Scotland's Vision for Trade: annual report - June 2023

2 Steps taken by the Scottish Government to engage with the UK Government on trade issues of importance for businesses and people in Scotland

2.1 Free Trade Agreements

Scotland’s role in the development of FTAs

Over the past year, we have continued to engage with the UK Government as part of the development of new FTAs with a range of countries around the world. We have continued to make the case for a guaranteed role for the Scottish Government and Scottish Parliament at all stages in all FTA negotiations to protect and promote Scottish economic and other interests and priorities. Scottish Ministers have continued to raise Scotland’s interests, priorities and concerns with the UK Government, and stressed the need for full involvement to ensure that any new FTAs reflect our needs and values, while providing opportunities for businesses in Scotland.

There are clear benefits to the Scottish Government being able to engage meaningfully with the UK Government (and other devolved administrations) in the development and implementation of UK trade deals (see also the research by Lindsey Garner-Knapp in Section 3.2 Developing data and evidence to inform trade policy). The Scottish Government has, therefore, sought to engage constructively, and in detail, protecting and promoting Scotland’s interests. Whilst we have sought to identify opportunities for sectors and businesses in Scotland from these deals, the expected UK GDP increase as a result of these FTAs remains small.^[5] There are also risks of prioritising short-term market access gains against longer-term economic, social and environmental goals, which the Scottish Government has sought to mitigate.

In the last few months the UK Government has increased the amount and range of information it shares with devolved administrations. Whereas the information shared previously was limited to those areas which the UK Government considered to be devolved, the UK Government now shares information across almost all areas. The Scottish Government has been looking to use specific sectoral information to inform its input in this area and this, along with the increase in information, should allow more meaningful engagement across more aspects of UK trade negotiations. While this development is welcome, sharing information is not the same as sharing decision making and we will continue to press for a greater role for Scottish Ministers in decisions about trade deals.

In the period since March 2022, we engaged in the following:

• UK accession to the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP) (Agreement in Principle on accession announced March 2023 )
• UK-Canada FTA (negotiations ongoing)
• UK-Mexico FTA (negotiations ongoing)
• UK-Greenland continuity-agreement (negotiations ongoing)
• UK-Gulf Cooperation Council (GCC) FTA (negotiations ongoing)
• UK-India FTA (negotiations ongoing)
• UK-Switzerland FTA (negotiations ongoing)
• UK-Israel FTA (negotiations ongoing)
• Series of UK-US State Memoranda of Understanding

Implementing the EU-UK Trade and Cooperation Agreement

The EU-UK Trade and Cooperation Agreement (TCA) has left Scotland in a far worse position, in terms of trade with the EU, than we enjoyed as a member of the EU. While the TCA does not impose tariffs, it has introduced many non-tariff barriers to trade that cost Scottish businesses time and money they can ill afford. These are the consequences of a hard Brexit that the people of Scotland did not vote for.

We continue to engage constructively with the UK Government to push for the TCA to be implemented in ways that protect and promote Scotland’s interests. However, very little was achieved last year due to the UK Government’s unilateral threat to override aspects of the Northern Ireland Protocol, which in turn brought negotiations with the EU to a standstill.

We are hopeful that the advent of the Windsor Framework will improve EU-UK relations, and that this will in turn unlock progress on the TCA. We are urging the UK Government to make use of this opportunity and to seek rapid progress on issues of concern to Scotland, for example by:

• Strengthening and improving the EU-UK political relationship, and the defence and security relationship.
• Pressing for association to EU programmes, including Horizon and Erasmus+.
• Seeking to agree more expansive arrangements for mobility, including for touring professionals, students, school visits, and young people more widely.

Additionally, we prioritised maintaining the data adequacy assessment with the EU during this period, asking for it to remain a priority for the UK Government. The free flow of data is the bedrock of the economy and essential for firms across all sectors, playing an important role in everyday trade of goods and services. If a data adequacy decision is withdrawn, the cost to business, particularly SMEs, could be huge.

