Scotland's Vision for Trade: annual report - March 2022

3. Engaging stakeholders, developing data and monitoring our progress

It is crucial that our work developing and implementing the Vision is built on stakeholder input, informed by relevant and robust data, and monitored to ensure we are making good progress against our priorities in relation to the Economy, People and the Planet.

3.1 Stakeholder engagement

In the Vision, we issued an open invitation, to individuals, businesses, academics and other organisations in Scotland and globally, to discuss trade policy with us, reflecting the priority we place on ensuring that our approach to trade is informed by the experience and expertise of consumers, businesses, workers, civil society and others.

In March 2021, the Minister for Business, Trade, Tourism and Enterprise, Ivan McKee MSP, hosted a stakeholder roundtable to help identify initial priorities for the Scottish Government in implementing the Vision. Those stakeholders represented interests across the entirety of the Vision, and included representatives of business, academia, civil society and international organisations.

In terms of the economy, participants considered how Scotland can influence the trading environment, cooperate on regulation whilst protecting public interests and the importance of digital trade and global value chains. Commitments in the Vision regarding adherence to a rules-based global trading system were welcomed, as was the focus on identifying and removing market access barriers, with suggestions from the panel as to how this could be done.

On people, stakeholders considered how Scotland should tackle the differential impacts of trade, as well as protecting public services and consumers. Participants supported the focus on winners and losers of international trade and highlighted the importance of seeing people as workers, citizens, service users and consumers.

On the planet, participants discussed how Scottish trade policy can be used as a tool to support climate and environment targets, address the differential global impacts of trade and reform multilateral trading systems. Suggestions included taking steps to liberalise trade in environmental goods and services, seeking to influence the UK Government to make FTAs international development-friendly and advancing links between trade and industrial policy.

Outputs from this discussion were used to inform our decisions on what to prioritise during our first year of implementation of the Vision. In particular, participants supported an integrated approach to policy development, to develop solutions that work across aims for the economy, people and planet and recognise difficult choices and trade-offs related to international trade policy (such as supporting the rules based system, while pushing for reform; or trade supporting economic development while achieving climate targets).

To further explore our priorities and the trade-offs across economic, social and environmental aims, we are now taking forward a series of roundtables with stakeholders to consult on a range of technical issues.

The first roundtable, on how Scotland can best take advantage of market access opportunities across goods, services and digital trade, covered two main issues: prioritising and removing specific market access barriers; and taking market access opportunities. The session's discussion highlighted the importance of ensuring the inclusion of stakeholders, particularly SMEs, in decisions about which market access barriers to prioritise. Participants also emphasised the role of regulator-to-regulator and industry-to-industry cooperation, both for addressing barriers and taking market access opportunities. This roundtable consultation has directly influenced policy development, for example informing adjustments to the market access prioritisation methodology currently in development.

Further roundtables are planned in the coming months on issues including: what trade based on high regulatory standards means for Scotland's businesses, workers and consumers; and the role the Scottish Government can play in relation to global value chains and their interactions with economic, social and environmental policy.

3.2 Developing data to inform trade policy

Improving access to, and developing, relevant data in support of our trade policy is key to the successful implementation of the Vision, laying the groundwork for decisions we make on trade and the levers we prioritise.

This year, we have developed our data sources and understanding in two key areas, by conducting our own analysis of:

• Where value is added along the supply chain. In doing so, we can better understand where income and jobs are created and how we can build a high value-added economy.
• The impacts of trade disputes on Scottish businesses, supporting our work to influence the UK Government in this area.

Data on Trade In Value Added

COVID-19 has tested supply chains in unprecedented ways, and has demonstrated the importance of resilience in ensuring the continued flow of critical goods. The increased importance of global value chains in production means that it is essential to consider 'value added' when thinking about trade policy, namely the amount of value added by an industry or company, rather than just the value of the product or service that is sold on. Identifying where value is added along the supply chain will enable Scotland to estimate where income and jobs are created. Higher value-added activities contribute more to the economy, and jobs in these industries tend to pay better wages and generate higher profits.

