The authoritative source for independent research on UK-EU relations

09 Jun 2021

Union

The independence promised to Scots in Indyref2 is likely to involve EU membership, and a new Scottish currency. On this prospectus, an independent Scotland – which we’ll call ‘ISCT’ – would mean a hard customs border with the remainder of the United Kingdom – which we’ll call New UK (NUK). The SNP’s protestations to the contrary are a variety of what Michel Barnier once described as ‘magical thinking’.

But other options are available for ISCT and its relationship with NUK, and these might come back into play after a referendum endorsing independence, as the Scots contemplate what might come next.

For ISCT, rejoining the EU Single Market, which in 2018 took less than 19% of Scottish exports, would mean leaving the UK’s single market, which in the same year took 60% of Scottish exports.

Experience with the quasi customs border between Northern Ireland and the rest of the UK shows that a customs border between ISCT and NUK would be no notional white paint line on the landscape – it would impose new customs, origin and health checks, and new paperwork and other non-tariff barriers on exports from ISCT to the NUK, and vice versa.

But a hard customs border would not be inevitable, if ISCT, instead of seeking EU membership, entered into a customs union with NUK. There would also have to be agreement on health and related standards for animals and for food products, but there need be no harmonisation on the EU pattern, since mutual recognition of standards agreed to be equivalent could suffice.

The hard border problem would be solved.

A customs union in which ISCT simply agreed to apply tariffs applied by NUK or agreed by NUK with foreign countries would not guarantee that Scottish exporters could in turn enjoy the benefit of tariff and quota free trade when they exported to those countries.

For that to happen, Scotland would have to become a party to existing NUK trade agreements with such countries, and be a party to future trade agreements made between NUK and other countries.

That could be arranged by a pact in which NUK and ISCT agreed to act jointly in seeking continued ISCT participation in all NUK’s existing trade agreements, and in negotiating future trade agreements.

Just to be clear about it, as regards past and future trade agreements, both ISCT and NUK would be parties on the one side, and the relevant third country – Australia or India, say – would be the party on the other side.

Securing ISCT participation in NUK’s existing trade agreements would be uncontroversial vis-à-vis the third countries concerned, since it would represent a continuation of the status quo. ISCT would thus retain the benefit of all the EU’s trade agreements negotiated prior to Brexit, because the UK has rolled over every one of those agreements.

A more difficult issue would arise as regards the negotiation of future trade agreements by ISCT alongside NUK. ISCT would not want to participate in trade negotiations with third countries in which ISCT participation was merely symbolic.

By way of a reality check, it should be pointed out that if ISCT joined the EU, ISCT would not influence the course of EU trade negotiations with third countries. ISCT would have a voice in the Council and the European Parliament, but it would be a very small voice indeed.

Taking Slovakia as a comparator, ISCT would have less than 1.22% of the voting weight in the Council, and less than 2% of the votes in the European Parliament.

A pact between ISCT and NUK on jointly negotiated trade agreements with third countries could offer considerably more to ISCT than that.

The first stage would involve agreeing a negotiating mandate covering the aims of the forthcoming negotiations. Not all the elements of what ISCT and NUK agreed would be disclosed, in the mandate or otherwise, but the process of agreeing a mandate would be an important political preliminary to joint trade negotiations with a third country.

As regards negotiations, NUK and ISCT would pledge best endeavours to reach consensus between themselves on all positions, and would adopt an internal mediation mechanism to facilitate this.

NUK would take the lead on most issues (reflecting its share of the total market on offer), but there could be a list both of reserved issues, and of sensitive products, agreed by ISCT and NUK in advance.

For reserved issues (say, fishing opportunities) ISCT consent to agreement with a third country would be necessary. For sensitive products, ISCT could qualify tariff-free access to the market in ISCT through a retail sales tax.

This would provide a surrogate Scottish tariff (imperfect but serviceable) on certain imports, without interfering with the ISCT/NUK customs union. The rate of the tax would be negotiated by an ISCT negotiator, as would any balancing tariff to be applied by the third country concerned on any Scottish exports.

Needless to say, the fewer reserved issues, and the fewer sensitive products the better.

In practice, it is likely that there would be few, and that ISCT and NUK would have a strong common interest in reaching free trade agreements which would abolish tariffs and quotas on trade in goods, and reduce or remove regulatory barriers to the export of services. Both NUK and ISCT would be major exporters of services.

A second referendum on Scottish independence is unlikely to be held soon, but nor can it be forever postponed. In the interim, the policy of the UK Government could either make the prospects of a customs union between ISCT and NUK at least a possibility, or downright unthinkable.

What would make a customs union unthinkable would be the negotiation by the UK of trade agreements which were perceived in Scotland as damaging to the Scottish economy.

There may never be the right political moment for ISCT or NUK to seek to form a customs union. But if the moment ever does arise, it would be as well to be prepared for it – on both sides of the border.

By Professor Derrick Wyatt, QC, Emeritus Professor of Law, University of Oxford, former barrister specialising in litigation before the EU Courts, and Member of the International Academic Council of Fundacion Fide, an independent and non-partisan Spanish think-tank.

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