2.1.1 Applying our principles to FTAs

The Vision underpins our approach to FTAs and we are focused on ensuring that these support Scotland’s ambitions for a Wellbeing Economy.

We have therefore continued to scrutinise the UK Government’s proposals for each new FTA and assessed them against the five principles (Inclusive Growth, Wellbeing, Sustainability, Net Zero and Good Governance) in the Vision, so that they best serve the interests of Scotland’s economy, people and the planet. Examples of how we have applied the five principles are set out below.

Inclusive Growth and Wellbeing

As there are winners and losers from trade, it is important to consider the wider socio-economic impacts of trade agreements, including identifying all those negatively impacted, and preventing or addressing these impacts.

We have continued to highlight concerns with the UK Government’s scoping assessments – which detail the likely economic, social and environmental impacts of a new FTA – prior to negotiations, and with the final impact assessments, published on completion of an FTA.

In our input to the UK Government on FTA negotiations, we continued to note the limited disaggregation of modelling data for UK nations and regions and called for improvements to this to enable better understanding of the expected impacts and possible opportunities for Scotland. We also called on the UK Government to improve modelling of the impacts of FTAs on countries’ neighbouring FTA partners and developing countries. This should aim to ensure possible effects are properly assessed and the degradation of developing country preferences and margins is avoided.

The scoping assessments compiled by the UK Government ahead of FTA negotiations with Canada and Mexico were even more limited, on the grounds that these constitute revisions of existing trade agreements. In our engagement with UK Government on these negotiations, we noted our concern that this limited analysis restricts the extent to which we can understand the possible impacts of these deals in Scotland.

Sustainability

We continued to emphasise the need to avoid the prioritisation of short-term market access gains over longer-term economic, social and environmental goals.

For example, we highlighted this in our engagement with the UK Government on its programme of MoUs with US States. We also recognised the opportunities for digital trade; however, we made clear that economic objectives must be balanced against social and environmental outcomes. This is to ensure that digital services and products operate to high ethical standards to protect personal privacy, give people control of their personal information, and ensure transparency.

Our approach is also demonstrated by the emphasis we have placed on the importance of food safety, quality and sustainability in FTA negotiations. This was made clear by the Cabinet Secretary for Rural Affairs, Land Reform and Islands’ recent letter to the UK Government, underlining the need for trade deals to be negotiated in a way that balances market access with protection of domestic producers. In our input on UK-GCC FTA negotiations, we also underlined the need for consumer benefits in scoping assessments to be assessed on the basis of the quality and standard of produce, rather than simply on the basis of lower cost and greater variety.

Net Zero

We continued to call on the UK Government to use FTAs to link trade and climate change and to unlock opportunities from the green transition.

We consider compliance with the Paris Agreement to be a ‘red line’ in FTA negotiations, but the level of those commitments also matters. For example on the UK-GCC FTA currently under negotiation, while welcoming the fact that all GCC member states are signatories to the Paris Agreement, we expressed concern that some have not yet set Net Zero targets. We are also concerned about the inclusion of multilateral environmental agreements and how the issue of carbon leakage will be addressed.

We have also made clear where we see positive examples of FTA text on climate. For example, we welcomed the provisions in the UK-New Zealand FTA, as some of the strongest provisions on climate and the environment in any FTA.^[6] Those provisions were comprehensive, precedent-setting and in line with the Vision. However, we note that the recently agreed EU-New Zealand FTA goes even further by ensuring that the Paris temperature goals are enforceable through trade sanctions. This is in line with our support in the Vision for stronger enforcement measures for environmental commitments^.[7]

While there are positive environmental provisions in the UK-Australia FTA, including reference to the Paris Agreement, we believe that this could have been strengthened with a specific commitment to take action to keep global warming to 1.5 degrees.^[8]

We have also voiced concerns in the negotiation with the GCC, where we have highlighted the lack of action among GCC member states to reduce their reliance on fossil fuels both for domestic energy needs as well as within their export and investment activity. We have called on the UK Government to build on precedent in FTAs with other countries and include text on taking steps to eliminate harmful fossil fuel subsidies.

