Scotland's role in the development of future UK trade arrangements

Executive Summary

This paper is intended to open a discussion on Scotland's role in the development of the UK's future trade arrangements, so that the interests of consumers, businesses, civic Scotland and others are taken into account.

The Scottish Government believes that the best option for the future wellbeing and prosperity of Scotland, and the UK as a whole, is to remain in the EU. In the event that the UK does withdraw from the EU, the Scottish Government is clear that continued membership of the European Single Market and a customs union would be the least damaging option for the UK. The Scottish Government will therefore continue making the case for Scotland and the UK to remain in the EU, Single Market and Customs Union.

That position notwithstanding, the Scottish Government has to make the necessary preparations for all exit possibilities, in order to support and protect the Scottish economy and our key sectors as much as possible.

Leaving the EU Customs Union would fundamentally alter the nature of Scotland and the UK's relationship with the EU and the world. As a member of the Customs Union, Scotland has tariff-free trade with the EU and benefits from around 40 trade agreements the EU has signed with third countries.

Outside the Customs Union, the UK will become responsible for negotiating its own international trade agreements. The broad and increasing scope of modern trade agreements means that they often deal with, and merge, a range of reserved and devolved policy areas. The conduct and content of future trade policy, negotiations and agreements will therefore have very important implications for Scotland, and it is vital that the Scottish Government is fully involved in the process for determining them.

This paper considers that decision making process and argues that the Scottish Government and Scottish Parliament must play a much enhanced role in the development of future trade policy and the preparation, negotiation, agreement, ratification and implementation of future trade deals, to help industries, protect devolved public services and ensure the highest standards of environmental and consumer protection in Scotland and across the UK. Doing so will require a significant change in the current arrangements for scrutiny and democratic engagement, which are already out of date, under strain and in urgent need of reform.

The paper considers and examines the effectiveness of the current arrangements within the UK for agreeing trade policy and international trade deals, assesses the approach taken so far by the UK Government to future arrangements and sets out specific proposals for Scotland's future role.

Chapter 1 summarises the importance of international trade to the Scottish economy, highlighting the potential effects of leaving the Single Market and the Customs Union on Scotland's trade in goods and services. It also highlights some key differences between Scotland and the UK, which must be taken into account in considering and negotiating trade deals that work to the benefit of the whole of the UK.

Chapter 2 describes the current arrangements for developing and agreeing trade policy and international trade agreements. In particular, it focusses on the arrangements within the UK for inputting into international trade policy and scrutinising trade deals, and the currently very limited role for the UK Parliament, devolved administrations and legislatures and civic society.

Currently, all international trade deals are negotiated through the EU. Within the UK, the arrangements in place for the development of trade policy and the eventual ratification of trade deals are already inadequate, out of date and in need of reform, even if the UK were to remain in the EU.

If the UK leaves the Single Market and the Customs Union, the UK will be wholly responsible for negotiating and concluding trade deals, including with the EU itself. There is no process currently in place throughout the UK to support that substantial change. While earlier trade deals had a more limited focus on issues such as tariffs, quotas and cooperation, modern trade deals have in general evolved to extend into a wide range of social provision and domestic policy issues, many of which are the responsibility of the Scottish Government and Scottish Parliament. The direction of trade policy and future trade negotiations will have important implications for Scotland, and the other devolved administrations.

Leaving the EU will fundamentally change the nature of the UK as a state. Losing the EU's negotiating power, scrutiny and expertise will require a massive step change in the way the UK conducts its affairs in relation to international matters. The respective roles of the UK Government and Parliament and the devolved administrations and legislatures will have to change substantially to ensure that the interests and priorities of all in these islands are properly represented, protected and promoted.

Chapter 3 describes recent developments in the UK's withdrawal from the EU, focussing on the UK Government's current approach to the involvement of the devolved administrations and legislatures in future trading arrangements.

While the UK Government has made a number of commitments to including the devolved administrations in the development of future trade deals, that has not been borne out by its approach to the EU (Withdrawal) Act 2018, the Trade Bill, and common frameworks, described in this chapter.

If the UK Government is serious about ensuring adequate scrutiny of trade deals and proper consultation with the devolved administrations, it must begin that process now.

Chapter 4 considers the deficiencies in the current arrangements described in Chapter 2. It also outlines the wider policy considerations and ambitions the Scottish Government would seek to protect and promote in any future trading arrangements.

In the light of the issues discussed in Chapters 1 to 4, Chapter 5 considers international models for future engagement and sets out specific proposals for Scotland's future role in the development of UK international trade policy and international trade agreements, recognising the unique circumstances facing Scotland and the UK today. These proposals are summarised on page 52 and in Annex B.

In particular, the paper proposes a statutory requirement that new trade agreements with otherwise devolved content, or which touch on devolved issues, must be agreed by the Scottish Government and Scottish Parliament. Given the scope of modern trade agreements, in practice, this would almost certainly mean all such agreements. It also proposes the establishment within the UK of a statutory inter-governmental trade committee to discuss all aspects of international trade, along with the establishment of an appropriate dispute resolution process.

Involving the devolved administrations from an early stage in trade negotiations will benefit the UK and any future trading partners. Domestically, it will ensure that Ministers are able to agree a negotiation mandate based on a proper understanding of domestic issues; that negotiations are more transparent; that decisions are taken closer to the people affected and reflect their interests; and that any concerns are addressed quickly. That will provide reassurance to the UK's future negotiating partners that sometimes difficult and lengthy negotiations are proceeding on a consensus and that agreements will endure. Scotland wants to be a constructive partner to the other nations in the UK and a constructive and fair trading partner to countries around the world.

Chapter 5 also discusses a number of specific areas where greater influence over UK policy and systems or the devolution of further powers could help protect and promote Scotland's interests in the event of the UK leaving the EU.