Scotland's Vision for Trade: annual report - October 2024

Progress this year

Outcome 1: Action to improve the trading environment for businesses in Scotland

Deliverable 1: Engaged directly with businesses on their trade priorities

The New Deal for Business aims to build a stronger relationship between government and business. Throughout this year, we have stepped up our engagement with businesses on a variety of trade issues.

This year, we continued to use the Scottish Services Trade Forum to inform our approach to trade in services. This Forum meets twice a year and consists of Scottish regulators, trade bodies, enterprise agencies and academics. Its members have directly informed our services priorities and have shaped Scottish Government input into UK trade agreement negotiations and UK-EU Trade Cooperation Agreement (TCA) Specialised Committees. Areas of discussion at the forum have included:

• Exploring regulatory cooperation opportunities arising from the UK’s accession to the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP).
• Navigating differences in data governance regimes in Europe and the Asia-Pacific region.

We have also engaged with the business community on our approach to removing market access barriers. In particular, we have encouraged businesses to report market access barriers through the UK Government’s Digital Market Access Service and to inform us about their priority barriers, so that we can take those into account when deciding where to focus our efforts. This included presenting at the UK Government’s exporter roadshow ‘Made in Scotland, Sold to the World’, in Glasgow on 29 February 2024, which offered advice and support for businesses in Scotland wanting to expand overseas.

We engaged with businesses on standards at the event we held with the British Standards Institution (BSI) in May 2024 (see below under Outcome 1, Deliverable 3), and with women-led businesses in defining our work on addressing the gender export gap (see below under Outcome 2, Deliverable 2).

We also increased our engagement with the agri-food sector to better assess and progress their priorities. We held regular bilateral meetings with the Scotch Whisky Association to identify and progress issues on international trade, market access barriers and current and emerging Scottish and UK policy developments and regulations. The Scottish Government, together with Scottish Development International (SDI), also contributed to initiatives such as the Dundee Trade show, attended by Food and Drink producers. This forum was an opportunity for producers to learn how to comply with, and leverage benefits from, UK trade deals.

Deliverable 2: Worked collaboratively with the UK Government and industry to resolve trade barriers

Market access barriers are obstacles that stop, hinder or slow down exports of goods or services to international markets. Overcoming these barriers helps businesses in Scotland to trade more easily. As there is no straightforward nor quick route to addressing these barriers, our aim is to constantly refine and improve our approach, including drawing on international good practice (for example, this year we exchanged good practices with New Zealand).

Over the past year, we have worked with the previous UK Government and industry to address key market access barriers. Two examples of this work are set out below.

UK lawyers can once again practise in Luxembourg

As a result of EU-exit, UK lawyers faced restrictions operating in Luxembourg. Following collaborative efforts between UK law societies, the UK and devolved governments, representatives from Luxembourg and the European Commission, legislation was enacted in June 2023 to enable UK lawyers to register in Luxembourg to practise UK and international public law. We ensured that the Law Society of Scotland’s views were considered by the previous UK Government during these negotiations. As a result, Scottish and UK lawyers can now work and operate more easily in Luxembourg.

This is significant for our legal exports, as Luxembourg provides a gateway for UK legal services to access and operate within the EU market. Luxembourg is also a prominent centre for arbitration and dispute resolution and a European financial hub, with demand for legal expertise in areas of banking and corporate law.

EU regulatory barriers for oatcake producers reduced

Working alongside the former UK Government, we acted in the interests of Scottish industry via the WTO Sanitary and Phytosanitary Measures Committee to influence the EU’s proposed measures regarding mycotoxin levels in oat products.

In January 2024, the EU notified the WTO of their intention to set maximum levels for mycotoxins in grains. Their proposed approach would have limited the maximum level of mycotoxins in specific product types in a way that would have significantly reduced Scottish manufacturers’ ability to export oat-based baked products, such as oatcakes, to the EU. The UK and Scottish Governments held bilateral discussions with the EU and provided a written response to the EU’s

WTO notification. Following those discussions, the EU adjusted their approach, as a result of which more baked goods will meet the maximum level for mycotoxins. This has the potential to ensure millions of pounds worth of Scottish oat products can still reach the EU market. Some products are, however, still affected and we are continuing to look at additional steps we can take to help Scottish exporters.