Finally, we have engaged closely with the UK Government to support their work on the liberalisation of environmental goods and services within FTAs. The UK Government’s support in allowing the Scottish Government to access data on environmental goods and services was a positive development in the past year. This data will enable us to collaborate with the UK Government on their list of Green Goods, which are those environmental goods prioritised for liberalisation in FTA negotiations.

Good Governance

Scotland is committed to being a good global citizen and trading partner, respecting international law, supporting human rights and seeking to build global relationships based on trade.

We are committed to complying with our obligations under UK FTAs which are now in force, working closely with the UK Government, and have provided information to parliamentary committees on those requirements.^[9]

Good governance also includes applying good regulatory practices, and we have therefore pressed the UK Government to adhere to international obligations around that, including in the context of the Retained EU Law Bill.

As set out above (in Section 1.1.4 Operating as a good global citizen, supporting global governance structures on trade that works for all), we also established a process to assess the human rights approaches of all the UK Government’s prospective FTA partners. These assessments formed part of the Scottish Government’s input to the UK Government. As a result, we were able to provide concrete recommendations to the UK Government on how to use these trade negotiations to promote and improve human rights.

For example, in relation to the FTA with Israel, we encouraged the UK Government to refer directly to specific international human rights obligations. We also sought assurances that goods and services sourced from illegal settlements in the Occupied Palestinian Territories (OPTs) are excluded from the UK-Israel FTA in a way that can be reliably enforced.

We further noted concerns on the human rights approach of GCC member states, in particular the treatment of women and girls and the situation of migrant workers. We encouraged the UK Government to use its findings and recommendations from its own Universal Periodic Review process in its engagement with the GCC. We also proposed that policies pursued by GCC states, such as the UAE, on women’s economic empowerment could provide a basis for cooperation and engagement on gender equality provisions in the UK-GCC FTA.

2.1.2 Thematic areas of interest

Throughout this period, we continued to build on positions set out in the Vision to engage in the wide range of policy areas covered by FTAs, protecting and promoting Scotland’s interests. These areas include: food, drink and agriculture; goods; regulation and technical barriers to trade; services and investment; digital trade; Intellectual Property and the NHS; Investor-State Dispute Settlement; and gender.

Food, drink and agriculture

The Scottish Government continues to have significant concerns around the impact of the UK-Australia FTA, signed on 16 December 2021, on food and drink producers in Scotland.^[10] While we recognise opportunities to increase exports to Australia, including for the Scotch Whisky industry, our concerns include:^[11]

• Products from animals raised using farming methods which would be illegal in the UK, will be allowed to be imported from Australia.
• Plants grown using pesticides which are banned in the UK will also be permitted, although they will have to ensure residue levels fall below UK limits.
• While there are non-regression clauses on animal welfare, Australian standards are already lower than those of the UK.

We have similar concerns with the UK-New Zealand FTA, signed on 28 February 2022.^[12] For example, we are concerned about the impact of the agreement on farming communities in Scotland, given lower production costs in New Zealand and the increased market access offered in the deal. While we welcome provisions on cooperation on Animal Welfare and Anti-Microbial Resistance, these should go further. In line with our commitment to the precautionary principle, preferential market access granted to New Zealand agri-food exporters should also be contingent on meeting equivalent animal welfare and environmental standards to those producers in Scotland are obliged to meet.

The EU also concluded an FTA with New Zealand in June 2022, and we have highlighted the stark difference in outcomes of this agreement compared to the UK-New Zealand deal.^[13] Differences include significantly better market access terms for the EU and recognition of the EU’s agri-food GIs. It is clear that EU-New Zealand negotiations delivered a better deal for EU agricultural producers, maintaining stronger controls over agri-food imports and protections for EU producers.

