Building a New Scotland: A stronger economy with independence
This paper sets out the Scottish Government’s proposals for the economy of an independent Scotland. It explains what these proposals would mean for you, for businesses, and for Scotland as a whole. It is the third in the 'Building a New Scotland' series, focusing on independence.
Boosting trade and re-opening our borders with Europe
We propose that an independent Scotland should apply to re-join the European Union, opening our borders with Europe, and with Northern Ireland, again.
The economic opportunities of re-joining the EU as a member state in our own right for the first time are potentially enormous. The EU is the largest single market in the world. The most recent available data, for 2019, shows that the value of Scotland’s manufactured goods exports to the EU and the rest of the world (£19 billion) was higher than the value of exports to the rest of the United Kingdom (£11 billion).
Because of the power of the EU as the world’s largest trading bloc, being an EU member state boosts trade both within the EU itself and the rest of the world. The EU is the top trading partner for 80 countries.
In contrast Brexit is damaging trade both within and outwith the EU.
People in Scotland, with membership of the EU and an arrangement called the Common Travel Area, would be able to travel freely across these islands, including in the UK and Ireland.
And as EU citizens, Scotland’s people would also be able to live, work, trade, and travel in 27 European countries.
For Scottish businesses, access to a talent pool drawn from a combined UK and EU population of 515 million will be a major competitive advantage.
Checks on goods between Scotland and the EU, and Northern Ireland, would be eliminated – a further competitive advantage.
The UK will also remain a strong trading partner for Scotland. The Scottish Government would put in place measures to smooth any checks required as a result of Brexit on goods moving to and from England and Wales.
We would also provide a substantial package of practical help for traders, both to adapt to new arrangements and to support continued trade with the rest of the UK after independence.
Later in the Building a New Scotland series the Scottish Government will publish detailed proposals on EU membership, including non-economic benefits, as well as the economic benefits and opportunities set out here.
A more successful trading nation
International trade is generally accepted to be beneficial in relation to productivity (and therefore living standards). A Trading Nation – a plan for growing Scotland’s exports, included analysis showing an increase in exports from 20% to 25% of GDP by 2029 could increase national income by approximately £3.5 billion, and tax revenues by £500 million, per annum.
However, although it is generally recognised that trade between nations is mutually beneficial, it is important to recognise that it can have distributional consequences: workers, communities and regions may lose jobs and income as industries are exposed to international competition. Therefore it is crucial that measures to boost trade are part of an overall economic strategy that includes investment in labour market policies to support workers retrain and develop their skills.
Indeed, it has long been recognised that high social spending can be necessary to sustain support for development models based on the high trade to GDP ratio to which we believe Scotland should aspire. The full economic powers of independence would enable such complementary policies to be pursued.
Brexit and international trade
Prior to Brexit, Scotland’s international trade was lower as a percentage of the overall economy than that of the UK as a whole (and comparable independent countries). This was consistent with the UK model in which economic activity is disproportionately located in London and the South East of England.
When trade with the rest of the UK is included Scotland’s performance looks better. However, with weak growth and investment in the UK economy post Brexit, overdependence on the UK market is not a sensible strategy for Scotland’s future.
It has been estimated that “Scotland's trade in goods with the EU was lower in 2021 than it otherwise would have been under continued EU membership” and for the UK as a whole “there was a sharp drop in the number of trade relationships between UK exporters and EU importers, which suggests that the introduction of the Trade and Cooperation Agreement (TCA – the Brexit trade deal between the EU and UK) caused many UK firms to stop exporting to the EU.”
There is also some evidence that Brexit has reduced exports to the rest of the world as well as to the EU itself. It has been suggested that this is because UK exporters are finding it harder to source components for their goods from the EU which, in turn, makes it harder to sell internationally and that global manufacturing companies – which export both to the EU and wider afield – have switched the location of some of their plants to the EU. The result is that overall UK export performance has been relatively poor:
“On average, the exports of 22 advanced economies to both the EU and the rest of the world have grown rapidly since the depths of the first COVID-19 lockdown in May 2020. Meanwhile, UK exports to both the EU and non-EU countries have failed to keep pace.”
