Scotland's place in Europe: people, jobs and investment

This paper presents the latest analysis by the Scottish Government of the implications for Scotland’s economy if the UK exits the European Union.


1. Whilst the UK could not remain within the EU Customs Union as this it would require to be a member state, we would advocate the creation of a UK/ EU Customs Union which replicates the terms we currently enjoy as a member of the EU Customs Union. Throughout the remainder of this paper the term ‘a Customs Union’ refers to this approach.


3. Brexit: What’s at stake for Business

4. European Single Market - Has its basis in article 26 of the Treaty on the Functioning of the European Union which provides in article 26(2) that “[t]he internal market shall comprise an area without internal frontiers in which the free movement of goods, persons, services and capital is ensured in accordance with the provisions of the Treaties”. The European Commission describes the European Single Market as “the EU as one territory without any internal borders or other regulatory obstacles to the free movement of goods and services”. The European Single Market is in effect extended to include the EFTA State parties to the EEA Agreement (Norway, Iceland and Liechtenstein) by the EEA Agreement: the EFTA State parties participate in the European Single Market under and in terms of that Agreement

5. EU Customs Union - The effect of a Customs Union is to ensure that no customs tariffs are levied on goods travelling within the area of the Customs Union with a common external tariff imposed on all goods entering the Customs Union - effectively prohibiting members of a Customs Union negotiating independently of other members bilateral trade deals with other countries. The members of the EU Customs Union are all the EU member states, Monaco, Isle of Man, Jersey and Guernsey, Akrotiri and Dhekelia. (The EU also has partial Customs Unions with Turkey, Andorra and San Marino where some goods and most services are excluded.)

6. Published by Scottish Government in December 2016 and available at /publications/scotlands-place-europe/

7. PM’s Florence speech: a new era of cooperation and partnership between the UK and the EU

8. World Bank (2017) ‘Deep Integration and UK- EU Trade Relations’


10. The Institute for Government (2017) Implementing Brexit: Customs

11. These drivers are Investment, Innovation, Internationalisation and Inclusive Growth

12. Scottish Government (2017) Exports Statistics Scotland

13. HMT (2016) - HM Treasury analysis: the long-term economic impact of EU membership and the alternatives

14. See for example Baier et al (2008), Eicher et al (2012), Fournier et al (2015).


16. Ebell (2016) - Assessing the Impact of Trade Agreements on Trade

17. Scottish Government (2017) Exports Statistics Scotland and SG Calculations


19. European Commission (2016).


21. Scottish Government - Businesses in Scotland (2017)

22. EY Attractiveness Survey Scotland (2017)

23. Bruno et al (2017) The FDI Premium from EU Membership

24. LSE (2016) - The impact of Brexit on foreign investment in the UK

25. OECD (2008) Trade and Innovation Project: A Synthesis Paper. Trade Policy Working Paper No.72, Harris and Li (2007). Firm Level Empirical Study of the Contribution of Exporting to UK Productivity Growth Harris (2010) SDI Policy Evaluation

26. Examples include Ebell, M., Hurst, I., & Warren, J. (2016). Modelling the Long-Run Economic Impact of leaving the European Union. National Institute of Economic and Social Research & OECD. (2016).

27. FAI (2016) - Long-term Economic Implications of. Brexit. A report for the Scottish Parliament.


29. SGGEM is a large scale structural global econometric model, created by the National Institute of Economic and Social Research ( NIESR) and is based on an adaptation of their own National Institute Global Econometric Model ( NiGEM).

30. At a high level, the difference between each scenario reflects changes in the impact on the six areas outlined above: with negative impacts on the UK’s export market share in the EU; an increase in export prices to the EU as a result of tariffs; a negative impact of productivity and a fall in FDI. The EEA scenario assumes continuation of free movement of labour which is reflected in using the Office of National Statistic’s “High Migration” population projection for Scotland while the “Principal Migration” projection is used for the FTA and WTO scenarios to reflect lower immigration. Under the EEA scenario there is an assumption of some form of payment into the EU budget and there is no repatriation of the UK or Scotland’s net contribution.

31. Full details of the assumptions behind each scenario can be found in the technical annex along with the source in the economic literature each assumption has been drawn from.

32. See for example

33. European Parliament (2014) The Cost of Non-Europe in the Single Market. Published here:

34. Scottish Government (2017) - Exports Statistics Scotland

35. European Parliament (2015). Mapping the Cost of non-Europe 2014-19. Published here:


37. European Parliament (2015). Mapping the Cost of non-Europe 2014-19. Published here:

38. European Commission (2014). The Economic Impact of Digital Structural Reforms. Published here:


40. Booz&Company (2013). Benefits of an Integrated European Energy Market. Prepared for DG ENER European Commission. Published here:

41. HMRC Food and Drink Export Statistics: Q1 - Q3 2017


43. National Council of Rural Advisers: Interim report on the Potential Implications for Rural Scotland of the UK leaving the EU - (Published 29 th November 2017).

44. using € exchange rate as of January 2018




48. Directive 2004/38/ EC

49. Scottish Government evidence to Migration Advisory Committee available at

50. National Records of Scotland, Mid-year population estimates, National Population Projections (2016-based)

51. The Contribution of EEA Citizens to Scotland: the Scottish Government's Response to the Migration Advisory Committee Call for Evidence on the Role of EEA Workers in the UK Labour Market - Evidence Annex

52. The modelling approach is the same as that adopted by PWC (2017) Facing the facts: The impact of migrants on London, its workforce and its economy

53. A brief description of the Scottish Government CGE model can be found here:

54. Potential Implications for Rural Scotland from the UK leaving the EU. Interim Report by the National Council of Advisers, November 2017

55. Note: Agriculture & fishing and Energy & water sectors have been excluded for disclosure reasons.

56. Annual Census of Agriculture, RESAS, June 2017




60. See, for example, the following


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