally provides access to trade, the opportunity to tap into the current. That Vanuatu’s draw on the current will be different than Canada’s is a logical given.

The fact is that each Commonwealth member states will, based on its attributes and affinities, will ‘hook into’ and interact with the network in wholly unique ways. In the study of mathematics, and its subset of combinatorics, this phenomenon is referred to as the ‘clustering coefficient.’

For those not inclined to tool down into the minutiae of graph theory, or a re-visitation of Leonard Euler’s ‘Seven Bridges of Königsberg’ experiment (the precursor of both graph theory and topology), it is easiest to suggest one thing. Just picture Figure 6 with its equally sized circles, and the lines of equal length and thickness that connect them all, now do the following:

  1. Change the size of each circle based on the size of population and GDP;
  2. Change the thickness of the lines based on how much trade will pass between the respective ‘circles’; and,
  3. Move each of the circles either closer together or further apart based on geography, level of socioeconomic development, industrialization, infrastructure and the sophistication of their governments and supporting civil services

What you are left with is still a densely connected network, but the picture no resembles something more like a modern art sculpture than a geometric shape! It might not look as elegant as it did before, but it is still strong and – surprisingly enough – very efficient.

The question of clustering and convergence is an important one, and has implications for all manner of sophisticated networks, and other organizations. Nations, for example, use census data to determine, among other things, where the greatest demand for particular services will be. Allocations of regional budgets and the decision to locate service offices in a particular area are all a function of this sort of analysis.

In 2003, research conducted by Barrat, Barthélemy, Pastor-Satorras, and Vespignani – titled ‘The architecture of complex weighted networks’ – looked at real world examples such as world-wide air traffic patterns and collaborations within the scientific community. They found that in both instances “it is possible to assign to each edge of the graph a weight proportional to the intensity or capacity of the connections among the various elements of the network.”[3]

Their analysis of both types of networks led them to conclude that there were “…clear signatures of a structural organization of networks in which different degree classes show different properties in the local connectivity structure” and that “the inclusion of weights and their correlations might change consistently our view of the hierarchical and structural organization of the network.”[4]

Commonwealth clusters

In 2016, research commissioned by the Commonwealth Secretariat looked trade data for 26 member economies for the period from 1995 to 2011 and found that intra-Commonwealth trade did also, in fact, conform to a clustering effect. It found that “trade between Commonwealth countries is significantly higher (38–50 per cent) than trade between Commonwealth countries and other nations.”[5] In this research, three separate and distinct ‘clusters’ were identified[6]:

  1. A ‘global’ cluster – including Canada, Australia, Malaysia, Singapore, New Zealand, Bangladesh, Pakistan, Sri Lanka, India, and Nigeria;
  2. A ‘European’ cluster –  including the United Kingdom, Cyprus, Malta and Cameroon; and,
  3. An ‘African’ cluster – including South Africa, Zambia, Kenya, Tanzania, Uganda, Rwanda, Mozambique, Malawi, Botswana, Namibia, Ghana and Mauritius

Further to their findings, the ‘intra-Commonwealth Trade Network’ or (ICTN) is gaining density, indicating both increased trade volumes between Commonwealth economies, and an increase in the number of trade relationships overall. This means that the trade volumes within the network are becoming less centralized among certain key players.[7] As the researchers explain “low levels of centrality are related to gains in resilience, that is, the network recovers and adjusts faster when there is an economic crisis in a specific geography.”[8]

Despite the lack of formality to the already existing Commonwealth trading network, it demonstrates the attributes of a dense network that is being shaped internally by a clustering effect. Should a CFTA be established, it will function much like any other mature network, with differences in intensity and capacity between various nodes. The variance in capacities between member states may, like the household appliance example above, require the equivalent of a ‘voltage regulator’ in relations between smaller developing members and the larger, more industrialized members. Further discussion of this occurs in later chapters.

Notwithstanding any specific adjustment programs applied to smaller, lesser developed members, the working of a CFTA along the lines of a ‘geodesic’ model would be stable, and would be strong. The mere fact that such networking is happening organically, with no longstanding and substantive trade treaty links between the larger member states – save for the bilateral ties between Australia and New Zealand (ANZCERTA) – the formalization of these organic trade networks should multiply both their number and their respective volumes.

Gravity

In the physical world, objects of a sufficient size generate a gravitational pull. The larger the object, the greater the force.