These trends suggest that if Scotland could match the level of international trade achieved by high performing comparable countries – and indeed even by the UK as a whole – there would be substantial gains in productivity, living standards, national income and tax revenues. However, they also suggest that tied to a relatively poorly performing UK, now with the extra costs of Brexit added in, those gains are unlikely to be realised. Indeed, the UK export performance since leaving the EU suggests the UK (and Scotland) are falling further behind.
Improving Scotland’s international trade performance
Following on from the analysis above, becoming an independent country and re-joining the European Union inside the world’s biggest single market, are of paramount importance if Scotland’s international trade potential is to be achieved.
Previous work by the Scottish Government, conducted on current and future import demand across 100 countries, 66 goods sectors and 19 services sectors, identified priority countries for Scottish exporters. Eight of the top ten, and 12 of the top 15 are either in the EU or the European Single Market. Brexit has imposed trade barriers between Scotland and these key priority markets. As an independent country and EU member state those barriers with Scotland’s priority markets would come down.
As an EU member state, Scotland would not only benefit from being inside a market that is much larger than the UK – seven times by population – it would also directly benefit from the global weight of the EU’s Common Commercial Policy. The EU continues to negotiate new trade agreements to open new markets: it is the top trading partner for 80 countries. And its size and scale means that it is in a strong position to achieve both trade and non-trade objectives, in areas such as social, labour and environmental standards.
Its size and importance means the EU is a far stronger trade negotiator than the UK can ever be. The only way for Scotland to benefit from that influence is to re-join the EU.
For example, the UK Government in its Free Trade Agreement (FTA) with New Zealand has agreed to allow unlimited quantities of beef, tariff-free, into the UK after 15 years. In contrast, the EU-New Zealand FTA will maintain quotas permanently and apply a 7.5% tariff providing greater protection to EU farms and food producers from New Zealand imports.
There is strong alignment between the Scottish Government’s principle-based approach to trade, as set out in Scotland’s Vision for Trade (the ‘Vision’), and the EU’s Open, Sustainable and Assertive trade policy. Key strands such as a commitment to open markets, climate ambitions and a level playing field align closely with Scottish Government priorities, as well as consideration of how trade policy is used to support social fairness and environmental sustainability.
The Scottish Government’s trade strategy
Our overarching strategy, Scotland’s Vision for Trade (the Vision) set out the five principles that underpin the Scottish Government’s trade decisions and relationships: inclusive growth, wellbeing, sustainability, net zero and good governance. The Vision also positions trade within a wider economic, social and environmental context and considers the strategic role of trade in contributing to wider governmental ambitions. We have used all the powers and influence available to us to make tangible progress in delivering this, in support of our National Strategy for Economic Transformation (NSET). Where powers are currently reserved to Westminster, we have pressed the Westminster Government to act in a way that acknowledges the interests of Scotland and is supportive of our economy, people and the planet. However, the reluctance of the Westminster Government to engage meaningfully with the Scottish Government on trade policy has limited what we can do.
Box 10: Boosting exports
The Scottish Government has published an evidence-based strategy to boost exports. We are focusing public sector resources and expertise, especially those of Scottish Development International, on supporting those businesses whose growth can disproportionately benefit our export performance and the wider economy. Focussed support from dedicated trade advisers, as well as mentoring, alongside focussed workshops and advice on marketing and preparing to export are also being delivered to different types of businesses depending on their export profile.
As part of the strategy, key areas of exporting strengths have been identified: food & drink; engineering services & advanced manufacturing; life & chemical sciences; technology, digital & media; financial & business services and energy. In addition, what are termed “enabling sectors” have been identified. They attract customers, capital or skills to Scottish businesses, products and services across the wider economy without necessarily showing up in raw export statistics. Those enabling sectors are education, creative industries and tourism.
All the key areas of strength and the enabling sectors have either been, or are likely to be, affected by Brexit imposed trade barriers. Practical help is in place to boost Scottish exports, but progress to date is likely to be held back against the backdrop of Brexit, which has made it harder for key Scottish sectors to trade with priority markets. As an independent country Scotland would for the first time have:
- a new government ministry with specific trade related responsibilities, including the promotion of Scottish exports, and
- a dedicated network of overseas missions in EU capitals and beyond which, for the very first time, would mean Scotland having a network of international offices with full diplomatic status and a core purpose to promote Scotland as a hub for innovation, trade and investment.
The border of an EU member state
Scotland, like all independent countries, would control its borders.
