Trade: our vision

2. Our Trade Principles

The way we trade and conduct ourselves internationally tells us a lot about who we are as a country. As the First Minister said in September 2020 "Trade is not separate from the values and the reputation that a country wants to project internationally. Trade, in many respects, should reflect our values. There should be ethics attached to any country's trading profile."

Having an effective and responsible trade policy helps governments to project an identity, providing a compass point to plot a route through often competing choices and to ensure coherence across a wide range of policy issues.

Our National Performance Framework prioritises sustainable, inclusive growth and wellbeing and affords equal importance to economic, environmental and social progress. In line with that approach, our equalities and climate change targets, and the five key red lines^[15] we articulated for the US Free Trade Agreement (FTA) negotiations in March 2020, the following five core principles will inform our approach to trade policy:

Inclusive Growth

Trade should generate inclusive growth for all. GDP growth alone is not our aim, rather our aim is to use trade to drive economic development, provide good quality jobs, quality of life and reduce inequality. We will identify and engage with those negatively impacted by trade to support them in mitigating trade's adverse effects or in taking advantage of its opportunities.

Wellbeing

Our National Performance Framework sets out the kind of Scotland we want to see with increased wellbeing as a core purpose. Trade can affect diverse elements of our daily lives from the quality of jobs to our natural environment. By trading based on our principles, we will promote wellbeing for individuals, businesses and wider society.

Sustainability

Trade decisions must be guided by economic, social and environmental sustainability and their interdependencies. Our trade policy will strike a balance between the short and long term – being open to free trade but supportive of fair trade. Some Scottish trade and investment flows depend on the Scottish brand or are built on our natural assets and maintaining the global standing of Scottish provenance will depend on our continued efforts to tackle the climate and nature crises.

Net Zero

Trade policy should operate as a lever to drive progress towards our climate change targets and a just transition to net zero emissions. While the interaction between trade and emissions is not clear-cut, it is clear that there is a need for increased coherence of international trade with environmental and climate change objectives.

Good Governance

In our decisions on trade we will respect and promote Good Governance at all times. We will consistently support effective global governance related to trade and its impacts. Scotland will operate as a good global citizen, building global trade relationships with like-minded countries and operating in accordance with the rule of law, with transparency and accountability and in a way that supports and promotes human rights.

A Vision for Trade

Based on these principles, this Vision for Trade therefore takes a strategic and holistic approach to trade policy. Taking into account global trends in trade, the Vision adopts a principles-based approach to identifying our trade and broader economic, social, and environmental objectives, and considering how we can support the achievement of those objectives through our trade policy, while balancing and mitigating conflicting priorities.

This document sets out the guiding principles by which we will judge our own trade policy decisions and contribute to those of the UK Government and of our international partners, and how those principles translate into our specific trade policy aims. Our export growth plan 'A Trading Nation' details Scotland's competitive advantages, priority markets and sectors. Our Inward Investment and Capital Investment plans articulate our values and opportunity areas for investment. The Vision for Trade seeks to build the right trading conditions which facilitate implementation of operational trade and investment plans and allow us to put our values into practice.

While responsibility for foreign affairs, including international relations and the regulation of international trade, is currently reserved to the UK Parliament and Government, there are important exceptions to this. In particular, the Scottish Parliament and Scottish Ministers are responsible for observing and implementing international and ECHR obligations relating to devolved matters. More generally, the broad and increasing scope of modern trade agreements means that their content cuts across a range of reserved and devolved policy areas.

To bring the principles to life, in Section 3 – Scotland's distinct voice in trade – we set out eleven of today's key challenges related to trade and detail a range of levers that could be used to meet these challenges. Some of these sit with the Scottish Government while others currently lie with the UK Government.

Although the focus of the UK Government to date has been primarily on the roll-over of EU trade deals with third countries in an attempt to lessen the impact of Brexit, with some efforts to negotiate additional preferential trading agreements, bilateral trade negotiations alone do not constitute a comprehensive trade strategy. Governments have a range of levers available to direct, manage, and shape international trade flows and their impacts. These can be levers that are trade-related, trade-impacting or that address the impacts of trade. These include:

• Free Trade Agreements and World Trade Organization (WTO) negotiations, together with developments in other forums with interactions with trade (e.g. Multilateral Environmental Agreements).
• Bilateral discussions or agreements that are not part of trade agreements (e.g. between regulators or in specific sectors).
• Domestic policy and regulation with an interaction with the trading environment, which can be directly trade-related (e.g. sanitary and phyto-sanitary (SPS) measures), trade-impacting (e.g. environment and climate policy), or address the impacts of trade (e.g. labour and skills policies).
• Economic or commercial diplomacy, trade promotion and market development assistance.
• Litigation under domestic law, existing international agreements or via the WTO.

