Addressing barriers to trade with the EU: position paper

Introduction

Brexit is causing major economic harm to Scotland. For example, modelling by the National Institute for Economic and Social Research estimates the damage to be a 2.5% hit to GDP in 2023. In Scotland, this equates to a cut in public revenues of around £2.3bn. This impact will more than double by 2035 to 5.7%.

It is in Scotland’s best interest to remove the barriers to trade imposed by Brexit by re-joining the European Union. If economic growth is a top priority, it makes no sense to be outside the EU Single Market and the Customs Union and without the benefits that come with the Freedom of Movement. For as long as the UK Government remains intent on not re-joining the EU, it should at least re-examine these negotiating red lines.

However, until such a time, some barriers to trade are a direct and unavoidable consequence of Brexit, and we should explore every avenue to reduce them in ways that lessen the economic damage.

This paper sets out key Scottish Government priorities for addressing barriers to trade that have been created as a result of the UK leaving the EU. We wish to see these priorities reflected in the UK Government’s approach to negotiations with the EU.

Delivering these priorities will not restore the opportunities of full EU membership. However, together they should create more favourable conditions  both for businesses and consumers, in Scotland as well as in the rest of the UK and in the EU.

What Scotland has lost

While the UK was a member of the European Union, businesses in Scotland enjoyed full access to a market of 450 million consumers, and benefited from the freedom of movement of goods, services, capital, and labour.

This offered conditions for free trade in both directions. In addition to benefitting Scottish industry, it brought advantages to Scotland’s consumers, by providing security of supply and wider choice of goods and services, and by encouraging competitive pricing.

Brexit has been a huge backwards step. Despite the adoption of the UK-EU Trade and Cooperation Agreement (TCA), access to our greatest international trading market has been reduced sharply, while bureaucracy, costs, delays, and complexity have been imposed on Scottish businesses. Leaving the EU has also exacerbated recruitment challenges for businesses, and held back investment in research and development.

At the same time, for consumers, through barriers to imports, Brexit has contributed to rises in prices of basic household goods, limited the range of products available, and created volatility in availability of critical items both online and in shops.

Scottish Government priorities

To address the issues above, the Scottish Government is calling for a closer trading relationship between the UK and the EU. The priorities set out here are in addition to those we have already outlined in a series of separate but related papers, including our priorities on agrifood trading arrangements, on closer energy and climate cooperation, and on an agreement on youth mobility.

Trade in services

Short-term entry and temporary stay provisions

Scotland has a well-established and respected services sector which is dependent on the ability of individuals to move freely on an international basis. As well as strongly supporting a youth mobility agreement, the Scottish Government seeks wider reciprocal measures for mobility of individuals. This would help business and is particularly important for supporting trade in services, which forms a very significant proportion of total Scottish exports. 

The Scottish Services Trade Forum is convened by the Scottish Government to understand the concerns of Scottish businesses engaged in trade in services. Through the Forum, stakeholders have indicated that while Mutual Recognition of Professional Qualifications (MRPQ) is important (see below), it is of limited use without short-term entry and temporary stay provisions.

It is therefore particularly important that there should be arrangements to achieve transparency of entry and temporary stay, and increased access to short-term visas.

This is vital, for example, for the culture and creative sectors, where our touring artists face greater barriers than their EU counterparts. In some cases touring across the EU is no longer viable given the additional costs and administrative complications created by the need to acquire visas or work permits.

It is therefore critical that the process for Scottish professionals to travel and trade across the EU is simplified, and that an agreement on business mobility is prioritised.

Mutual Recognition of Professional Qualifications (MRPQ)

Another focus for negotiations must be improving MRPQ with the EU. The UK Government in its 2024 election manifesto committed to prioritising this.

MRPQ must be driven by regulator-to-regulator interest and dialogue. Where there is sectoral interest, it is critical that UK-EU negotiations recognise the unique devolved landscape and the competence of the Scottish Parliament in the regulation of a number of professions. Examples include the legal, teaching, and some health and social services professions.

Regulation and certification

Regulatory co-operation

With Brexit, the UK lost its direct link to EU law, and instead took an independent approach to regulations affecting marketing and international trade. The resulting regulatory misalignment between key trading partners can be costly and confusing for business. The Scottish Government has already set out the role regulatory cooperation between like-minded partners can play in facilitating trade in its Vision for Trade (2021).

