Reaction: Scotland’s Place in Europe

Tobias Lock · Arianna Andreangeli · Owen Kelly · Anthony Salamone

Expert Reaction

Today, First Minister Nicola Sturgeon set out the Scottish Government’s proposals on Scotland’s future relationship with the European Union, following the EU referendum in the summer. Our experts react to the paper, assessing what it means for Scotland’s relations with the rest of the UK and Europe and its impact on the Brexit debate.

Reaction: Scotland's Place in Europe
Scotland’s Place in Europe, First Minister of Scotland, CC-BY-NC-2.0

Challenges of Single Market Membership

Tobias Lock

The Scottish Government’s vision of Scotland’s Place in Europe does not contain many surprises. It sets out three scenarios that would secure Scotland’s membership of the EU Single Market: the UK joining EFTA and staying in the EEA and Customs Union; independence and membership of the EU; rUK moving outside the Single Market, but Scotland remaining inside the EEA (as a member or associate member of EFTA) and both rUK and Scotland outside the Customs Union.

Focusing on the latter scenario, the paper engages with some of the problems this situation would cause and shows that Scotland leaving the Customs Union with the rUK (and staying in the same customs area as the rUK) addresses many of the questions that had been raised before.

As the paper admits, this proposal requires legal engineering on two fronts: first, a wider-ranging devolution of powers to Scotland to enable it to comply with the rules of the Single Market; and, second, changing the rules of EFTA to allow in a sub-state like Scotland (whether as a full or associate member or a member ‘through’ the UK). From a legal/technical point of view, all of this is possible, provided there is a political will. Looking at two key issues shows some of the limits of the proposal, which – legally speaking at least – would appear to be quite solid: migration and trade in goods.

As far as EU migration into Scotland is concerned, the paper correctly states that this would not require the establishment of a hard border between Scotland and England. Free movement of people to Scotland only would mean that EU citizens could work and reside in Scotland, but not anywhere else in the UK. It is possible to put checks in place – through employers, landlords, etc – to ensure compliance.

True, an EU citizen who took up employment and residence in England regardless, would do so illegally. But the prevention of this eventuality doesn’t require a hard border between England and Scotland: after all, some non-EU citizens (eg Americans) can already enter the UK without a visa without having the right to work and live here. If they do so regardless, they act illegally, and there are sanctions and enforcement mechanisms in place to prevent this.

However, it should be noted that this ban on EU citizens working in rUK would work only up to the moment that they naturalise as UK citizens: once this is accomplished (the qualifying period is currently six years), they will be able to move ‘south’ and work there, so for rUK the proposal might only temporarily limit levels of migration.

The paper also mentions the criterion for Scots to be able to exercise their right to free movement as nationals of an EEA country: domicile, which is a more permanent status than residency. This would certainly avoid abuse where, for instance, a Welshman moves to Edinburgh for a few months in order to qualify as an EEA national (ie a Scot) and be then allowed to move on to the EU. The distinction between being domiciled and being resident can, however, be a tricky one to draw, so that if this were adopted we might be seeing much litigation from Scots living in England temporarily, but claiming to be still domiciled in Scotland.

As far as trade in goods is concerned, the proposal is clever in that it suggests that Scotland remains in a customs union with rUK. It becomes a little fuzzy, however, where non-tariff barriers to trade are concerned. For instance, vacuum cleaners traded within the Single Market must comply with EU environmental standards and not use more than 1600W of energy.  Imagine rUK changes its product rules in this regard and allows more powerful vacuum cleaners to be sold there. If an English producer of vacuum cleaners wanted to sell its vacuums into the EU, it would have to comply with the 1600W limit.