For example, Country X may import steering wheels to add to the production process of cars that they manufacture. When the final good, the car, is exported to Country Y, the entire value of the car will be attributed to Country X, including the value of the steering wheel, thereby overestimating the value Country X added in production, and the capacity for job creation.

Our analysis so far has yielded valuable findings on where Scotland lies in the global value chain for specific sectors, generating an Inter-Country Input-Output (ICIO) table for Scotland, demonstrating:^[11]

• Which sectors are export or import intensive. Table 1 below shows the top five most export-intensive sectors and the top five most import-intensive sectors. For example 'computer, electronic and optical products' is high on the export intensity and import intensity scale. This suggests that Scotland lies somewhere in the middle of the value chain for products within this sector.
• Where demand for Scottish exports lies in the value chain and therefore how Scottish goods are consumed, i.e. whether Scottish goods are used primarily for final consumption, as an intermediate good in the production process, or as a fixed asset of investment.^[12] The data shows that Scotland's exports are primarily consumed as intermediate goods. This suggests that Scotland adds more value upstream in the value chain (manufacturing and production), rather than downstream to the final consumer (advertising, marketing and sales).

Table 1: Concentration of Output and Consumption for Scottish Exports and Imports

Top 5 Export-Intensive Sector	% of total industry output that is exported	Top 5 Import- Intensive Sectors	% of consumption originating from imports
Mining and Quarrying	80%	Computer, electronic and optical products	64%
Food, Beverages and Tobacco	73%	Electrical Equipment	59%
Computer, electronic and optical products	73%	Financial and insurance activities	52%
Electrical Equipment	67%	Coke and Petroleum products	51%
Machinery and Equipment	67%	Mining and Quarrying	50%

The next step in this work will be to build on these findings by producing Trade in Value Added estimates for Scotland. This will allow us to understand how best to further support Scotland's participation in global value chains, and where the highest potential lies for job creation.

The impact of international trade disputes on Scottish businesses

Successfully influencing the UK Government and other trading partners in relation to international trade disputes relies, in part, on having a strong understanding of the impacts of those disputes on businesses in Scotland.

A recent dispute of significance to Scotland was the US/EU Large Civil Aircraft (the 'Airbus-Boeing') dispute. In October 2019, the US applied 25% tariffs to a range of products from EU countries, including the UK, in accordance with World Trade Organization rules. One of those products was Single Malt Scotch Whisky.

The impact on Scotch Whisky exports of the tariffs specifically – as opposed to, for example, the more general impact of the Covid-19 pandemic on global trade – had been hard to pinpoint using traditional methods. Developing and applying a novel 'synthetic control method' of analysis, however, suggested that the quantity of single malt exports declined by between 9.5% and 19.6% between Q4 2019 and Q4 2020, as a result of the tariff. We were able to use these figures to back up our efforts to influence the UK Government to take action on the trade dispute.^[13]

This method of calculating impact will provide a useful framework for assessing the impact of any future trade disputes and, potentially, certain aspects of trade deals agreed in the coming years.

3.3 Monitoring Scotland's Vision for Trade

Over this period we have been developing our plans to track progress in implementing the Vision. We are looking to understand whether what we are doing is making a difference and how to link what we've done to changes in the economy, for people or for the planet.

This annual report, documenting how we have put into practice the principles in the Vision and met the needs of people and businesses in our policy development and trade decisions, is the first product of this monitoring process and a core part of how we will document our ongoing work on trade policy.

We are additionally identifying ways to track the views of businesses and individuals in relation to the effectiveness of Scotland's trade policy, and on their top priorities for the Scottish Government for using our own levers and influencing the UK Government.

We also use our ongoing engagement with stakeholders, individuals, businesses, academics and other organisations in Scotland and globally, to hear their views on our progress in implementing the Vision. We welcome the opportunity to engage with stakeholders on our progress to date and future plans, as set out in this report.