Business and regulatory impact assessment: toolkit

Regulatory And EU Alignment Impacts

The context within which Scottish Government policy is developed changed on 31 December 2020 when the UK left the EU single market. This section of the BRIA requires policy makers to consider the impact of the proposals on, and within this changed context. It specifically requires consideration of three distinct, but related regulatory factors related to leaving the EU: intra-UK trade, international trade and the Scottish Government’s EU alignment policy.

Leaving the EU means that regulatory features that were relevant when we were part of the EU single market fell away upon exit, and the UK now has a new regulatory landscape. In addition, the Scottish Government has a commitment to maintain alignment with the European Union where this is possible and within Scotland’s interest. This requires policy makers to understand and engage with this new context and its potentially complex interactions with devolved policy and devolved policy impacts.

Intra-UK Trade Impacts

The UK’s exit from the EU single market on 31 December 2020, created a new regulatory landscape within which devolved policy operates. For internal (‘intra’) UK trade, two significant regulatory features were introduced:

• the United Kingdom Internal Market Act 2020; and
• Common Frameworks.

The United Kingdom Internal Market Act 2020

The United Kingdom Internal Market Act 2020 came into force when the UK left the EU single market on 31 December 2020.

Consent was sought from the devolved legislatures to the legislation and no devolved legislature gave consent. The Scottish Parliament and the Senedd Cymru voted to withhold consent. The Scottish Government lodged a legislative consent memorandum advising against giving consent, in which it stated that the Act,

“…undermines both the devolution settlement and agreed processes that are already established to agree common frameworks and ways of working across the UK following EU exit.”

The United Kingdom Internal Market Act 2020 contains provisions as follows:

• Part 1 introduces new market access principles of mutual recognition and non-discrimination for goods;
• Part 2 provides for market access for services (mutual recognition of authorisation requirements and non-discrimination of service providers);
• Part 3 introduces a new system for the mutual recognition of professional qualifications;
• Part 4 provides for the creation of a new reporting, advising and monitoring function for the Competition and Markets Authority (CMA) by creating the Office for the Internal Market (OIM) within the body;
• Part 5 contains provisions relating to the Northern Ireland Protocol;
• Part 6 gives UK Ministers powers to spend directly in devolved policy areas;
• Part 7 reserves subsidy control; and
• Part 8 adds the Act to the list of protected enactments in Schedule 4 of the Scotland Act 1998.

Parts 1-2 of the Act should be considered in particular when developing policy that has potential market impact.

Part 1: Goods

The mutual recognition principle means that goods which have been produced, or imported into one part of the UK and which meet regulatory requirements in that part of the UK, may be sold in any other part of the UK, free from any relevant requirements that would otherwise apply to their sale in that other part.

The non-discrimination principle prohibits direct or indirect discrimination based on treating local and incoming goods differently.

These rules are subject to certain exclusions set out in the Act.

Where proposals introduce or change legislation that relates to the sale of goods, you should take appropriate advice and consider:

• whether the proposals will result in policy divergence between UK nations, and the nature and potential impacts of divergence;
• whether the market access principles of the Act are relevant and in what way they interact with the proposals, particularly in terms of policy effect, including whether there is an exclusion for the policy area within the Act; and
• whether there is a relevant Common Framework.

Part 2: Services

Service providers who are authorised to perform a service in one part of the UK may not need a separate authorisation to perform that service in another part. The non-discrimination provisions of this Part prevent direct and indirect discrimination against service providers located in another part of the UK.

These rules are subject to a number of exclusions set out in the Act.

Where the proposals relate to the provision of services, for example, an authorisation requirement for the provision of services, you should consider:

• whether the proposals will result in regulatory divergence between UK nations, and the nature and impacts of any divergence; and
• whether the mutual recognition and non-discrimination principles are relevant and in what way they interact with the proposals, particularly in terms of policy effect, including whether there is an exclusion for the policy area within the Act.

Part 3: Professional Qualifications

Part 3 provides for a system for the mutual recognition of certain professional qualifications that are regulated in law across the UK. It introduces an “automatic recognition” principle for a professional qualified in one part of the UK to be treated automatically as qualified in respect of that profession in another part of the UK, as well as setting out the situations where the automatic recognition principle does not apply.

Where proposals relate to regulation of professional qualifications you should consider:

• whether the proposals will result in regulatory divergence between UK nations, and the nature and impacts of any divergence; and
• whether the provisions of the Act are relevant and in what way they interact with the proposals, particularly in terms of policy effect, including whether there is an exclusion for the professional qualifications within the Act.

Contact

Please contact the team in the Constitution and Cabinet Directorate (IMAFrameworksTeam@gov.scot) if you need advice or support.

Common Frameworks

When considering intra-UK impacts and proposals, you should also establish whether the policy area is covered by one or more Common Framework(s).

The Common Frameworks programme was agreed by the four governments of the UK in 2017 to establish common approaches in some areas that were governed by EU law, and that are within areas of devolved competence. More information relating to the basis on which the programme was established and the principles underpinning Frameworks can be found in the Joint Ministerial Committee (EU Negotiations) Communique of October 2017. Common Frameworks are the Scottish Government’s preferred means of managing post EU policy divergence across the UK, on the basis of progress by agreement and respect for devolution.

In 2021, a process was developed by the governments of the UK to consider exclusions to the UK Internal Market Act (2020) for agreements reached in Common Framework areas.

Where policy areas are covered by an existing Common Framework you should consider:

• as above for intra-UK trade impacts; and
• relevant impacts of agreements reached within Common Frameworks relating to managing policy divergence and any exclusions required to be agreed within a Common Framework, as per the agreed process linked to above.