Deliverable 3: Used Standards, regulation and compliance with WTO - and other international obligations - to improve the trading environment for businesses

We have used a range of levers related to standards and regulation to improve the trading environment for businesses, including collaborating on new international standards; and using good regulatory practice to comply with international trade obligations at the WTO and in FTAs.

There is an important role for international voluntary standards in enabling trade, as well as in safeguarding the quality, safety, security and environmental impact of Scottish products and services. This year we collaborated with industry and BSI, the national standards body for the UK, on the new voluntary whisky standard, which was published in September 2023. This standard supports quality, authenticity and consistency, empowering distillers in Scotland to trade internationally.

We further built on our relationship with BSI, jointly hosting an event with the business community in May 2024. That event highlighted opportunities for Scottish expertise to inform the development of standards at a UK, European and wider international level. In particular, standards will play a vital role in facilitating innovation in emerging sectors. We also continued to build our relationship with the UK Accreditation Service (UKAS), in relation to their role in enabling global trade through accreditation. This included participating in their Policy Advisory Forum to help ensure their work meets the needs of Scotland’s economy.

Adopting good regulatory practices allows the Scottish Government to continue to regulate in the public interest, whilst also ensuring a stable and transparent regulatory framework for business in Scotland and overseas. We continued to put this approach into practice this year by ensuring that new regulations in Scotland were compliant with WTO obligations, in particular the Technical Barriers to Trade Agreement. That agreement includes a duty to notify WTO members of new technical regulations that may have an effect on international trade. Compliance with these obligations improves the quality and transparency of Scottish regulations and helps to avoid creating unnecessary barriers to international trade.

This year we notified new regulations on single use vapes, and the mandatory fortification of flour with folic acid. We considered the impact of these regulations on trade, while ensuring that fulfilling our international obligations on trade did not prevent Scotland from regulating in the public interest on health and the environment. We also ensured domestic regulatory compliance with our obligations agreed within FTAs, for example introducing a statutory definition of ice wine into Scottish legislation to comply with the CPTPP.

Additionally, we supported UK Government efforts to streamline trade processes. This included supporting the Electronic Trade Documents Bill, which modernises trade processes by allowing certain trade documents in electronic form to be recognised in law, so that they have the same legal status as paper versions of the same document. As this legislation impacted on devolved matters, legislative consent was obtained from the Scottish Parliament. The Bill was granted Royal Assent in July 2023.^[2]

Outcome 2: Putting the Wellbeing Economy into practice in our approach to trade

Deliverable 1: Used our increased understanding of “winners and losers” of trade to inform policy

This year, we have been engaging internationally to learn from other Governments’ approaches to identifying the winners and losers from trade, and to share the Scottish Government’s experience of putting a Wellbeing Economy into practice in this area. This engagement included hosting a high-level roundtable in Brussels with representatives from the European Commission and European Parliament, Member States (France), the Organization for Economic Co-operation and Development (OECD), and key third countries (US, Canada, Australia), as well as taking part in a series of associated meetings with NGOs, think tanks and industry bodies. This also included participating in a virtual policy lab on the differential impacts of trade as part of the Wellbeing Economy Governments partnership. Those engagements confirmed the high level of international interest in better understanding who wins and loses from trade, and in the Scottish Government’s innovative work in an area with no easy answers.

The Scottish Government has repeatedly made the case to the previous UK Government for greater disaggregation in their analysis of the impact of FTAs. In the absence of that information, we initiated a project this year to fill some of the gaps in our understanding of the impact of trade deals. Using a combination of Computable General Equilibrium (CGE) modelling and gravity modelling techniques, the project will quantify the impact of UK FTAs with Australia, India, Türkiye and Switzerland on key sectors of the Scottish economy. It will also estimate potential impacts on employment and wage levels across those sectors and on different groups (e.g. sex). The results will inform wider policy development to mitigate any negative impacts and promote the opportunities of trade.

This project will complement existing evidence on the impact of trade in Scotland, for example the report on the impact of future UK FTA Scenarios on Scotland’s Agricultural Food and Drink sector, produced by the Andersons Centre on behalf of the Scottish Government in July 2023. We have used this report to highlight to the UK Government opportunities and risks arising from FTA negotiations and implementation, for example:

• Potential opportunities for the dairy sector in negotiations with the Gulf Cooperation Council.
• The need to consider mitigating policy measures where negative impacts on parts of the agricultural sector are expected, for example from FTAs with Australia and New Zealand.