In the world of trade, commerce and culture, gravity also exists. We do not measure it so many Newtons per kilogram, but we feel its presence all the same. In the socioeconomic and geopolitical realm, we simply call it ‘soft power.’

The books you read, the movies you watch, and the songs you stream on your computer are all manifestations of this form of metaphysical gravity, as are the sports you follow and all of the subtle cultural references you make when with a group of friends for dinner or a pint.

The Commonwealth, being part of a broader Anglosphere, exerts an extremely potent gravitational pull – among its constituent parts – as well as beyond. From Hollywood to Bollywood, from jazz and rock and roll, from Shakespeare to JK Rowling, so much of the world’s popular culture is based on Anglospheric and Commonwealth foundations. People forget in the midst of the World Cup that a game followed with feverish frenzy throughout every continent and population began on English playing fields.

Culture is a unique product, as it is both an enhancer to commodities, and a commodity in its own right. It creates affinities that, in turn, make other transactions possible.

Notwithstanding the significant power of the United States in this regard, the member states of the Commonwealth generate a collective cultural gravity that pull them toward one another, and create affinities with non-Commonwealth members as well.

Consider the case of Rwanda – a nation badly scarred in the 1990’s by what was the largest humanitarian disasters since the Second World War. The genocide that took place across that nation was on a scale that had not been seen in five decades, and has only recently (and sadly) been overtaken by the civil war in Syria.

At no time in its history had Rwanda been part of the British Empire. It became a German colony in 1884, and then a colony of Belgium in 1916. From that time up to the near present, French had been the dominant non-Indigenous language, and laws were based on Belgian and German civil codes.

In 2009, Rwanda was formally admitted as a member of the Commonwealth. At the time, Information Minister Louise Mushikiwabo is quoted as saying:

“My government sees this accession as recognition of the tremendous progress this country has made in the last 15 years…Rwandans are ready to seize economic, political, cultural and other opportunities offered by the Commonwealth network.”[9]

Since that year, English replaced French as the language of instruction in Rwandan secondary schools, and currently the legal system in the country is being converted from the civil code to one based on English common law – a process which is not a simple matter.[10] And yet, despite the enormity of the change, especially given the history and the challenges that the nation faces, it has taken these steps.

If the gravity exerted by the Commonwealth in its current state was sufficient to bring about such influence, one can only speculate on what it might be able to achieve with a more focused and cooperative approach.

“The Mother of All Networks’

As the poet John Donne once wrote “No man is an island,” and no nation is apart from the broader world. Even a notoriously closed society like North Korea maintains close ties with a handful of countries, like China and Russia.

Each Commonwealth nation maintains a number of relationships independently of what it may, or may not do in the context of a CFTA. In the case of Canada, as of September 2017, it had concluded – or was in the process of negotiating – approximately 28 separate free trade agreements.[11] Some, like the original Canada-US Free Trade treaty were superseded by NAFTA, while others like CETA include multiple trading partners. In some cases, such as Mexico and Chile, and the United States, multiple agreements are affected. If one were to single out individual bilateral partnerships – current and potential – from this list, there are approximately 80 countries connecting to Canada in this process.

A good portion of these countries are Commonwealth jurisdictions, and it would be hoped that Canada’s trading relations with them would eventually be rationalized through a CFTA. But not every country is – in fact – a Commonwealth member. The Canadian list includes the Philippines, Mexico, the United States, Thailand, Chile and the Ukraine to name a few.

The non-exclusive nature of a proposed CFTA would make it more than just the simple dense network that the geodesic model suggests, for each node, or member, would connect out to more and more networks.  Consider the example of a LinkedIn or Facebook profile where you have friends or connections suggested. These suggestions are drawn from the group of people in the broader system that are ‘friends of friends’. In the case of LinkedIn, your direct contacts are labelled as 1st degree, while each of their 1st degree contacts show up on your list as 2nd degree contacts, and the direct contacts of the 2nd degree level list will appear as 3rd degree, or a ‘friend of a friend of a friend.’ Further to that are potential contacts that, while not being a 1st, 2nd or 3rd degree connection, may share membership in one of the specialized groups within the service – whether it be ‘Policy Researchers’, or ‘Copywriters’, or ‘Cake Decorators.’

This is the true transformational promise of a CFTA. As a stand-alone, it would potentially be the world’s largest trading network – both in terms of population and GDP. But each of its members would do more than simply reinforce the Commonwealth network. They would create multiple entry and access points for other networks – both trade and geostrategic – the overwhelming majority who are not, and would not likely be Commonwealth member states proper.

