Where Next for Scotland and Brexit: Four Challenges

Kirsty Hughes | 2 November 2020

© 2019 SCER

As EU and UK negotiators totter towards a possible deal by mid-November, the future shape of EU-UK relations starts to loom into view. A basic, thin free trade deal will take those relations down one path, a chaotic and bad tempered ‘no deal’ down a rather different path. For now, a deal still looks more likely but is far from guaranteed.

Where does this leave Scotland and Brexit’s impact on its independence choices? From borders to the economic impact of both Brexit, Covid and independence, to the EU’s attitude to an independent Scotland aiming to re-join the EU, there is much to debate, amidst the changing politics of the future EU-UK relationship. The EU is standing back from the UK’s constitutional debate – but it is also observing carefully.

Borders

By 1st January 2021, the UK will be out of the EU’s single market and customs union. With a deal, there will still be a hard border even if the deal ensures no, or mostly no, tariffs. There will be customs checks including for rules of origin (where the product was mainly made) and a whole range of regulatory checks. There will be very limited access for services – a point underlined by the CBI’s outgoing director general on Sunday.

An independent Scotland in the EU would, by definition, have an external EU border between itself and England and Wales (a different border with Northern Ireland given its in-between status as set out in the Withdrawal Agreement). It will be more straightforward to estimate the economic costs this border might impose on an independent Scotland compared to the benefits of being in the EU with free movement of people (and, quite probably, being much more attractive for foreign direct investment). So more debate about these costs can be expected.

At the same time, in the case of a deal, the UK government, and prime minister Boris Johnson, are surely likely to declare any deal a great success and emphasise (wrongly) that there is no border in the Irish sea between Britain and Northern Ireland. That rhetoric could, to some extent, be exploited by the pro-independence side but queues and confusion at UK ports for EU-bound goods, will rather tell the true story of borders.

In the run-up to next May’s Holyrood elections, both sides will surely hammer away at their view of the border issue. How much voters will listen, given the economic damage of both Covid-19 and of Brexit (and its growing impact from next January) is an open question. Rather than the Covid-19 economic and wider health and social crisis discouraging independence, so far it has been part of the factors pushing independence support significantly higher since June.

A ‘no deal’ outcome would mean harder borders and considerable chaos – at a time when the Covid-19 crisis will still be severe. Voters are unlikely to thank the Conservative government for the extraordinary damage this will produce. Equally, a ‘no deal’ outcome, trading on WTO terms with the EU, would also mean a harder border for an independent Scotland with the rest of the UK. But it will be hard for the Conservatives to exploit this border outcome in Holyrood election debates, if the UK government spends the first part of 2021 attempting to explain why a ‘no deal’ Brexit is not really as damaging as it looks. A chaotic Brexit is more likely to decrease support for the Conservatives and the union than increase it.

Nonetheless, the real challenge of a very hard border to the rest of the UK will not go away. Nor, in the short term, is there any EU appetite to ease no deal chaos with lots of side deals that will help the UK government off the hook of its own creating – not least since a no deal Brexit would presumably create a major crisis over the Irish border, if the UK government retains its law-breaking clauses in the internal market bill (that over-ride the internationally agreed EU-UK Withdrawal Agreement).

Never-ending Talks?

If there is a basic trade deal, there will very likely be a push for more talks over specific issues that were not fully dealt with in the deal, or on snags (large and small) that become apparent as the new relationship unfolds. As the CBI’s Carolyn Fairbairn said in her interview at the weekend, the CBI expects to launch a campaign early next year for a better, deeper deal with the EU on services.

There will be a major imbalance here. The EU has other priority issues on its agenda – from Covid-19, the economic recovery, the European Green Deal, and the future EU-US relationship amongst others. The UK is no longer a major priority for the EU or indeed a priority at all once a deal is struck. With a deal, the EU will want to keep relations with the UK calm and low key (and its new third country UK desk will open in its European External Action Service from January). But the UK, in contrast, will rapidly find there are very serious problems arising from such a basic deal, let alone from no deal, and so will be knocking on the EU’s door repeatedly. The EU may discuss a few snags but there won’t be any major new talks or welcoming of the UK wanting to add to the deal in the short term.

Looking forward four years, if a Labour/Starmer government were to win the next general election, there may then be scope to re-open the deal. What Labour would do here is something Starmer has been quiet on and is likely to remain so for now. Will Labour come back round to the idea of re-joining the EU’s customs union – even though in four years, there will be various UK trade deals with other countries round the world? The EU would be willing to have this discussion – with a stable, majority Labour government but where this might go is far from clear.

For Scotland, this means that while the future Scotland-rUK border, and the implications of that border if Scotland is independent in the EU, will be clearer, this border too will change as EU-UK relations change in the coming years. So uncertainty will always be there.