In isolation, trade policy cannot achieve the Scottish Government's economic, social and environmental objectives. It must be accompanied by wider policies to maximise the benefits of trade liberalisation, while identifying and addressing any adverse or undesired effects of trade shocks and trends. That is why this Vision for Trade examines in particular the intersections between different areas of policy and makes the case for consideration of trade and its impacts in a wide range of policy areas, as well as for the consideration of non-trade objectives within trade policy.

Looking at a range of trade and non-trade-related levers to advance Scotland's interests and linking these to wider economic, social and environmental governmental aims can help us consider the strategic role of trade in our economy and society more broadly. This allows us to consider how to achieve our trade objectives in a way that supports and amplifies our other economic, social and environmental priorities. That is important now – to inform our response to the impact of the UK's exit from the EU and COVID-19 – and to guide our decisions in the future. While some of these levers are currently reserved to the UK Government, e.g. reducing tariffs and quotas unilaterally or through FTAs, others are devolved to Scotland, such as trade promotion and environmental policy.

The Scottish Government levers that we set out in the Vision for Trade are the tools that we can draw on as we navigate the complex trading environment – capturing the range of functions that are covered within trade policy. We focus on today's biggest trade challenges as an illustration, but this is not exhaustive of all aspects of trade and so not all potential levers are included. The global trading environment will shift over time and with it the key trade challenges, so new or different levers may be needed.

We recognise the range of trade-related levers that are currently reserved to the UK Government but, by setting out how we think the UK Government should use these levers, we aim to guide them to act in a way that is supportive of Scotland's economy, people and the planet.

Building on our publication of Scotland's role in the development of future UK trade arrangements, the Scottish Government, and others, have made a strong case for a formal and comprehensive role for devolved administrations in the development of future UK trade arrangements^[16]. Despite the obvious strength of that case, we have been frustrated by a lack of meaningful engagement from the UK Government on any aspect of those arrangements, particularly around the development of FTAs or the terms of our exit from the EU. The UK Government has failed to respond to Scotland's clear and distinct positions in negotiations of FTAs to date, including in relation to the US FTA. As FTAs provide preferential access to Scotland's markets, they should be reserved for countries who are willing to make certain social and environmental commitments^[17].^. The Scottish Government's red lines should be respected: protecting our public services; protecting our environment and positively contributing to achieving our net zero target; as a minimum maintaining alignment with EU standards; building a fairer society, reducing inequality and improving economic wellbeing through inclusive economic growth; being a good global citizen; and helping to raise standards through trade.

Pursuing a more strategic and comprehensive approach to trade policy is supported by the evidence. Apart from the work done to roll over existing EU FTAs with third countries to simply protect, at best, the level of market access the UK enjoyed as a member of the EU, the UK Government has focused heavily on ad hoc FTAs to reach its trade goals and as a medium for expressing its trade priorities. However, even when measured solely on the impact on GDP, the benefits of the new FTAs they are pursuing are questionable. For example, the Department for International Trade's own estimates anticipate only a 0.1% increase in GDP over 15 years from an FTA with the US. In contrast, we estimate that trading with the EU on FTA terms will lead to 6.1% lower growth in Scotland's GDP by 2030, compared to remaining in the Single Market. Add in the potential risks to important sectors, standards and protections inherent in some of those negotiations, and it is clear that the UK Government will need to look far beyond new FTAs to a broader range of tools in order to conduct a successful trade policy.

Our Trade Policy Principles

Trade can help us to achieve wider policy goals, but it can also introduce tensions between those goals, for example between increasing trade and achieving environmental targets. It is the role of governments to address those tensions, to ensure coherence in all of its policy objectives, and in this example, to ensure trade supports Scotland and our partners, including the EU, to meet ambitious environmental targets.

Having a set of core principles, by which we will judge all interventions and actions in relation to trade, can help us resolve and mitigate those tensions.

Our five core principles can be used to meet key challenges for our economy, people and planet – which is further detailed in Section 3 – Scotland's Distinct Voice on Trade.

Inclusive Growth

Trade should generate inclusive growth for all.

Overall, trade is positive and makes us more competitive. It can drive higher wages, increase consumer choice and lower prices. However, there is substantial evidence that increased openness to trade can create "winners" and "losers" in relation to sectors, regions or specific demographic characteristics. The shock to the economy and to international trade flows as a result of COVID-19, coupled with the UK's exit from the EU, has highlighted the potential for such differential impacts.

We want to drive economic development which provides good quality jobs, enhances the quality of life of all of our citizens, and is compatible with a just transition to a net zero, sustainable economy. To achieve this, GDP growth alone can never be our sole aim.

Inclusive growth is therefore a core principle at the centre of our trade priorities. This means ensuring we identify and engage with all those impacted by trade and trade deals, and prevent or address these impacts by supporting sectors, communities and individuals negatively affected by economic shifts resulting from global developments and trade policy.