In subsequent FTA negotiations, we have therefore sought to achieve better outcomes for agriculture than the poor deals with Australia and New Zealand. We have done this by:

• Engaging closely with DEFRA on the development of an agreed Sanitary and Phytosanitary (SPS) chapter to act as the foundation for any negotiation. The agreed text preserves the Scottish Government’s position on broad alignment with the EU and the precautionary principle. This effective engagement has built trust and improved inter-governmental relations.
• Throughout each negotiation, pressing the UK Government on SPS commitments. For example we have pressed for using clear and strong definitions of SPS, including those set out by relevant International Organisations. We are also concerned that any dispute
• mechanisms for SPS do not put at risk Scotland’s right to regulate or allow products to be imported that do not meet our high standards.
• Promoting strong and progressive text on Scottish Government priorities such as Animal Welfare and Anti-Microbial Resistance which, as a result, remained high on the agenda.

We have also pressed for gains for and protection of the Scottish food and drink sector. For example:

• We pushed for whisky tariff liberalisation and the removal of other technical barriers to trade in the India trade deal. In particular, we have urged the UK Government to prioritise the reduction of a 150% tariff on Scotch whisky imports to India. Reduction of the tariff could provide a significant boost to the industry in Scotland and present opportunities for future growth.
• We pressed DEFRA to extend the UK’s GI scheme to the Australia and New Zealand trade deals, following a failure to negotiate coverage of such a scheme on day one of entry into force (as was agreed in the recent New Zealand-EU trade deal). There is some provision in this area in the UK deal with New Zealand, but an extension to the scheme will take time to develop, posing a risk in the short to medium term. The situation is worse in the agreement with Australia, where there appears to be no prospect of recognition. As part of the UK-Switzerland FTA, we also sought an extension of the UK GI scheme to Switzerland to protect Scotland world famous produce, including Scottish Salmon, Stornoway Black Pudding, Scotch Whisky and Arbroath Smokie. We also support seeking effective protection of GIs in India.
• We assessed the impacts of tariffs on trade with Canada and any impacts liberalisation may have on the world-renowned salmon sector.

Trade in Goods

Trade agreements can provide opportunities for Scottish exporters to enter or develop new markets. However, any agreement on goods market access must reflect Scotland’s needs and protect domestic producers from unfair competition. Over this period, the Scottish Government has therefore continued to focus on ensuring that FTAs offer the greatest opportunities for Scottish goods exporters, while protecting our more sensitive sectors.

For example, we encouraged the UK to seek tariff liberalisation on exports to GCC countries for Scotland’s food and drink producers in the UK-GCC FTA negotiations, while recognising religious and cultural sensitivities around certain products in GCC states. We also encouraged the UK to seek improvements in goods market access terms for machinery and transport equipment sectors, with a view to future opportunities in renewable energy as GCC economies transition away from fossil fuels.

Regulation and Technical Barriers to Trade

We maintained regular engagement with the UK Government across all live and upcoming FTAs on issues relating to Good Regulatory Practices and Regulatory Cooperation (GRPRC). We are open to opportunities for regulatory cooperation with like-minded trading partners, whilst ensuring our right to regulate for the public good is protected. We therefore continued to call on the UK Government to ensure that commitments made under GRPRC chapters do not impact the right to regulate to achieve public policy goals, or prevent governments from regulating in accordance with the precautionary principle. For example, in MoUs under negotiation with US states, including Texas, we welcomed the focus on regulatory approaches that facilitate innovation, trade and cooperation, but were clear that regulation should support public policy objectives. This is in line with our positions on GRPRC in FTAs, as noted in our recent input to the UK Government on negotiations with the GCC.

However, we also recognise that complex and opaque regulation can act as a barrier to trade and that technical barriers can prevent exporters from unlocking the benefits of international trading. For example, on the UK-GCC FTA, we therefore shared stakeholder feedback on a range of technical barriers to trade for exporters, including a lack of regulatory alignment, and complex and non-transparent labelling, certification and rules of origin requirements.