Most border policy is currently reserved, decided for Scotland by Westminster. Only checks on sanitary and phyto-sanitary (SPS) goods, such as animals, plants and food, are devolved to the Scottish Government.
As an independent country, and a member of the EU, Scotland would make arrangements for its border with the UK on the basis of EU law and a negotiated agreement with the UK. Although there remains significant uncertainty about the final terms of the UK and EU relationship – and we hope that in time, common sense and hard economic reality will lead to a closer relationship than that envisaged now – for the purposes of this publication we assume that the arrangements for trade in the EU-UK Trade and Co-operation Agreement (TCA) will be the basis.
In joining the EU, an independent Scotland would adopt what is called the Schengen acquis, a set of common obligations and rights EU countries adhere to, in so far as it concerns cooperation between police, customs and border authorities.
Under an arrangement called the Common Travel Area (CTA) Scotland would, like Ireland, retain freedom of movement within these islands, including the UK and Ireland. This is an agreement that allows for free movement between the UK, Ireland, the Channel Islands and the Isle of Man by citizens of those territories. It also gives reciprocal rights for British citizens in Ireland, and Irish citizens in the UK.
Ireland is both an EU member state and part of the CTA – which is a long-standing arrangement recognised in EU treaties. It would make sense for all parties for the same arrangements to apply to Scotland in the event of independence.
Being in the CTA means that there would be no new passport or immigration checks at any of an independent Scotland’s land, sea or air border points with the UK and Ireland for those travelling within it.
It would also mean that rights to live, work, and access services including housing, education and healthcare would continue for British and Irish citizens in Scotland, and for the citizens of an independent Scotland in the UK and Ireland.
But in addition Scottish citizens would be able to take full advantage of their rights as EU citizens just as citizens of Ireland do. This would be a significant and substantial benefit of independence.
For movement of goods, checks between Scotland and the 27 current members of the EU and Northern Ireland would all be eliminated. While, because of the UK decision to leave the EU, there would be some checks on goods between Scotland and the rest of the UK, people in Scotland could move freely in both these islands and the EU. We believe that the end result would be better for Scotland.
The UK would, of course, remain an important trading partner for Scotland under any circumstances because of factors such as geographical proximity, the continuation of the Common Travel Area, and strong cultural links. The aim therefore is to increase international trade to realise the benefits of greater diversification while maintaining these strong UK connections.
Scotland’s trade in goods and services
Scotland’s exports vary by destination. Understanding the nature of our trade provides an insight into the border arrangements that would be best for Scotland, and for Scotland’s economic future.
The main component of exports from Scotland to the rest of the UK is services. For manufactured goods international markets are more significant, as shown in Figure 11.
In the most recent available data, for 2019, the estimated value of Scotland’s manufacturing exports to markets in the EU and the rest of the world was £19 billion whereas manufacturing exports to the rest of the UK were valued at £11 billion. Scotland’s combined exports of Agriculture, Forestry and Fishing products and Retail & Wholesale were worth £8 billion to the rest of the UK and £3 billion to international markets. This is important when considering what Scotland’s border arrangements should be.
* ‘Other sectors’ category includes agriculture, forestry and fishing, mining and quarrying, utilities, and construction Source: Export statistics Scotland: 2019 – gov.scot
For services firms, access to people and talent is one of the key factors in growing their businesses. This has been particularly affected by Brexit.
If Scotland was in the EU and was a member of the Common Travel Area, it would give Scottish businesses access to a talent pool drawn from a combined population of around 515 million people, providing a major competitive advantage.
Not all services are subject to the same rules. Many service sectors are not governed by specific regulatory regimes in the EU or the UK: for example, general management consultancy or business training. In sectors like these, providers from one country are, and would continue to be, free to offer their services in another.
Other service sectors are regulated. They are governed by regulations designed, for instance, to assure quality and safety. Trade in services between an independent Scotland with EU membership and other EU member states would be covered by the relevant EU rules. Services trade with the UK would be based on the terms of the TCA (or any future EU/UK agreement).
Regulations governing services typically cover matters like rights of establishment or recognition of professional qualifications. Under EU services regulations and the TCA, individual EU member states can, depending on the sector, maintain some of their own national rules and agree bilateral arrangements with other member states or with the UK to encourage increased cross border trade.
Scotland could, therefore, seek to reach bilateral arrangements with the UK on, among other things, the mutual recognition of professional qualifications.