Deliverable 2: Made progress towards increasing the benefits of trade for women and the wider economy, by increasing female participation in trading

We have been continuing our work this year to identify practical actions that the Scottish Government could take to increase the benefits of trade for women and the wider economy.

To that end we have engaged with women-led businesses, their representative agencies (e.g. Scottish Chamber of Commerce, Women’s Enterprise Scotland), academics (e.g. Fraser of Allander Institute, University of Strathclyde) and SDI. We have also built a collaborative relationship with the OECD to draw on international good practice. We brought these key stakeholders together at a workshop in November 2023, hosted by Ernst & Young, to hear their views and ideas about practical actions that the Scottish Government and its agencies could take for women as workers, consumers, exporters, entrepreneurs and business leaders.

As a result of this engagement, and our review of existing data and the levers available to the Scottish Government, the current focus of our work is on better understanding and addressing the gender export gap, whereby businesses led by women are less likely to export than those led by men.^[3] While we continue to review barriers for women as workers and consumers, we recognise that many of those issues are heavily tied to action on wider systemic issues.

To further inform our work in this area, we commissioned a small research project, to better understand what difference greater participation by women in exporting could make to the achievement of wider trade and economic targets, and how we could encourage and support that participation. The key findings from the research project are summarised below. These will be used to inform more effective advice and support for women exporters in Scotland.

Closing the Export Gender Gap in Scotland

The proportion of Scottish male-led SMEs that export is between 2% and 9% higher than women-led SMEs.

Women-led and equally led Scottish SME exporters have a higher turnover with lower number of employees indicating higher productivity compared to non-exporters.

Reducing the gender erxport gap could increase total turnover between £2.1 bn and £6.3 bn over one year and £3.4 bn and £10.3 bn over two-years.

Women-led SME non-exporters were reluctant to grow often due to caring responsibilities and a want to remain financially stable.

Access to finance and a lack of appropriate support for micro and service based SMEs deters exporting.

Both exporters and non-exporters report being excluded from support that focuses on male dominated sectors and from international trade missions.

For exporters access to information for support, funding, and market opportunities was a big challenge.

Brexit has posed a big barrier for exporters from specific women-led sectors such as cosmetics and textiles.

Deliverable 3: Worked with the Centre for Inclusive Trade Policy (CITP) to support key Scottish policy development priorities

The Scottish Government is a non-academic partner of this centre, that was set up in May 2022 to provide an evidence-based interdisciplinary approach to effective trade policy that delivers for all parts of society. In the past year, we have worked closely with the Centre’s experts and researchers to inform their research agenda, so that it supports Scottish Government policy development.

One of the Centre’s current projects is to build a ‘Jobs in Trade Dataset’ to provide detailed information about UK jobs directly or indirectly linked to exporting. We worked closely with researchers to ensure there would be disaggregated and detailed information about Scottish jobs.

This project will increase our understanding of the interaction between trade and the labour market in Scotland and of individuals and sectors most vulnerable to changes in the trading environment. We will use its outcomes to help identify policy levers to mitigate any negative impacts and support access to the opportunities from trade.

CITP’s 2024 UK Trade Policy Forum in February focused on Trade, Industrial Strategy and Growth. We used this opportunity to tap into developments in the trade policy community to better align our approach to trade with wider economic policy. This included presenting on Scotland’s approach to green growth.

Outcome 3: Using our work on trade to help meet climate ambitions and support human rights

Deliverable 1: Increased coherence between climate and trade

One of the Vision’s key aims is to support coherence between our trade and global climate ambitions.

For example, we supported the UK Government in its decision in February 2024 to leave the Energy Charter Treaty (ECT). This is an investment agreement for the energy sector signed in 1994. The ECT’s provisions on Investor-State Dispute Settlement were particularly criticised, including by the United Nations Framework Convention on Climate Change and the UK’s Climate Change Committee, as an impediment to achieving net zero.