Services and investment

New FTAs should open opportunities for Scotland’s strong services sectors to ensure they benefit from opportunities to grow their exports. We have continued to prioritise this in our engagement with the UK Government on FTAs.

For example, Scotland’s innovative and world-leading life sciences sector is a key sector for both goods and services. Published in November 2022, the Life Sciences Sector Export Plan identifies the US as the priority market for pharma services, medical technology and digital health. We have used the plan as a basis for engagement with the UK Government on the negotiation and implementation of MoUs with US States, such as the UK-South Carolina Cooperation and Trade MoU, and will work to leverage the opportunities it could present.

While we have identified services opportunities across ongoing FTA negotiations with Israel, the GCC and Switzerland, we have also raised concerns. For example, in relation to architectural services, we have raised concerns about the treatment of migrant workers within the construction sector in Israel. We have also encouraged the UK Government to ensure that benefits from the further liberalisation of financial services with Switzerland support the sector across the UK, not only in London.

Enhancing mobility is another key priority for the Scottish Government, and we have supported moves in FTAs to ensure that work permit and visa rules allow for technical staff mobility, and that business visitor rules allow very short-term paid work. We have also continued to engage with the UK Government on the Mutual Recognition of Professional Qualifications and pressed for Scottish interests to be represented in Mutual Recognition Agreements.

For example, in relation to ongoing FTA negotiations with Canada, we have requested that the UK extend mobility negotiating asks to include technical specialists in energy systems maintenance who have a key role in the net zero transition.

We also continue to encourage inter-regulator dialogue outwith FTAs, as we consider this is where much of the progress can be made on professional qualifications.

We have sought to be proactive where there are opportunities to unlock increased investment flows. For example we have called for investment provisions in the GCC FTA that will support Scotland to benefit from growing investment from the UAE and other GCC states into the UK.

Digital Trade

The Scottish Government wants businesses to take advantage of the opportunities presented by the acceleration of digital trade, including through FTAs. We welcome the opening up of new opportunities for Scottish businesses and reduction in barriers to cross-border trade.

In March 2022 we published a Technology Sector Export Plan, a framework through which industry, public sector and the Scottish Government can collaborate to identify and maximise export opportunities. We have used this to highlight opportunities for the technology sector within FTAs, for example within the UK-Singapore Digital Economy Agreement, which has the potential to support the internationalisation of the sector.

However, the Scottish Government takes a digital rights-based approach to digital trade: any developments on digital trade must balance economic, social and environmental outcomes. This position has been reflected in our input to the UK Government on all FTA negotiations and we have also pressed for the recognition of digital rights in UK-US State MoU talks.

Intellectual Property (IP) and the NHS

We have made clear that the NHS, its services, and the price paid for medicines should not be included in any trade-related negotiations with other countries. The NHS must be protected from potential increased drug costs as a result of IP provisions in FTAs. That is why we acted quickly following media reports on the UK-India FTA IP Chapter and its potential impact on India’s ability to produce medicines, which are sold to the NHS. The Cabinet Secretary for Health and Social Care wrote to UK counterparts seeking assurances that an FTA with India will not jeopardize access to affordable medicines for NHS patients in Scotland.

Investor-State Dispute Settlement (ISDS)

In recent years, stakeholders have been increasingly critical of ISDS provisions in FTAs. We have recognised these concerns and called for the UK Government to reject the classic private arbitration model of ISDS, and actively contribute to the development of international best practice and the consideration of alternative models of dispute resolution.

The UK Government’s position on the negotiation of investment agreements and ISDS provisions is to maintain our right to regulate in the public interest, including in areas such as the environment and labour standards. However, we have concerns that provisions in CPTPP do not prevent multinational businesses from bringing cases against the UK where they believe they have been detrimentally affected. Such court cases could be costly and time consuming for the UK.

Gender

We recognise the progress the UK Government has made over this period to integrate gender and trade considerations into its negotiation of trade agreements. Therefore, in our input to FTAs with the Gulf Cooperation Council (GCC), Mexico and Canada, we have supported both a dedicated chapter on gender, and provisions which mainstream gender throughout the agreement.