As part of this, and in line with the principles of a Just Transition^[18], Scotland will promote fair work through its trading relationships and trade policy, by supporting high labour standards at home and abroad, with fair work at their heart. Trade policy should improve conditions and drive up standards for all workers and every business, regardless of size. There are a range of policy measures that can be taken to actively mitigate adverse or undesired effects of trade shocks and trends, such as place-based or skills based measures.

Our Vision for Trade includes social enterprises which we cover under the term "business" throughout this document. Social enterprises often lead the way in their contribution to a wellbeing economy. Our aim is that social enterprises will become widely accepted as an increasingly just, democratic and inclusive way of doing business.

Wellbeing

Wellbeing is a critical measure of success for trade policy.

Just as the success of an economy cannot simply be measured by its size in terms of GDP, the success of international trade should not simply be measured by its volume.

Trade drives improvements in living standards and generates higher incomes for workers, but trade decisions also have the potential to impact negatively on wellbeing – for example, they can impact our communities by moving employment away from local areas, our health by affecting our public services or decreasing our food quality, or our environment.

Our trade policy will strike a balance between driving competitiveness and ensuring that changes to the economy as a result of trade promote wellbeing and avoid provoking social or economic dislocation or increasing inequality.

Understanding the many connections between trade and wellbeing requires us to look in detail at how trade can impact individuals and interact with their ability to live healthy and fulfilled lives.

Our National Performance Framework (NPF) helps to guide us in supporting wellbeing through trade across all the National Outcomes. The following table puts this principle of wellbeing into practice by setting out how trade is connected to individual and collective wellbeing, as well as how businesses benefit from and contribute to these connections. This takes the form of a set of aspirational statements related to each outcome of our National Performance Framework, which is Scotland's Wellbeing framework.

Trade and everyday life: how trade contributes to individual and collective wellbeing

NPF outcome	As an individual…	As a business...	As Scotland…
Economy	The economic growth that comes from international trade benefits me, such as access to good value products and fulfilling work, but I also know this doesn't come at the expense of other social and environmental issues that matter to me.	We benefit from access to a positive international trading environment and operate in a way that contributes to inclusive and sustainable trade.	International trade makes our economy more competitive, inclusive and sustainable.
Education	My education and skills allow me to take advantage of opportunities from international trade.	In trading internationally we benefit from a well-educated and skilled workforce.	Our excellence in teaching, learning and innovation positions us to trade internationally.
Health	I know my health matters and is part of Scotland's trade priorities.	In trading internationally we benefit from a healthy and active workforce and there are opportunities from trade for our life sciences and biotechnology industries.	International trade helps us to live long and healthy lives and does not damage our public services.
Environment	I benefit from a healthy environment and trade gives me more options to make environmentally sustainable choices.	We can maximise our competitive advantages in environmental goods and services internationally and protecting and enhancing our natural assets increases the international value of our products.	The way we trade internationally advances climate and environmental outcomes and encourages sustainable production and consumption.
Fair Work and Business	My job is fulfilling and fairly paid and I feel empowered and supported in the face of economic shifts as a result of international trade, such as access to retraining opportunities.	We are empowered and supported to take advantage of the opportunities from international trade, while prioritising fair work for our employees and for everyone who contributes to our business, at home or internationally.	The way we trade internationally improves our access to fair work and high quality jobs and supports fair access to opportunities globally.
Human Rights	I know that my human rights and those of others are part of Scotland's trade priorities.	Our respect for human rights is part of our value in international trade and we expect high human rights standards from those we work with internationally.	Our international trade policy is firmly grounded in our commitment to respect, protect and fulfil human rights.
International	My voice is heard on Scotland's global role in trade.	We are part of an international trading community and our voices are heard on trade.	We make a positive contribution to the global trading environment.
Communities	I see my community's wealth developing and growing around me and it benefits from international relationships and innovations.	Through trading internationally we bring benefits to our communities, which support us in turn as employees and consumers.	Our communities and local supply chains are enhanced by innovations from international trade.
Culture	My life is enriched by being able to access international art and culture and I have opportunities to share my own culture internationally.	We benefit from the international trade opportunities brought by creative and cultural exchanges and opened up by cultural diplomacy.	Our culture is more diverse as a result of international trade and we use cultural diplomacy to promote Scotland as a trading partner.
Poverty	I have equal access to the economic opportunities from international trade and access to goods and services at competitive prices.	We contribute to opportunities for all through the resources we build from our access to international trade.	The wealth and opportunities from international trade are more equally shared amongst us, while we also seek to contribute to reducing global poverty.
Children and Young People	International trade creates more opportunities for me to realise my potential.	We contribute to opportunities for children and young people through the resources we build from our access to international trade.	Our children and young people benefit from international trade, and we ensure our trade does not support child labour in our trading partners.