We also highlighted Scotland’s commitment to using trade as a tool to combat climate change at the Conference of the Parties (COP28) in Dubai, where the former First Minister joined the WTO Director General in a panel session as part of ‘Trade Day’ to discuss ‘Promoting the Use of Trade to Scale Up Breakthrough Trade Technologies and Support a Just Transition’.

As part of using trade as a lever to support global efforts to reach net zero, in close collaboration with Scottish Enterprise, we continued to align trade support with products and services that drive progress towards climate goals. The case studies below show two examples of ways Scottish Enterprise has supported businesses with their net zero ambitions. This includes securing opportunities in international markets from the energy transition.

Verlume is an engineering services business which has moved its focus onto solutions that support Scotland’s energy transition. Scottish Enterprise has provided the business with intensive support on growing international markets, technology and skill development, investing £3.2 million to date. This investment is enabling Verlume to develop its projects in battery technology, subsea power and offshore wind.
Mackie’s is a well-known Scottish ice cream and confectionery manufacturer that began their renewable energy journey in 2005, by building sustainable practices and solutions into the ice cream-making process. The company has benefitted from Scottish Enterprise’s advice for several years across a range of projects, which has taken the form of international market support, leadership coaching and management development, as well as capital support for equipment.

We are also working with Scottish Enterprise to deliver the Framework to grow Scotland’s Renewables Exports, published in March 2023, through actions that support domestic growth and international exports in renewables. We aim to position Scotland as a leader in the renewable energy sector, and continue to tailor and target our support to Scottish companies, including those transitioning from Oil and Gas. In 2024 we will supplement this work by publishing an export plan for the hydrogen sector. This will highlight the steps required to develop our future capacity for exports of low carbon and renewable hydrogen and its derivatives.

Deliverable 2: Applied human rights to our approach to trade

We continued to embed human rights in our approach to trade policy.

This included ongoing implementation of our Human Rights Assessment process to evaluate the human rights record of the UK Government’s prospective FTA partners and produce concrete recommendations on how the UK Government could use trade negotiations to promote and improve human rights.

The Scottish Government has made clear that it and its enterprise agencies will use their available powers – including the Discretionary Economic Measures we apply in addition to the UK’s legally binding sanctions regime – to ensure that we do not support trade and investment activity with Russia. In collaboration with enterprise agencies, we kept those Measures under review to ensure that they are workable.

Prior to the current conflict in Gaza, and in line with our commitments to the UN Guiding Principles on Business and Human Rights, the Scottish Government wrote to companies included in the Office of the United Nations High Commissioner for Human Rights (OHCHR) Database of companies they believed to be involved in ‘listed activities’ in the Occupied Palestinian Territory, and which had been identified as having a relationship with a Scottish public body. That letter asked what companies had done, or were doing, to cease those listed activities. A revised OHCHR Databse has been published which we have highlighted to public bodies.

Outcome 4: Advocating for Scottish priorities within the UK Government’s trade policy

Deliverable 1: Advocated priorities for Scottish people and businesses in all Free Trade Agreement and Memoranda of Understanding negotiations

While the negotiation of deals is reserved to the UK Government, these agreements often include significant areas of responsibility devolved to the Scottish Government, and have the potential to impact Scotland differently from the rest of the UK.

We therefore continued to engage with the previous UK Government on their programme of new FTAs to advocate for Scottish interests and priorities. Over the last year, this has included contributing Scottish Government views on FTA negotiations with India, Canada, Switzerland, the Gulf Cooperation Council, Israel, Republic of Korea and Türkiye; the UK’s accession to the CPTPP and the negotiation of a range of MoUs with US States.

Scottish Ministers regularly raise Scotland’s interests and concerns with the UK Government through correspondence and the quarterly Interministerial Group (Trade).^[4] Ministers continue to emphasise the need for our involvement in negotiations and implementation, to ensure that any new trade agreements reflect our needs and provide opportunities for companies in Scotland.