At the same time, Scotland’s services trade with other EU countries would benefit from terms that are better than those currently applying under the TCA, and which could be enhanced further via bilateral arrangements with member states.
Companies in key Scottish sectors – such as those working in the digital economy, the financial sector, the energy sector, and the green economy – would be able to set up branches throughout the EU, providing access to more customers, and the ability to compete directly from Scotland. And Scottish businesses – particularly data-intensive service industries such as accounting, banking, and telecommunications – could compete on an equal footing across the EU.
The development of the EU digital single market is making it easier and safer for EU citizens and companies to access and sell goods and services online across national boundaries. Free mobile roaming across the EU has recently been extended until 2032 and now covers 5G and provides better information and protection for customers.
Work is under way to improve further the free flow of data within the EU and unlock the opportunities of artificial intelligence, internet-enabled devices, and other emerging technologies while protecting people’s privacy.
In the EU, Scotland’s digital and service economy would benefit from these current and future developments through better regulation, greater innovation opportunities, increased choice, lower prices and better protection of consumer rights and privacy.
Scotland would also automatically benefit from the free flow of data between all member states, reducing time and cost to consumers and businesses.
A future publication in the Building a New Scotland series will set out in more detail the benefits of, and our plans for, Scotland re-joining the EU.
A border that suits Scotland’s circumstances
All countries have borders, and there is significant variation in how they operate.
Countries around the world have introduced measures to smooth trade across borders, enabling businesses to conduct transactions smoothly and effectively, ensuring that goods reach consumers quickly, while protecting safety and security.
Supported by advances in technology, modernised border processes are driving trade facilitation and more efficient borders. For example, the US, New Zealand, Singapore, and other nations have developed ‘single trade windows’: one-stop-shop systems for traders to submit required information ahead of border crossings. Norway and Sweden operate an efficient EU external border by investing in technology and by cooperating to share responsibility for customs checks. They remain amongst each other’s biggest trade parties, even though one is within the customs union and one is not.
The Westminster Government, though it chose to impose new border obstacles by delivering a hard Brexit, is also looking at bringing forward technology-based solutions to streamline border processes.
An independent Scotland could therefore draw from best practice around the world, seeking to agree and develop the form of border that works best for our circumstances and needs and those of our partners in the EU and in the rest of the UK.
Scotland already has infrastructure and processes in place to operate its current border, including, for example, customs processes at airports. Some border operations, such as checks on certain goods, generally take place physically at the border but other parts of border-related operations happen elsewhere. Technical product standards designed to benefit consumers and producers are routinely enforced away from the physical border: for example, Trading Standards Officers may check at the point of sale that non-compliant goods are not being placed on the market.
There are also other measures that can enhance the operation of a border.
A sanitary and phytosanitary (SPS) agreement
If countries agree to sharing or mutual recognition of certain standards or regulations for animal and plant health, biosecurity, and food standards, this can significantly reduce border checks on animals and animal products, plant and plant products and food. This is a sanitary and phytosanitary (SPS) agreement, sometimes known as a veterinary agreement.
For example, an SPS agreement can:
- remove the need for business to pay for a vet to inspect and certify goods for export
- remove or reduce some physical checks at the border
- reduce the likelihood of delays to goods.
The UK agriculture, food and drinks industries repeatedly called on the Westminster Government to conclude a veterinary agreement with the EU during Brexit negotiations. The EU indicated that it would have been open to such an agreement.
Two examples of the benefit of veterinary agreements come from existing EU arrangements:
- the EU-Switzerland agreement created a Common Veterinary Area in which the countries share the same regulations
- the EU-New Zealand agreement is based on an ongoing comparison of relevant legislation to ensure mutually high standards. This also allows both parties to separately negotiate their own trade agreements with other countries.
In both cases, these agreements mean that just 1 to 2% of relevant goods are checked.
Modernising border processes
In line with international best practice, the EU is also looking at developing a single trade window, described above, to streamline trade flows and make both importing and exporting easier while protecting safety & security, the environment and product standards. The EU Single Trade Window initiative forms part of an ambitious project to modernise customs controls over the coming decade.
The UK’s ambition for its border model should mean that much of the process will be digital by 2025. Digitisation is designed to streamline processes, help border agencies link up, and reduce administration for traders. This would apply to trade with an independent Scotland.
