- 15 Nov 2016
This is the fourth in a series of debates focused on the challenges that Scotland faces as a result of the recent EU referendum.
Following Scotland's overwhelming vote to remain within the European Union, our priority is to protect all of Scotland's interests and we are considering all possible steps to ensure Scotland's continuing relationship with the EU.
Previous debates have reaffirmed our aim of getting the best deal for Scotland in circumstances not of our choosing. Today we discuss the importance of membership of the single market for Scotland, for Scotland's trading relationship with the EU and the rest of the world, and how this can be best protected.
Before I go on to outline why being part of the single market is so important for Scotland, let me first say that I welcome this opportunity to listen to and work closely with MSPs from across this chamber who share our goal of keeping Scotland, and indeed the whole of the UK, inside the single market – an outcome that is in the best interests of everyone in these islands.
My strong preference is for the whole of the UK to retain membership of the single market. However, given what we've heard from the UK Government over the last few months, we need to be prepared for the possibility that the UK Government will pursue a hard Brexit.
That is why I hope that we can seize this opportunity today to work towards a unified Scottish position of support for the single market.
Today we have the opportunity to re-affirm this Parliament's commitment to the single market and free movement to make clear Scotland rejects the divisive language of the hard Brexiteers.
Encouraging sustainable and inclusive economic growth is at the heart of everything we do as a government. As a small, open economy in a rapidly changing and globalised world, our ability to create a more productive and fairer Scotland depends more than ever on trading with the rest of the world, and on attracting investment into our economy, our businesses, and our assets.
And the EU is the world's largest trading bloc. It is the largest trader of manufactured goods and services in the world and ranks first in both inbound and outbound international investments. 42% of Scottish international exports go to the EU and eight of Scotland's top 12 export destinations are in the EU. Scottish exports to the EU were worth £11.6 billion in 2014 and were associated with over 300,000 Scottish jobs in 2011.
Through membership of the single market, Scotland currently enjoys the free movement of goods, services, workers and capital with the EU, without any internal borders or other regulatory obstacles. The single market removes barriers to trade with a market of over 500 million people and opens up opportunities for citizens, workers, businesses and consumers.
It makes it easier for businesses to offer and receive cross border services and to do business in other EU countries. Scottish businesses wishing to export to, or import from, the EU face no tariffs, quotas or duties applied to the goods they trade. A common set of regulations and rules apply. In a wide range of sectors Scottish businesses have the right to establish companies to provide services in other member states. Financial service firms based in Scotland also have the right to provide services to the EU, and EU citizens can live and work anywhere within the EU area.
Membership of the single market also removes many other non-tariff barriers to trade, such as licensing and regulatory constraints which are particularly important for services.
But the benefits of being inside the single market go far beyond our imports and exports to the EU. The free movement of people has been a driver of economic growth, with access to a skilled workforce important to businesses and in attracting investment into Scotland.
And inward investment into Scotland has been an area of terrific success in recent years, with EY figures consistently showing that Scotland is the top location for inward investment in the UK, outside of London. Our place inside the single market is a critical factor in attracting this investment, with 79% of investors citing access to the single market as a key feature of the UK's attractiveness as an investment destination in 2016.
In February I will address global companies based in London to promote Scottish businesses and the investment opportunities that Scotland presents and to send the strong message that Scotland is open for business.
Given the importance of single market membership to Scottish trade, it is not surprising that there is a broad consensus among economists that any relationship with the EU short of full membership risks increasing barriers to trade and reducing exports.
The Fraser of Allander Institute has estimated that leaving the single market under a World Trade Organisation scenario could result in our economy being worse off by about 5% overall, or around £8 billion, after a decade, compared to the position if we remained within the EU. That is 80,000 fewer jobs and real wages lower by £2,000 a head per year.
Leaving the single market could mean:
the introduction of costly tariffs on traded goods;
the loss of financial passporting and the right of establishment in other member states;
new non-tariff trade barriers to trade such as divergent regulatory regimes, and
restrictions on the free movement of people.
All this risks putting Scottish companies at a significant competitive disadvantage. It is not a risk we are prepared to take. It's not just this Government that understands the risks. We are hearing concerns across the economy about the impact of leaving the single market, with Scotland's main business organisations calling for continued access to the single market and the free movement of labour.
The CEO of JP Morgan has warned that they could be forced to move jobs away from the UK to other EU financial centres if the UK is denied access to the single market's passporting regime.
The Japanese Government has set out in detail the potential implications of the UK leaving the single market: a loss of company headquarters, a hit to exports, turmoil in labour markets, damage to financial services, and cuts to research and development investment.
If Scotland was also to leave the EU Customs Union, businesses could face the additional burden of border checks for exports and onerous rules of origin procedures. In many cases these are more costly than tariffs and could pose a particular risk to our time sensitive exports like fresh food or for our industries where there are complex pan-Europe supply chains, such as aerospace and other high value manufacturing.
That is why Scottish Government has been clear that we strongly support membership of the single market. And we will seek to make common cause with those of like minds across the UK, to try to reach the best outcome for Scotland and the least worst outcome for the UK as a whole. This means remaining within the single market.
We will table specific proposals in the coming weeks to protect Scotland's interests and keep us in the single market, even if the rest of the UK decides to leave. I believe that the UK Government has no democratic mandate for taking the UK out of the single market, which would seriously damage Scotland's interests. That is why I welcome the recent decision of the High Court in London that Article 50 could not be triggered without parliamentary approval.
Because now more than ever, Scotland must be – and must be seen to be – a country that is confident, outward facing and open for business.
Our Economic Strategy recognises that strengthening our links with the global economy is key to Scotland's future economic success, and our Trade and Investment strategy sets out an ambitious agenda of internationalisation, to support the strong performance that has seen Scotland's international exports increase by 17% over the last five years.
And the First Minister has recently announced a four point plan, to build on our Trade and Investment Strategy, to boost exports and take Scotland's message to the heart of Europe. Adding to the Innovation and Investment Hubs in Dublin, Brussels and London next year, we will establish a Hub in Berlin to enhance our current presence and build on existing relationships.
Secondly, to support and enhance Scottish Development International's (SDI) work in helping companies win export orders and attracting investment to Scotland, we will double the number of people working for SDI in Europe.
Thirdly, we will appoint dedicated Trade Envoys for particular markets or sectors, who will help make companies in Scotland more aware of export opportunities and champion Scottish strengths and companies in key markets.
Finally, we are taking forward our plan to establish a Board of Trade which will promote the internationalisation of Scotland's businesses and provide advice on practical ways to boost our export performance.
To finish broadly where I began: membership of the EU single market has delivered significant economic and social benefits for Scotland. It has removed barriers to trade and opened Scotland to a market of over 500 million people.
It is important for attracting inward investment into Scotland and in attracting and retaining those who come from Europe to contribute to our country.
Leaving the single market could increase the cost of exporting to key European markets, reduce the country's attractiveness to overseas investors and impose new restrictions on labour, increasing skills shortages and reducing productivity.