On 16 July 2023, the UK formally signed the protocol of accession to the CPTPP, a trade bloc of 11 countries in the Pacific rim region. Following the conclusion of accession negotiations, the Scottish Government assessed potential impacts for Scotland, including some limited economic opportunities for the agri-food and services sectors, and raised issues of concern with UK Government counterparts. Issues of concern included:

• Investor-State Dispute Settlement (ISDS): we questioned why the UK signed up to ISDS provisions with other CPTPP members, while simultaneously disapplying those provisions with Australia and New Zealand, and underlined the potential cost and resource implications of any ISDS court cases.
• Palm oil: the previous UK Government’s impact assessment suggests that UK accession to CPTPP should not lead to a net increase in overall Malaysian palm oil production. The former UK Government also agreed a side-letter to accompany the deal through which Malaysia commits to communicating and sharing information on their efforts to support and develop the sustainability of palm oil. However, we highlighted concerns that were not addressed in this side- letter or the impact assessment, such as the potential impact on the domestic biofuel market.

We also kept the Scottish Parliament informed on the accession process. This included through joint letters from the Cabinet Secretary for Rural Affairs, Land Reform and Islands and Minister for Small Business, Innovation, Tourism and Trade to the Economy and Fair Work Committee and the Rural Affairs and Islands Committee.

Key issues raised in relation to the negotiation of other FTAs and US State MoUs in the past year included:

• Our concern in relation to intellectual property provisions in the ongoing UK-India FTA negotiations. Our priority in that area is to ensure that the agreement does not impact the price paid for medicines by the NHS, or negatively affect access to medicines in developing countries.
• Our concern in relation to protecting our high standards and the need to include appropriate safeguards on Scotland’s renowned agri-food sector across all

FTA negotiations. For example, we worked with SDI and producers to assess the negative impacts of changes to the UK’s trade arrangements with Canada on the Scottish cheese sector. We also promoted the recognition of Scottish Geographical Indications.

• Input on our key sectors of interest within US State MoUs, such as in life sciences, fintech, clean energy and legal services. This input included direct engagement with US counterparts in Utah, South Carolina and North Carolina through attendance at UK-based or virtual Working Groups.

Deliverable 2: Advocated for Scottish priorities as part of implementation of the UK-EU Trade & Cooperation Agreement (TCA) and related post-EU exit UK trading regime

The Scottish Government has continued to engage constructively with the UK Government on the implementation of the TCA, while advocating for the UK to build on the current terms of the deal. This year, we continued to press the previous UK Government to support Scottish Government priorities and stepped up our participation as observers in Trade Specialised Committees. We also continued to encourage civil society in Scotland to raise trade issues with the previous UK Government and the EU through their own channels, including the Scottish Advisory Forum on Europe, the Domestic Advisory Group, and the Civil Society Forum.

Key priorities raised by the Scottish Government in the past year included:

• Mobility provisions, including the transparency of business visas and right to work in EU member states. Increased barriers to mobility harm businesses and people in Scotland, and we continue to seek progress on youth and cultural visas. The Scottish Government has also called for increased transparency on business visas and a return to the right to work in EU member states.
• Recognition of professional qualifications and tackling barriers for services professions, e.g. law and architecture.
• Emerging opportunities for services, such as green sectors.

Following EU Exit, the previous UK Government had to develop a regime to control imported goods from the EU entering Great Britain. Its Border Target Operating Model (BTOM), published in August 2023, sets out a new regime of risk-based checks and controls for products entering Great Britain. We engaged extensively on the development of the policy to ensure devolved biosecurity interests were adequately protected. We are now working to implement this model to deliver biosecurity protections for Scotland’s environment, people and businesses. We will continue to work with the other UK administrations, and press the UK Government for swift action on the areas which were not yet fully resolved in the published BTOM, notably arrangements for imports from the island of Ireland (which need to take account of the Windsor Framework). The model will be accompanied by a series of technical improvements, including a new IT system– the Single Trade Window. We will continue to work collaboratively to shape these programmes and ensure they are fit for purpose for those trading from, and with, Scotland.

Deliverable 3: Furthered Scotland’s role in FTAs

We have consistently made the case for a guaranteed role for the Scottish Government and Parliament in all stages of the formulation, negotiation, agreement and implementation of UK trade deals, to protect and promote Scottish interests and priorities. The previous UK Government did not accept this, and we have therefore sought to influence the UK’s trade agreements through greater engagement and involvement. For example, through an enhanced information sharing agreement implemented in 2023 the Scottish Government has been given sight of, and the opportunity to provide input into, a far wider range of negotiating texts than previously. This approach has had some benefits, including ensuring the Scottish Government was kept better informed on the progress of accession talks with CPTPP partners as they occurred, both in devolved and reserved areas of responsibility.