We have consistently argued that gender chapters and any related cooperation activities should support the identification of mechanisms to address any potential negative impacts of trade, in addition to addressing barriers and enhancing opportunities for women to access the benefits of trade. This is in consideration of the multiple roles women play as exporters, producers, workers, consumers and in taking responsibility for unpaid work. We also recognise the differential effects of intersectionality, and have pressed for the contributions of ethnic minority and disabled women to economic development to be taken into account in the negotiation process.

We have also highlighted our support for structured consultation mechanisms that ensure women and representative groups are active participants and able to provide feedback on an ongoing basis.

2.2 Wider engagement with the UK Government on Trade Policy

World Trade Organization

The WTO’s 12th Ministerial Conference, held in June 2022, was a key milestone in international trade policy, demonstrating the continuing value of the WTO and associated multilateral trading system. The Scottish Government developed clear priorities, with input from a range of external stakeholders (See Section 3.1, below, on Stakeholder engagement), and communicated these to the UK Government to develop an agreed approach. Those priorities included outcomes on fisheries subsidies, trade and environment and trade and gender.

The difficult context in which these agreements were reached – the ongoing Russia/Ukraine crisis, as well as continued US-China tensions – further illustrates the determination by members to ensure outcomes were delivered. However, it is clear that the final agreements are not as comprehensive or ambitious as were proposed.

The ability of WTO members to reach consensus and deliver outcomes at MC12, in particular the multilateral agreement on fisheries subsidies, was a positive step that strengthened the credibility of the WTO regime. As we look ahead to the 13th Ministerial Conference (MC13), we will continue to support further negotiations to extend the agreement to cover subsidies on overcapacity and overfishing to enable real action on harmful and unsustainable fishing practices.

Whilst a concrete outcome on trade and gender equality was not delivered, the recognition of women’s economic empowerment in the ministerial outcome document marked the first multilateral recognition of the role the WTO regime plays in enhancing women’s economic empowerment through trade.

We also supported the actions of the UK Government in proposing ministerial action on food insecurity, in light of the Russian invasion of Ukraine.

An Informal Dialogue on Plastics Pollution was launched in December 2021 which has sought to advance discussions and evidence gathering on the most effective trade approaches to ending plastic pollution. The Scottish Government engaged closely with the UK Government to shape the proposed work plan. There is an opportunity for Scottish Government policy to be informed and shaped by the discussions and research being undertaken on this by like-minded countries at the WTO. We will look to harness these opportunities by continuing to engage with the UK Government and the WTO to ensure that Scotland’s move towards a circular economy is informed by international best practice.

We also acknowledge and welcome the progress made at MC12 to reach agreement on a temporary waiver to The Agreement on Trade-Related Aspects of Intellectual Property Rights (TRIPS) for Covid-19 vaccines. This agreement came in the face of initial hesitation from governments, including the EU and the UK, and demonstrates the strength of voices advocating for a waiver. The outcome at MC12 supports the Scottish Government’s continued call for global vaccine equity, with space for more progress to be made to ensure Covid-19 vaccines are available and accessible to all. The Scottish Government is therefore continuing to consider the options for strengthening the waiver, whilst ensuring balanced protection for investment and innovation in the life sciences sector. As the debate continues at the WTO on whether to extend the waiver to include diagnostics and therapeutics, the Scottish Government will continue to ensure our approach is balanced and reflects the values of our Vision.

International Development

In the Vision we recommended that the UK Government explore how the UK’s Generalised Scheme of Preferences (GSP) mechanism could be improved. In August 2022, the UK Government launched a new GSP mechanism, the Developing Countries Trading Scheme (DCTS).

We have engaged with the UK Government on this development, welcoming the simplification of Rules of Origin requirements for Least Developed Countries and tariff reductions on imports from low income and lower-middle income countries. However, we have also highlighted concerns on preference erosion and the weakening of conditionality in the scheme.