But what if it wanted to sell its vacuum to Scotland?  The paper says that the trader would be allowed to do so (ie sell the 2000W machine in Scotland) under the principle of ‘parallel marketability’ (Paragraph 152). This principle is currently in place for Liechtenstein, which is in the EEA, but also in a customs union with Switzerland (not in the EEA). It allows products to freely circulate in Liechtenstein fulfilling either the EEA or Swiss product requirements. Crucially, however, it restricts access of products to other EEA countries marketed under diverging Swiss product requirements and vice versa.

If adopted for Scotland, this would mean that the English vacuum cleaner could be sold in Scotland. But traders would not be able to circumvent the rules of the Single Market by importing sub-standard products from England and then selling them on to the Single Market.  This would require some form of surveillance, of course. Scottish exporters would have to designate the products they sell to the Single Market and show that they fulfil EU product standards. Given that Scotland would be outside the EU customs union, exporting goods would require some paperwork to be filled in in any event – even if there were zero tariffs, in order to show compliance with rules of origin, so that this additional bit of red tape created might not prove to be too burdensome.

Free Movement of Goods and Services

Arianna Andreangeli

The proposal that Scotland should retain an active role in the European Single Market through membership to the European Economic Area (EEA) would offer Scottish businesses the possibility to trade their goods and services custom-duty free. It also entails the obligation to observe a substantial part of the EU acquis, under the surveillance of the EFTA Court.

It is not a foolproof recipe, however. It will not allow Scotland to trade with non-EU countries as a member of the EU’s Custom Union – the complex matter of international trade being entrusted to the UK as a whole, and a task that will take a number of years to complete. EEA membership could also impact the existing devolution settlement. For example, will Scotland require a bespoke framework for consumer and competition policy after Brexit, to secure compliance with the EU acquis? It is certainly true that the Competition Act 1998 virtually mirrors EU competition law.  However, it is not certain whether this will continue after the UK exits the Union. And how ‘invisible’ will the border with England and Wales really be? As EEA obligations would conceivably supersede any conflicting legal duties imposed on Scottish businesses by UK law, divergences concerning rules affecting North-South commerce may well prove a headache for firms.

Nicola Sturgeon’s proposals go a considerable way toward assuaging concerns that Scotland’s economy and position vis-à-vis other European states may be diminished in economic and political terms, especially vis-à-vis Scottish residents who decisively voted to remain.  However, they face a major ‘elephant in the room’: to the extent that such application for membership depends on ‘UK sponsoring’, it is not at all clear whether political will exists for this purpose on the part of the UK government.

Priorities for Scottish Business

Owen Kelly

The more novel parts of the Scottish Government’s paper concern the possibility of some differentiated approach for Scotland, within a post-Brexit UK. Their proposals, from a business perspective, look complex. But that is probably an inevitable feature of most post-Brexit arrangements between the UK and the EU. The resources and time needed by UK business to engage with the EU and its institutions will grow because of Brexit – not, as some might assume, decrease – because it is harder to keep track of, and influence, proposals and developments in the EU from the outside. Just ask the Swiss.

Being optimistic and assuming that negotiations about a differentiated approach for Scotland get off the ground, what might Scottish business be looking for?

First, as little as possible that compromises customer relationships in the rest of the UK, where, for most sectors, most customers are located (64 per cent of Scotland’s exports go to the rest of the UK). This seems hard to reconcile with the proposals in the paper, which appear to involve a division of the current single UK market, into a Scottish market compliant with EU rules and another market, differently governed and regulated, in the rest of the UK.

Second, a settlement that looks likely to endure and give a stable environment for investors. It may well be difficult to achieve this while the Scottish Government remains committed to the pursuit of independence, something the paper robustly confirms. That position undermines what could otherwise be quite an attractive proposition for business, namely a constitutionally stable but slightly more liberal, open Scottish economy within a single UK market, with some of the downsides of Brexit, especially in relation to that attraction and retention of talented people, removed or ameliorated.