The list of Canada’s non-Commonwealth trade partners, chiefly the United States and Mexico, would by virtue of Canada’s participation in a CFTA provide a node connection to NAFTA. The CETA agreement would do similarly with the European Union. Once Britain has resolved its post-Brexit trading relationship with the EU, yet another node connection to a proposed CFTA would exist. Like the modern Internet, what would emerge would be a ‘network of networks’ with a CFTA serving a key role. A nation outside of the Commonwealth, with no history, affinities or relations with the ‘Anglosphere’ could still see direct benefit by virtue of being a ‘friend of a friend.’

Many of the existing regional trading blocs have potential CFTA partners within their ranks. Under these conditions, the CFTA would act as a ‘super node’ within a larger network, allowing non-CFTA economies to connect either directly or indirectly, whether or not a free trade or customs union agreement exists.

US companies, through NAFTA, receive national treatment for their Canadian subsidiaries, which would be free to trade within a CFTA. Such would also be the case for EU based companies through their British subsidiaries, and so on.

For the parent companies of these concerns, the increased trade exposure means greater opportunity, which also means increased opportunity for investment. For the CFTA partners that serve as a ‘conduit’, there is the promise of greater Foreign Direct Investment (FDI), enhancement of infrastructure and the generation of employment and tax revenue.

For CFTA-based concerns the same rules would apply, with the exception that they may find it necessary to establish subsidiaries in particular CFTA states for the expressed purpose of gaining entry into other trading blocs. South African companies, for example, could establish a physical presence in Canada to benefit from NAFTA access to the United States.

The benefit from this structure is its stability. Rather than being dependent upon the prospects of one central power, the CFTA will depend equally upon all members. With over 1.7 billion people spread over 50 nations and territories, it is logical to presume that any weakness in the economy of one member state could be offset by gains in another.

Also, because of the low levels of industrialization and per capita GDP in many cases, growth rates should remain relatively robust. When one accounts for the other non-CFTA relationships that connect to this network, this system may rely on a significant percentage of the world’s trade. When one considers the scope of a fully implemented CFTA and the ‘network’ it helps create, it is not out of line to suggest that it could be the means by which the greater WTO agenda is realized.

The existence of a CFTA may also inspire the creation of other networks that share key members, thereby expanding the entire broader network. Consider the situation of the Organisation internationale de la Francophonie (OIF) – often referred to as ‘la Francophonie.’ The OIF has 57 member states with approximately 1 billion citizens. Largely modelled on the Commonwealth, with a Secretary-General, a Secretariat, and regular summits, it also works on issues related to culture, trade, education and civil society. While the OIF is not as deep and developed as the Commonwealth, it nonetheless forms a distinct network.

Connections between a CFTA and a parallel OIF trade network would be primarily through joint members of both organizations, acting as ‘super nodes’. Among those dual members are Canada, Mauritius, Dominica, Cameroon, Rwanda, Seychelles, and Vanuatu. The distribution of these nations along the socioeconomic, political, and geographical spectrum enhances their utility as nexus points. Using a road network analogy, each would serve as a de facto on/off ramp from one motorway to another.

When all is said and done…

The first – and logical – reaction is to comment on the ambitiousness of such ideas. ‘Ambitious’, of course, is often a polite way of saying that something is unworkable or implausible.

And yet, the phenomenon already exists.

As we see, Commonwealth trade is already growing organically, and conforming to a network model. The ‘ambition’ that a CFTA would represent is in codifying something that has already happened and will continue to happen, with or without support.

A hydroelectric dam produces power through channeling water through a series of pipes, turbines and sluiceways. If does not alter the atomic structure of water molecules to achieve this end, nor does it alter the effect of gravity on fluids. Liquids flow, and gravity ensures they flow down and follow the path of least resistance, like they have for millions of years. The genius of a hydro dam is in manipulating those natural forces and compositions in order to achieve a specific end – directing the path, and focusing it in order to increase the force at which the water flows, making it strong enough to turn the large rotors that will give light and heat to countless people.

A CFTA, like the dam, is not altering anything, but encouraging things already happening, and creating conditions to amplify its impact.

To harness the power of over 50 national economies, and a third of the world’s population, transmitting that economic power through a network that ties into a series of other complimentary networks of nations, will – in essence – create the basis of what this book advocates – a ‘new’ globalization.