Goods passing through England
Much of Scotland’s trade to and from continental Europe currently passes via England and the strait of Dover.
EU members can move goods between each other freely. However, some trade routes between EU countries pass through a non-EU country. To prevent unnecessary checks on goods passing through another country, there are processes in place to simplify such movement of goods.
The UK is a signatory to the Common Transit Convention, to which Scotland could choose to accede, which is an international agreement that enables simplified movement for goods across a territory to their destination for sale or use.
The Convention allows authorised trade to pass through a country on the way to its destination. If certain conditions are met – such as goods vehicles attending an authorised facility and goods being in sealed containers – goods are effectively treated as if they have not left the EU, therefore avoiding some additional border checks.
The Irish experience of post-Brexit trade suggests that more trade between an independent Scotland and the rest of the EU would move directly and less would travel through England.
However, the Convention would enable Scottish trade with the continental EU to more easily pass through the UK, if this were the quickest route to market for time-sensitive goods. Similarly, goods could pass through Scotland between the island of Ireland and the UK.
Encouraging direct trade
Action to improve direct trade routes to make it easier to get goods to the European market is likely to be required to help maximise the benefits of EU membership.
Since Brexit, Ireland has increasingly traded directly with the EU rather than sending goods via the UK. Direct ferry crossings from Ireland to continental Europe have increased from three per week in 2020 to more than 30 per week in 2022. Freight trade between Rosslare and continental Europe has increased by 50% since 2020.
While the Common Transit Convention would enable goods to flow from an independent Scotland through England and onward to the EU in a straightforward way, it is expected that – similarly to Ireland post-Brexit – businesses trading in and out of Scotland would additionally look to use direct Scotland-EU routes.
Scotland has a substantial network of ports and airports – many of which could be well-positioned to support direct Scotland-EU trading, offering alternative routes for traders to enjoy free trade in the Single Market.
The Scottish Government is already working closely with key stakeholders to explore options for increasing exports directly from Scotland and will continue to work with industry to understand existing supply chains and policy measures that would support direct trading with the EU and internationally.
The range of such policy measures would broaden with independence. Working within EU and international law, and as fiscal circumstances allow, these might include:
- more support for new or enhanced ferry routes to provide greater flexibility on journey frequency and length
- enhancements to current port infrastructure to boost capacity
- potential development of new port facilities.
A single set of border checks
Rather than both Scottish and UK border authorities performing two separate stages of checks on the same goods, it would benefit traders for the administrations to agree to a single set of checks. Both the UK and Scottish Government authorities could be authorised to undertake customs checks on each other’s behalf.
Sharing responsibility for customs checks is something that happens on the Norway-Sweden border and, together with the use of technology, has the result that most goods traffic travelling across the border are cleared by customs within three to nine minutes.
Any actual physical checks would likely only be undertaken on the two main trunk routes between England and Scotland or at rail freight terminals.
Help for traders
The Scottish Government is committed to supporting businesses trading in Scotland.
As the details of our borders arrangements are settled – which, in addition to the work the Scottish Government requires to do, will also need greater certainty about the UK/EU relationship and negotiation between Scottish and UK governments – we will set out measures to help traders adapt to any new procedures and requirements.
When the UK left the EU, traders had only days to respond to and prepare for new trading rules before they came into effect. In contrast, the Scottish Government will make sure that Scottish businesses and business that trade with us are given ample notice of new trading arrangements. We would provide support services and guidance to help traders understand and comply with any new arrangements.
Working with industry to identify the right focus areas, the Scottish Government would seek to bring forward a range of measures – targeted across sectors and developed in response to trading conditions on the ground.
Advice and guidance would be made available to businesses, such as through websites, helplines, and government-backed stakeholders, support sessions.
The Scottish Government would establish a support service for exporters to maximise Scotland’s export growth opportunities through our new trading arrangements. We could, for example, conduct test export journeys – exercises designed to replicate taking products through new border processes – to help businesses understand new arrangements.
We also commit to supporting businesses with paperwork and with administrative requirements.
We know that Scottish businesses have considerable expertise in trading internationally and would be best placed to determine which support measures are the most helpful.
On re-joining the EU, and developing our borders with the UK, we would work with business to provide the right practical help as new arrangements come into force. This practical help would ensure that business and people – of an independent Scotland, of the UK and of the EU – would all be able to make the most of the opportunities available to Scotland.
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