Third, as little additional bureaucracy as possible. Additional regulators and systems will be needed, as the Scottish Government’s document accepts, in order to comply with EU legal frameworks. These would have to be paid for by the regulated industries, in the main. Companies would need to determine whether these additional costs would be offset by continued access to the EU Single Market and, perhaps, compounded by a different relationship with UK customers outside Scotland. So some quite complex analysis will be needed.

From a business perspective, the Scottish Government’s proposals offer more questions than answers. Much like Brexit, in fact.

Shape of Proposed EFTA Relationship

Anthony Salamone

The Scottish Government’s long-awaited proposals on Scotland’s future relationship with the EU have finally arrived. Titled Scotland’s Place in Europe, the paper might have well instead been called Scotland’s Place in the Single Market. The phrase ‘European Single Market’ appears over 200 times in the 60-or-so pages. The focus of the paper is squarely on the Single Market, the Customs Union and complementary policies. The emphasis on the Single Market is not surprising, but it worth keeping in mind that the EU is much more than that.

Beyond the prospect of an independent Scotland joining the EU (or, indeed, EFTA), the proposals only really suggest two options – that the UK remains in the Single Market (perhaps with the Customs Union) or, if not, that Scotland remains in the Single Market. Either way, it argues, Scotland should receive substantial new powers, amounting to a much more comprehensive devolution settlement.

Besides exploring the background and outlining the reasoning behind these three claims, the paper does not offer much in the way of specifics. In fairness, it makes clear that detailed work would need to follow (and the paper is more than we have seen to date from the UK government). Overall, it does not tell us much more than what we already knew. However, it does contain a few interesting points on the Scotland-in-Single-Market option which could become important over time.

First, the paper suggests that the question is not of allowing Scotland to join the Single Market, but not obliging it to leave the Single Market (Paragraph 119). The Scottish Government’s framing of the issue as a continuation of Scotland’s existing arrangements is reminiscent of the debate in the independence referendum on whether Scotland could continue as an EU member or would be required to join as a new state.

Second, the proposals contend that Scotland’s participation in EFTA, and then the EEA, could be achieved through a ‘sponsorship’ model – the UK would sponsor Scotland’s participation, presumably through nominally serving as the Member State (Para 136). It offers the example of the Faroe Islands, which has explored this option as part of the Kingdom of Denmark. However, this is not necessarily a precedent, as it hasn’t actually happened in practice.

Third, the document proposes that Scotland might achieve a place in the Single Market through becoming an ‘associate member’ of EFTA (Para 120). The specifics of this kind of arrangement would remain to be seen. Fourth, the paper states that Scotland’s financial contribution for participating in the Single Market would ideally come from ‘Scotland’s pro rata share of current UK contributions to the EU’ (Para 134) – it will be interesting to see what the UK government makes of that logic.

Tobias LockEdinburgh Europa Institute LogoTobias Lock
University of Edinburgh

Dr Tobias Lock is Senior Lecturer in European Union Law and Co-Director of the Edinburgh Europa Institute at the University of Edinburgh. His research focuses on the EU’s multilevel relations with other legal orders, including the European Convention on Human Rights.

Arianna AndreangeliEdinburgh Europa Institute LogoArianna Andreangeli
University of Edinburgh

Dr Arianna Andreangeli is Senior Lecturer in Competition Law at the University of Edinburgh. Her research interests include EU competition law, national competition law, markets, innovation, merger control and business regulation.

Owen KellyOwen Kelly
University of Edinburgh

Owen Kelly OBE is an Associate of the University of Edinburgh Business School. He has previously worked extensively in China and other Asian markets, in financial services, and in both the UK and Scottish Governments.

Anthony SalamoneEdinburgh Europa Institute LogoAnthony Salamone
University of Edinburgh

Anthony Salamone is PhD Candidate in Politics at the University of Edinburgh; Co-Convenor of the Edinburgh Europa Research Group; and Managing Editor of European Futures. His research focuses on the politics of the UK’s EU relations and he comments on UK-EU affairs on his blog, Britain’s Europe.

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