Contact

For further guidance on Common Frameworks, contact the team in the Constitution and Cabinet Directorate (IMAFrameworksTeam@gov.scot).

Assessment

In all cases you should record and evidence the intra-UK regulatory impacts and interactions.

International Trade

Following departure from the EU, the UK is responsible in its own right for remaining compliant with international obligations, including with respect to the World Trade Organization (WTO), and Free Trade Agreements. This obligation extends to devolved matters, meaning that new policy and regulations introduced by Scottish Ministers are potentially subject to legal challenge if they do not comply.

The purpose of these questions is to ensure that:

a) policy makers are giving due consideration to the impacts that regulatory policy could have on international trade into, and out, of Scotland, and

b) policy teams have factored the potential notification responsibilities that may arise from this into their timelines for policy development and legislation.

International Obligations

The WTO is the international body which establishes and manages the rules of trade between nations. Its main function is to ensure that trade flows as smoothly, predictably and freely as possible. This is achieved through its overarching principles of non-discrimination between member states and transparency.

In order that the international trading environment remains stable and predictable, members are required to notify measures relevant to particular WTO Agreements. These include, but are not limited to, the following:

• The Technical Barriers to Trade (TBT) Agreement requires WTO members to notify in advance changes to technical regulations, standards and procedures for assessing standards conformity.
• The Agreement on the Application of Sanitary and Phytosanitary Measures (SPS) concerns the application of food safety and animal and plant health regulations. It requires members to notify measures taken to ensure food is safe for consumers, and to prevent the spread of pests or diseases among animals and plants.
• Agreement on Subsidies and Countervailing Measures (SCM) addresses the use of subsidies by governments that may have an impact on trade.
• The Government Procurement Agreement (GPA) sets out the framework for government procurement of goods and services between WTO members, ensuring that suppliers of goods and services from other member states are treated no less favourably in securing government procurement than domestic suppliers.

There are other WTO Agreements which could have implications for Scotland’s policy making, for example in agriculture, fisheries and services trade.

Each agreement contains specific requirements for notifying other WTO members of policy and regulatory changes, and criteria for determining whether a measure is notifiable. The reference or otherwise to international standards is a material factor.

Compliance with WTO obligations can also help to meet similar obligations under Good Regulatory Practice and Regulatory Cooperation (GRPRC), Technical Barriers to Trade (TBT) and Sanitary and PhytoSanitary (SPS) Chapters of Free Trade Agreements, such as the UK-EU Trade and Cooperation Agreement.

Impact on International Trade

Relevant changes to regulation that could affect trade and investment include:

• the ability of Scottish businesses to trade or provide services overseas, or
• the ability of overseas businesses to export to the Scotland or provide services to Scotland
• foreign investors/companies operating in Scotland being impacted differently from UK-owned companies/investors
• the assets of foreign investors/companies being removed from them or substantially taken out of their control.

The ability of businesses to trade within Scotland would traditionally be captured within Business and Regulatory Impact Assessments (BRIA). However, the ability of overseas businesses to export to Scotland is a new aspect that policy makers will need to consider.

When answering this question, policy makers should consider the following:

Considerations for assessing impacts on international trade

A Does this measure have the potential to affect imports or exports of a specific good or service, or groups of goods or services? Yes/No

B Does this measure have the potential to affect trade flows with one or more countries? Yes/No

C Does this measure include different requirements for domestic and foreign businesses?
- i.e. are imported and locally produced goods/services treated equally?
- i.e. are any particular countries disadvantaged compared to others?
Yes/No

D If the answer to C is yes, is the basis for different treatment anything other than it enables foreign businesses to operate on a level playing field in Scotland? Yes/No

Where you answer yes to any of the above questions, please provide a description and assessment of the rationale, and contact WTO Compliance Enquiries (wto@gov.scot) and SGLD to discuss potential notification responsibilities.

International Standards

Some WTO Agreements and FTAs encourage members to ‘base’ regulatory measures on relevant international standards, where they exist.

If a relevant international standard (or parts thereof) would support compliance with a measure that achieves a legitimate policy objective, policy makers are encouraged to consider using relevant international standards as a basis for the measure.

Please contact WTO Compliance Enquiries (wto@gov.scot) within the Directorate for International Trade and Investment (DITI) for further advice to complete the assessment, for advice on potential notification responsibilities under WTO agreements and for further guidance on identifying international standards.

EU Alignment

In this section you should consider if the measure is likely to impact on the Scottish Government’s policy to maintain alignment with the EU.

Scotland’s commitment to remain close to the EU means Scotland will continue to align with the EU where appropriate, and in a manner that contributes towards protecting and advancing standards across a range of policy areas.

Assessment

Your considerations should include:

• the Scottish Government’s commitment to maintain and advance the high standards that Scotland shares with the EU;
• access to EU markets for people, goods, and services; and
• any potential implications for EU alignment associated with the United Kingdom Internal Market Act 2020 or Common Framework agreements.

Implementation

You will also wish to consider how the policy in question will be implemented. The assumption is that a decision to align will be given effect via existing powers or primary legislation, however there may be times where such methods will not allow the Scottish Government to align or may not be the most effective or efficient method of doing so.

In such cases, section 1(1) of the UK Withdrawal from the European Union (Continuity) (Scotland) Act 2021 provides a regulation making power to maintain Scottish Ministers’ ability to keep devolved Scots law aligned with EU law as it develops and where that is in Scotland’s best interest.

The Continuity Act policy statement approved by Parliament on 8 June 2022, sets out the factors that Ministers must consider in making decisions in relation to EU alignment.

Contact

For further advice on alignment please contact the Directorate for External Affairs (EUAlignmentmailbox@gov.scot).