Economic Impacts and Services

A thin trade deal will put barriers up to EU-UK trade, not least non-tariff barriers (rules of origin, regulatory checks etc) and this will have a substantial negative effect on both goods and services trade, more so on services given its likely thin treatment in any deal.

For an independent Scotland, tariff-free goods trade would, of course, be better than a WTO border. But plenty of barriers will remain, and Scotland’s heavily services-oriented trade with the rest of the UK will be affected by a weak EU-UK outcome on services. There may though, in an independence scenario, be scope to negotiate some bilateral deals on services, as long as they don’t cut across EU-UK agreements. And the potential EU-UK trade deal will have some, yet-to-be-seen agreement on access to EU energy markets (not expected to be as good as now).

Since Scotland’s trade with the rest of the UK is three times that of its trade with the EU, pro-independence economic arguments around trade and borders would need to focus, much more clearly than now, on transitional scenarios to a restructured Scottish economy – one benefitting from EU free movement, and from more foreign direct investment, and changing its pattern of trade over time (with some realistic time horizons for this). The Covid-19 crisis has changed public attitudes, to some extent, over borders. Where before, a Scotland-rUK border would have been seen as mainly negative, this may no longer be the case. And, if Scotland stayed in the Common Travel Area, there would be no barriers to free movement of people. But serious analysis of economic scenarios is still needed.

How Quickly Could an Independent Scotland Re-join the EU?

A legally and constitutionally independent Scotland could, as set out in the EU treaties, apply to re-join the EU. If Scotland became independent in the next four or five years, for instance, it would quite probably still be very closely aligned to EU laws and regulations (notwithstanding the UK’s internal market bill). That depends on how swiftly UK laws and rules change – but while they may change in a few headline areas, they are less likely to change quickly across the while myriad of detailed rules and laws that currently drive much of UK regulations.

The Scottish independence debate often rapidly and narrowly focuses on EU debt and deficit criteria and the question of currency. But the question of remaining rather closely aligned to EU laws is a major issue too. Most candidate countries take a considerable period of time to copy and implement and align to EU laws. An independent Scotland, in the next few years, would be in a position to move very much more quickly – and after 47 years of EU membership, Brussels would be fully aware of this.

Whether the Covid-19 crisis, driving up European debt and deficit levels, would ease an independent Scotland’s path into the EU is an open question. Debt levels are unlikely to fall rapidly in EU member states, but in a few years time there will have been more effort to bring deficits down again. And re-opening the 3% deficit rule would be highly politically sensitive and difficult to do, though there is some wider debate on this. So, it might be the case that an independent Scotland negotiating accession could benefit from having a clear downward trajectory on its debt levels (whatever level they are at) rather than meeting EU criteria on the date of accession (bearing in mind that EU attitudes to deviating from fiscal criteria is different towards member states, though, than to candidates). And there could also be a political agreement that a clear budgetary path to meeting EU fiscal criteria, and being close to the 3% limit, would be achievable rather than 3% on the date of entry. The question of currency would remain – and if Scotland doesn’t have its own currency when it applies to join the EU, it would surely need a clear transition path to one.

I’ve argued previously that EU accession for an independent Scotland could take 4-5 years at the fastest – two to three years for application, talks, agreement and two years for ratification. But there are some in the EU who speculate this process could move somewhat faster, if Scotland has remained close to EU rules (in an earlier piece Tobias Lock and I did argue perhaps it could take only 3 years – looking at how quickly the EFTA countries joined in the 1990s, also starting from close alignment to EU rules).

So perhaps accession could be as fast as three years. But there are always political issues involved in accession. And one of these may be the state of the EU-UK relationship. Currently, the relationship is at a very low ebb, with trust destroyed by Boris Johnson’s willingness to break the Withdrawal Agreement within a year of signing it. But a deal (including a removal of the law-breaking internal market bill clauses) could signal the start of a calmer, if not close, relationship.

Ironically, despite the damage a no deal Brexit would do to Scotland, it would potentially make EU attitudes to an independent Scotland more positive. But, in the end, however much sympathy there may be in some EU quarters for a pro-European, independent Scotland, there is also, always, a hard-edged realpolitik that means EU capitals look with concern at anything that might make an already remarkably unstable-looking UK even more unstable.

This also underlines the fact that while there is general acceptance in EU circles that an independent Scotland could re-join the EU, there is also an insistence on independence being an agreed process between London and Edinburgh.

Overall, the twin impacts of Brexit and Covid-19 have left UK politics in turmoil, and increased support for Scottish independence. How that plays out in the coming period, both up to the Holyrood elections and beyond, will be a core issue for Scotland and the UK. The EU, despite its other top priorities, will be watching this closely.

 

Kirsty HughesKirsty Hughes | Twitter

Scottish Centre on European Relations

Dr Kirsty Hughes is Director of the Scottish Centre on European Relations. She is a researcher, writer and commentator on European politics and policy, and she previously worked for a number of leading European think tanks.