However, while welcome, such engagement still falls far short of truly meaningful involvement, and we will continue to press for a guaranteed role in all stages of the FTA process.

This engagement with the UK Government on trade agreements brings clear benefits to Scotland and following the General Election in July 2024, we have continued our work with the new UK Government on the future of the FTA programme, to protect and promote Scotland’s trade interests.

Beyond improving engagement on the negotiation of FTAs, we also worked to ensure that legislative processes in relation to FTAs respected the role of the Scottish Parliament.

In 2022, the previous UK Government passed the Professional Qualifications Act without the Scottish Parliament’s Legislative Consent. Scottish Government officials worked successfully with UK Government counterparts to ensure that the terms of the first piece of secondary legislation made under the Act - in Autumn 2023 - were practicable for Scotland.^[5] However, UK Government Ministers, in line with the terms of the Act, made that legislation without seeking the consent of the Scottish Ministers and Scottish Parliament, instead only consulting with the Scottish Government. It remains the Scottish Government’s position that such consent should be required, given that much of the secondary legislation sits within devolved competence. Along with the Scottish Parliament’s Economy and Fair Work Committee, we reiterated this position when UK Ministers legislated to implement recognition of the qualifications provisions within the UK’s trade deal with the EEA-EFTA countries (Iceland, Liechtenstein and Norway).^[6]

As the UK-Swiss Agreement on the Recognition of Professional Qualifications is implemented this year, we will work with the current UK Government to ensure that it is implemented in a way which respects the devolution settlement.

Over the course of this year, we also influenced UK Government counterparts to ensure that legislative processes for CPTPP ratification, which touched on areas of devolved responsibility, better respected the role of the Scottish Government and Scottish Parliament. This included on areas of the Trade (CPTPP) Bill, where parts of the Bill relating to public procurement triggered the legislative consent process. We worked to ensure that the provisions necessary to implement the CPTPP procurement chapter were included, giving the Scottish Parliament the opportunity to scrutinise those provisions, and avoiding the delegation of powers to UK

Ministers in this devolved area. This approach was an improvement on previous FTA implementation legislation, such as the Trade (Australia and New Zealand) Act 2023, with the result that the Scottish Parliament was able to grant legislative consent to the CPTPP Bill.

Deliverable 4: Informed UKG priorities at the World Trade Organization (WTO)

We helped shape the previous UK Government’s mandate ahead of the WTO’s 13th Ministerial Conference in February 2024 (MC13) – the highest-level negotiating forum at the WTO. This included:

• Inputting into ongoing negotiations on Phase 2 of the Fisheries Subsidies Agreement, an important text designed to stop subsidies from contributing to overfishing. Whilst WTO Members could not secure unanimous agreement on this text at MC13, negotiations continue in Geneva and the Scottish Government is continuing to work with the UK Government on this.
• Supporting a shared objective with the UK Government to protect tariff-free digital trade. This was the main successful outcome of the conference, with WTO members agreeing to maintain the e-commerce moratorium until the next Ministerial Conference in Spring 2026. This is particularly beneficial to countries like Scotland with high digital trade exports.

A further positive step at MC13 was a decision relating to dispute settlement reform, which recognised ‘the progress made with the view to having a fully and well- functioning dispute settlement system accessible to all members by 2024’. We have been working with an academic secondee to the Scottish Government, Dr Henry Lovat from the University of Glasgow, funded by UK Research and Innovation (UKRI), who is conducting research into dispute settlement at the WTO to better understand reform dynamics and how to influence change.

The Scottish Government supports the WTO and recognises the importance of having a functioning, rules-based system for global trade. Through the UK Government we have also informed WTO committee work. This included influencing UK positions on Export Restrictions, Domestic Subsidies and Public Stockholding, Food Security and proposed changes to the WTO Sanitary and Phytosanitary (SPS) Agreement at the WTO Committee on Agriculture.

We also worked with the previous UK Government to seek assurances at the WTO TBT Committee on the impact on businesses in Scotland of a number of other countries’ regulations. For example, on the EU’s draft packaging and packaging waste regulations, which helped us better understand the potential impact of these regulations on important Scottish sectors, such as the spirits industry.