Sustainability

Trade decisions must be guided by economic, social and environmental sustainability.

Our aims for Scotland's economy, people and the planet, are driven by an approach to sustainability whereby all trade policy decisions will be assessed against economic, social and environmental outcomes. Our approach will be guided by the concept of sustainable development, and Scotland's commitment to delivering the UN's Sustainable Development Goals.^[19]

As outlined above, trade can be an important economic, social and environmental lever to achieving our wider governmental goals, but there can be tensions between these goals. The increasing scope of modern trade agreements means they cover broader economic, social and environmental areas and so their consequences can be increasingly uncertain and far-reaching. Short term market access gains therefore need to assessed carefully against longer terms goals. For example, regulations and standards may be seen as protectionist, restricting trade unnecessarily, but can be vital in order to achieve legitimate policy goals which contribute to our social and environmental wellbeing and global citizenship.

Our approach is supportive of the EU's model of Sustainability Impact Assessments and also aligns with the WTO's rules-based system and its exemptions under the General Agreement on Tariffs and Trade (GATT) and the General Agreement on Trade In Services (GATS) to protect human, animal or plant life or health, or the conservation of exhaustible natural resources.

Concepts of free trade and protectionism, globalism and localism can often be pitted against each other. However, these are often artificial distinctions and a balance can be found by supporting free trade, while continuing to support local supply chains – such as through our Good Food Nation ambitions and Supply Chain Development Programmes – taking action to support those who might lose out from international trade decisions, and aligning trade with environmental ambitions.

Our Vision for Trade aims to strike this balance, guided by the principle of sustainability. It also takes account of the interdependencies between our economic, social and environmental goals. For example, the importance to our economy and society of the health of our planet's natural systems, and the resources and services they provide, is clear: decisions over short and long-term goals for trade must take account of these interdependencies, and of Scotland's responsibilities towards other countries and future generations.

We will continue to support and promote fair trade – by situating trade within this wider model of social, economic and environmental balance – to drive better trading conditions for marginalised producers and workers globally. We will also strive to ensure that our approach to trade supports a shift towards more sustainable consumption and production. Tackling the global climate and nature crises will require transformative changes to the economies and societies of countries around the world, particularly of wealthy nations like Scotland.^[20] Our new Environment Strategy^[21] sets out Scotland's commitment to playing our full part in tackling these crises. Our approach to international trade must help to support these ambitions.

Net zero

Trade policy should operate as a lever to drive progress towards net zero targets.

The World Trade Organization (WTO), EU and others are taking forward a number of important initiatives to advance environmental and climate change cooperation through trade measures. However, the current global trade regime often does not naturally operate in synergy with climate policies.

The interaction between emissions, the environment and trade is a complex one. For example, we need to consider not just transportation and the number of times a product crosses borders, but the environmental impact of goods at every stage of their life cycle. Local production does not necessarily mean a product is more environmentally friendly, especially if that production is itself dependent on imports. The impact of supply chains on natural resources, ecosystems and the wider environment needs to be considered alongside emissions.

It is therefore imperative that all governments consider how to reinforce and ensure the coherence of international trade with environmental and climate change objectives.

Using our domestic levers, we are supporting Scottish businesses to go greener and be competitive in growing low-carbon markets. As such, trade support should be aligned to a just transition to net zero.

Our strengths in climate-related technology and renewable energy will also be shared globally through trade and form part of the solution to climate change.

Good Governance

In our decisions on trade we will respect Good Governance at all times.

We are all entitled to fundamental rights and freedoms which are recognised in international law. The Scottish Government is committed to an inclusive Scotland that protects, respects, promotes and implements internationally recognised human rights. We have a strong and enduring commitment to securing and supporting democracy, the rule of law and human rights in other parts of the world.

Strong global governance is essential in order to provide collective solutions to transnational challenges^[22]. Effective global governance can only be achieved with effective international cooperation. The rules-based system of the WTO is a core part of this, driving up standards in good governance globally. International cooperation can be further enhanced through higher levels of cooperation with like-minded partners on shared policy objectives, as is the case within the EU. Operating in line with this principle also means that we will consistently support rules-based international trade and other transnational developments which support effective global governance related to trade and its impacts. Within bilateral or plurilateral Free Trade Agreements, we will consistently make the case for effective governance, implementation and cooperation.

We will apply Good Governance to our international trade decisions, acting always in accordance with the rule of law, with transparency and accountability. This principle will also guide our trade-related policy decisions to counter illicit behaviours and encourage responsible taxpayer behaviour.

Our priority will be to be a good global citizen, building global trade relationships with like-minded countries in support of free and fair trade, rather than pursuing purely transactional relationships.

The rules of trade must be fair for all. We see the value in making shared policy commitments to ensure businesses from one country cannot gain an unfair advantage because of low regulation related to environmental protection (including climate change), social and labour protection, subsidies and competition.