There should also be more ambitious use of all institutional frameworks and mechanisms for regulatory cooperation in the TCA, including Specialised Committees, within the context of improving UK-EU relations. This could be targeted at sectors of mutual strategic interest such as hydrogen, and on closer cooperation on energy and climate targets.

Regulatory cooperation could also prevent trade barriers caused by regulatory misalignment, or the absence of legislation on novel technologies or products.

Mutual recognition of conformity assessment

Conformity assessment is crucial in order to ensure that goods that are placed on the market are safe, effective, and sustainable. No mutual recognition agreement (MRA) on conformity assessment bodies (CABs) was negotiated as part of the TCA, and this has created unnecessary barriers to trade.

Since Brexit, exporting businesses in Great Britain have been reliant on CABs in the EU, or in countries with which the EU has an MRA, to certify their products destined for the EU. Similarly, EU-based CABs cannot certify products in line with UK Conformity Assessment requirements. The result of this has been increased barriers to trade and a reduction in CAB capacity in Great Britain. Both the Scottish and British Chambers of Commerce have called for a supplementary MRA on conformity assessment of industrial, electrical and electronic goods to address these issues.

It is the view of the Scottish Government that the UK Government should explore options for a conventional MRA on CABs with the EU. The range of sectors to be covered by such an MRA would be subject to negotiations, but a maximalist approach should be considered.

Customs

With the UK’s departure from the EU, Scottish businesses lost access to the EU’s infrastructure for harmonising international customs processes. Instead, for imports from the EU, the UK is currently required to address a series of implementation issues regarding the UK Border.

To create a transparent environment for business, UK-EU talks should seek to achieve consistent application of customs processes both for traders exporting to the EU, and for imports from the EU. Measures to improve UK-EU cooperation on international interoperability of digital tools and systems to support trade post-Brexit are also required. This could include maximising the opportunities of the Electronic Trade Documents Bill, and working with the EU to ensure our border systems such as Single Trade Windows are as interoperable as possible and that they reflect devolved responsibilities.

Rules of origin

Scotland’s international trade has traditionally flourished in conditions that have simplified and stabilised conditions for importing and exporting. Previously, UK membership of the EU allowed free access across 28 member states. The long-term benefits of being part of a large-scale and capable trading bloc with close partners remain today, particularly as volatility has created further international barriers to trade.

As a first step towards greater cooperation on importing and exporting processes, membership of the Pan-European-Mediterranean (PEM) Convention could be considered. This could allow for the use of parts in manufactured products that originate from different member countries, without those products then becoming subject to restrictive Rules of Origin (RoO) such as tariffs or quantitative barriers. Further analysis is needed to establish the advantages this might bring to Scottish companies and supply chains.

Joining the PEM would not automatically resolve RoO barriers in UK-EU trade. However, it could aid resolution of significant tariff barriers between the UK and other third-party countries, if both the EU and UK were to have Free Trade Agreements with these members containing identical rules of origin or referring to the PEM Convention. The UK was previously a PEM member as part of the EU, and we welcome the fact that the UK Government will consider the possibility of re-joining to allow reintegration of UK businesses into PEM regional supply chains.

Conclusion and next steps

The most certain way to secure economic prosperity with the EU would be to re-join as a Member State. The next best alternative would be adjusting the UK Government’s current negotiating red lines so as to pursue re-joining the Single Market and Customs Union as well as accessing the benefits of Freedom of Movement. Until then, the Scottish Government supports efforts to rebuild closer relations with the EU that allow Scottish businesses to have easier access to our largest single overseas market.

Although no bilateral agreement between the UK and the EU can fully replicate the benefits of EU membership, the proposals listed above would support export growth, increase supply chain resilience, and aid inward investment.

They would also mean we would be better able to work with the EU and the rest of Europe to address a volatile international trade landscape, and to support wider economic, social and environmental ambitions. This includes an economy founded on net zero which provides resilience for current and future generations.

We stand ready to work collaboratively with the UK Government and wider partners to rebuild a closer relationship with the rest of Europe.