Scotland's place in Europe: assessment of the revised EU withdrawal agreement and political declaration

1. Introduction

1. The UK Government has reached an agreement with the EU on a revised withdrawal agreement and political declaration outlining the future relationship. That agreement consists of the Withdrawal Agreement, an international treaty between the UK and the EU which sets out the terms of the UK's departure, and the Political Declaration on the future relationship. The only substantial changes to the Withdrawal Agreement are in the context of the special arrangements for Northern Ireland contained in a protocol to that treaty. The political declaration has been revised to lower even further the UK Government's ambitions for the future relationship with the EU.

2. It remains far from certain that this deal will survive scrutiny in the House of Commons. The House of Commons refused to take a view on the agreement on Saturday 19 October, instead in order to seek to avoid a no deal exit on the 31 October by accident or design Parliamentarians voted for an amended motion which withheld consent unless and until implementing legislation is passed by the UK Parliament. The effect of this decision was to trigger the terms of the EU (Withdrawal) (No.2) Act - the 'Benn Act' - compelling the Prime Minister to request an extension to the 31 January 2020. However, subsequent to this the UK Government brought forward the EU (Withdrawal Agreement) Bill, - the legislation needed to implement the deal - although the Prime Minister's proposed accelerated timetable was rejected, the draft legislation was voted through its second reading on the 22 October 2019, paving the way for the detail to be considered.

3. On Monday 28 October 2019 the 27 EU Member States confirmed their intention to grant the UK an extension to the Article 50 period to the 31 January 2020, unless the Withdrawal Agreement is ratified and in that case can enter into force on the first day of the month following ratification. The Prime Minister wrote to the President of the European Council to accept that extension. Ratification of the deal in the UK would first require the passage of the EU (Withdrawal Agreement) Bill in the UK Parliament - in a manner which does not require any amendments to the negotiated agreement - and in addition the consent of the European Parliament.

4. The Scottish Government continues to support another public vote including the option to remain. On the 23 October 2019, the First Minister of Scotland held a joint press conference with the First Minister of Wales in which she set out the preferred next steps: "I am clear - for reasons that will be obvious when I turn to the impact of the deal in Scotland - that the extension now secured should not just be long enough to scrutinise a bad bill for a week or two longer. It should in my view be long enough to allow a General Election or a referendum - or perhaps more realistically, the former leading to the latter."^[3]

5. Amidst the widespread discussion of process and parliamentary activity, there has been little focus on the substance of the implications of the agreement reached by the UK Government. The overall impact has changed little between this 'deal' and the one secured by the previous Prime Minister, but the changes that have been made confirm that the UK Government is seeking a much more distant, or looser, relationship with the EU than one which would be consistent with a "soft" Brexit, for example if the UK was to remain in the Single Market and Customs Union. Those changes reinforce and lay bare that Scotland, and the UK, are being faced with a hard Brexit deal that will hit jobs and living standards. It will take us out of the European Single Market - a market that is eight times the size of the UK alone. It is a deal which will see companies in Scotland facing increased impediments (or frictions) to trade with their EU counterparts. It will make it harder to attract the workers that our country needs to support growth, support the NHS and social care sector, and to fill skill gaps in our economy.

6. Under a basic trade agreement of the type Boris Johnson wants to negotiate Scottish GDP is estimated to be 6.1% lower by 2030 compared to continued EU membership.^[4] This equates to a cost to each person in Scotland equivalent to £1,600. Furthermore, it does not end the possibility of an even more damaging No Deal exit at a later date through a failure to reach agreement on the terms of the future relationship. No future relationship deal has yet been agreed and even if the Withdrawal Agreement were passed, if those talks on the future break down we will effectively face crashing out all over again - possibly as soon as December 2020 at the end of the agreed Transition Period. Far from 'Getting Brexit Done', this deal and the UK Government's approach to the future relationship is only a pathway to years of negotiation, debate and uncertainty with significant negative economic and social implications for Scotland.

7. Recent EU trade agreements with third countries have taken many years to negotiate. The often used example of the EU-Canada Comprehensive Economic and Trade Agreement (CETA) took seven years to negotiate and has so far only been applied provisionally and in part as it is still pending full ratification by some EU member states. The negotiations for the Japan-EU FTA began in 2013 and came into force on 1 February 2019. The EU process for negotiating a trade agreement is complex, and entry into force depends on the type of agreement reached and the extent to which it touches on Member State competences beyond areas of exclusive responsibility^[5] of the EU as a whole. A complex agreement of the type originally envisaged by the UK and the EU would not only require the consent of the European Parliament and approval by the European Council but also require ratification in EU member state parliaments. It is highly unlikely such a complex agreement could be reached before the end of 2020 therefore raising the very real prospect of a no-deal Brexit occurring at that point.

8. In November 2018 the Scottish Government published Scotland's Place in Europe: assessment of UK Government's proposed future relationship with the EU^[6] setting out an analysis of the then proposed Withdrawal Agreement and Political Declaration. This new document considers the revised agreement with the EU and updates that analysis. The Scottish Government's assessment of the former Prime Minister's deal was that it would have an equivalent impact to a standard Free Trade Agreement (FTA) on the Scottish economy. The revised agreement reached by the Prime Minister simply removes any pretence that the future negotiations will seek a close relationship, therefore our existing assessment of economic impact is largely unchanged and instead reinforced by the growing weight of evidence that Brexit has already damaged the UK's economy.

Chart 1: Change in Scottish GDP (%) by 2030 - Relative to a baseline of a Full EU Membership^[7]

9. The Fraser of Allander Institute's (FAI) latest economic commentary report^[8] published on 23 October 2019 makes clear that Brexit uncertainty has already had a damaging impact on economic growth in Scotland. They estimate that the Scottish economy is around 2%, or £3 billion, smaller than it otherwise would have been in the absence of a vote to leave the EU. FAI state that the nature of the 'deal', and in particular the intention to move to one of the 'hardest' forms of Brexit means that the long-term challenges for the Scottish and UK economies will be considerable.