To be clear, change to the geopolitical structures of the world has already occurred and will continue. Globalization and international cooperation has not been rejected, but the way in which it has been managed has. We deluded ourselves into thinking that we could build ever more complicated and elaborate mechanisms that would be better than what was easily at hand. In our hubris, we forgot that as with any complex piece of machinery, every cog and wheel, every microchip and circuit board, we add also adds more possibility for a malfunction or breakdown.

Globalization is an ecosystem made up of rare orchids and wildflowers. The orchids are beautiful, but they require a controlled environment, like a greenhouse, where the temperature, amount of light, nutrients and the pH balance of the soil are carefully monitored and adjusted. The wildflowers are just as beautiful, but require no such efforts or accommodations. They sprout wherever the opportunity presents itself and thrive with whatever food, water and light that Mother Nature gives. The failure of globalization is in the hubris and vanity of cultivating institutions that are more like orchids than wildflowers – in expending massive amounts of time and treasure on these boutique projects at the expense of organic and natural groupings, like the Commonwealth.

The Commonwealth network exists in a state of unrequited potential. It is time for that to change.

 

[1] “Network Density,” SPSS Modeler Social Network Analysis, IBM Knowledge Center, 2012, uploaded 2017 November 4,  https://www.ibm.com/support/knowledgecenter/en/SS3RA7_15.0.0/com.ibm.spss.sna.doc/sna_overview_statistics_density.htm

[2] Ibid., accessed 2017 November 4, https://www.ibm.com/support/knowledgecenter/en/SS3RA7_15.0.0/com.ibm.spss.sna.doc/sna_overview_statistics_density.htm 

[3] Barrat, A., Barthélemy, M., Pastor-Satorras, R., and Vespignani, A., “The architecture of complex weighted networks,” in Proceedings of the National Academy of Sciences of the United States of America, 2004 March 16, p. 3747

[4] Ibid., p. 3750

[5] Ukkusuri, SV, Mesa-Arango, R., Narayanan, B., Sadri, AM, and Qian, X., ‘Exploring Intra-Commonwealth Goods and Services’, International Trade Working Paper 2016/07, (London: Commonwealth Secretariat, 2016), p.4

[6] Ibid, p.10

[7] Ibid, p.27-28

[8] Ibid., p.8-9

[9] “Rwanda becomes a member of the Commonwealth,” BBC News, 2009 November 29, http://news.bbc.co.uk/2/hi/africa/8384930.stm

[10] Kosar, William E., “Rwanda’s Transition from Civil to Common Law,” in The Globetrotter, Vol. 16, No. 3, Ontario Bar Association, July, 2013, http://www.oba.org/en/pdf/sec_news_int_jul13_Rwanda_Kosar.pdf

[11] “Trade and investment agreements,” Global Affairs Canada, Government of Canada, accessed 2017 November 27, https://www.international.gc.ca/trade-commerce/trade-agreements-accords-commerciaux/agr-acc/index.aspx?lang=eng

[12] National references reflect current free trade and investment relationships for selected Commonwealth member states. Data drawn from Regional Trade Agreements Information System (RTA-IS), World Trade Organization, accessed 2017 December 5, https://rtais.wto.org/UI/PublicAllRTAList.aspx

About Brent Cameron

Profile photo of Brent Cameron
A writer and commentator on Commonwealth trade issues, Brent Cameron is the author of 'The Case for Commonwealth Free Trade' (2004, 2018) and numerous essays and articles. He is also a member of the Advisory Board of Commonwealth Exchange, a London, UK-based research group. Cameron worked as Telecommunications Coordinator for the Federal Ministry of Labour in Ottawa, Canada before joining SES Canada Research (now Nanos Research) as a Research Associate. He also worked as an assistant to former Ontario MPP Harry Danford, Member for Hastings-Peterborough and Parliamentary Assistant to Ontario's Minister of Agriculture and Rural Affairs. Cameron was a member of the Advance Team for Prime Minister Brian Mulroney during the 1988 Canadian federal general election. During the 2007 Ontario Referendum on Electoral Reform, he acted as Coordinator for the 'No MMP' campaign for eastern Ontario (excluding Ottawa). Cameron has also served as a member and contributing columnist on the Community Editorial Board of the Kingston (ON) Whig-Standard newspaper. He holds an honours degree in politics from Queen's University and a Certificate in Municipal Administration from St. Lawrence College (Kingston, ON). In 2014, Brent Cameron was elected to the municipal council for the Township of Central Frontenac, in southeastern Ontario, Canada, and serving as Deputy Mayor in 2017.

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