Scotland's place in Europe: assessment of the revised EU withdrawal agreement and political declaration

2. Revised Withdrawal Agreement

10. The substantive changes to the Withdrawal Agreement exclusively relate to the renegotiated Protocol on Northern Ireland. However, these changes will have a substantial impact on the rest of the UK, including Scotland. The provision elsewhere for a general Transition Period remains, this would be based on a largely status quo transition during which the UK remains subject to EU law, trade with the EU - and trade under the terms of EU-Third Country FTAs if those third countries agree - continues on the same basis as at present, as does wider cooperation and collaboration within a range of EU programmes. The UK will, however, cease to have a right to institutional representation during this period, except in limited circumstances with EU agreement. This means that UK Members of the European Parliament will no longer sit in the European Parliament, and the UK Government will no longer have a seat or vote in Council and European Council meetings.

11. The revised Withdrawal Agreement maintains a commitment to both parties negotiating in good faith^[9] to put in place a future relationship based on the Political Declaration of 17 October 2019 by the end of the transition period. This was previously acknowledged by the UK Government as an obligation as to the conduct of the parties, rather than an obligation to achieve a particular result. However, the current draft of the UK Government's EU (Withdrawal Agreement) Bill section 31, seeks to limit future negotiations to the scope identified in the Political Declaration by requiring a statement of objectives for the future relationship with the EU to be made to the UK Parliament alongside placing a specific obligation on Ministers that any statement of objectives must be consistent with the Political Declaration. This appears to be intended to commit any future Government to a future relationship based on the current UK Government's red lines on ending freedom of movement, and ceasing single market and customs union membership.

Northern Ireland Protocol

12. The previous agreement contained a "backstop" as a set of provisions which would come into effect if needed in the event that the future relationship was not agreed failed to adequately ensure an open border on the Island of Ireland consistent with the Good Friday Agreement. The revised protocol does not make any changes to the operation of the Common Travel Area. The new arrangements will, to all intents and purposes, apply irrespective of the future relationship. Furthermore the revised Protocol no longer makes provision to create a single customs territory encompassing the whole of the UK. Instead while Northern Ireland is to remain legally part of the UK's customs territory, a set of provisions on the transit of goods between Great Britain, Northern Ireland and the EU (Republic of Ireland) will apply.

13. For goods moving from Northern Ireland to the Republic, the EU's Union Customs Code (customs rules) apply as if Northern Ireland is in the EU: i.e. there will be no tariffs or restrictions, limiting the need for customs checks or controls. For goods moving directly from Great Britain to Northern Ireland, some customs checks will apply, but will not be subject to the EU tariff unless the good is deemed to be "at risk" of being moved into the EU afterwards. The text creates a presumption that goods are deemed "at risk" unless it is established that they meet certain (as yet undefined) criteria through an (as yet undetermined) process. The Joint Committee between the UK and the EU, established to oversee the Withdrawal Agreement, will determine which goods should be considered "at risk" by the end of the transition period, and how those provisions will be implemented.

14. There is no significant change in this for Northern Ireland compared to the previous proposed agreement in respect of interaction with the EU, however they are now in an even more distinctively different position compared to the rest of the UK. Northern Ireland will abide by the rules of the European Single Market, in areas such as technical regulation of goods.

15. Although some checks already exist between Scotland and Northern Ireland, e.g. on animal exports to protect animal health between the islands of Britain and Ireland, there will be further checks for goods like agri-food. The removal of a commitment by the UK as a whole to align with EU standards - other than in Northern Ireland - could have significant consequences for ongoing trade with the EU, particularly if the UK Government weakens the standards set by the EU, for example on animal and plant health, and food safety, or weakens such standards either for ideological reasons or when negotiating trade deals.

16. In this respect, the House of Commons Library make this point when comparing the new deal with that negotiated by Theresa May: "The most significant over-arching difference between the October 2019 proposals and those set out in the November 2018 WA is that the previous 'backstop' maintained a much more complete and encompassing set of relations on goods between the EU and the UK (although it also would have raised barriers for economic relations as it did not cover trade in services, movement of people/workers, movement of capital, transport services etc). However, that potential relationship also came with much more alignment with EU law and standards, and therefore potentially restricted the UK's ability to diverge from such standards and pursue an independent trade policy should it wish to."^[10]

17. More detail on the issue of alignment - the Level Playing Field - is discussed later in this document.

Implications for Scotland's relative competitive position

18. Northern Ireland businesses will have easier access to the European Single Market and the UK Government has guaranteed that Northern Ireland businesses and farmers will continue to have "unfettered access" to the rest of the UK market: The Scottish Government fully and unconditionally supports the Good Friday Agreement and the maintenance of an invisible border on the island of Ireland. However, in principle, as with the previous backstop, this proposal provides Northern Ireland with the opportunity for a competitive advantage over Scotland. It removes the need for product standard and safety checks on goods at the border between Ireland and Northern Ireland because both will be part of an "all-island regulatory zone", while Scottish businesses face greater "friction" at the border with the EU - and at the border with Northern Ireland. The requirements for third countries to comply with regulations of the European Single Market are substantial, and represent a real cost to business.

19. The Prime Minister told the House of Commons that this was a "good arrangement" for Northern Ireland^[11], "eliminating any need for associated checks at the border", whilst also ensuring "unfettered access for goods moving from Northern Ireland to the rest of the United Kingdom's internal market". The Chancellor of the Duchy of Lancaster, the Rt Hon Michael Gove MP agreed that Northern Irish businesses will have easier access to the European Single Market than businesses in the rest of the UK^[12]. The Secretary of State for Foreign and Commonwealth Affairs, the Rt Hon Dominic Raab MP, described the deal as a "win for Northern Ireland business"^[13] and also a "cracking" one for Northern Ireland businesses:^[14] "overall, what Northern Ireland businesses get is remaining part of the UK customs territory, no infrastructure at the border with the Republic and frictionless access to the single market. It is a cracking deal for Northern Ireland businesses."

20. Overall the broad consensus of economic analysis is, that the less that the UK, and Scottish, economies are 'aligned' with the EU the greater the economic damage, and this analysis is confirmed by the Scottish Government's own economic modelling as set out in its Scotland's Place in Europe publications.^[15]

21. There is significant uncertainty as to how the economic impact may play out, but some scenarios might include^[16] Scottish business losing market share compared with direct competitors with a Northern Ireland base. In addition there is a risk that the corporate structures, investments and wider supply chains that underpin Scotland's existing international trade may be re-organised to take advantage of Northern Ireland's preferential access to the single market, and to mitigate the risks associated with UK regulations diverging from the EU.