Brexit Transition, Scotland and Independence: Has a New Route Opened Up?

Kirsty Hughes | 28 July 2017

Scottish Parliament, Asif Musthafa, CC-BY-NC-ND-2.0

With reports that Chancellor Philip Hammond is winning the internal Tory battle over a ‘status quo’ transition, one key question is what the EU27 will make of his plans. Another is whether it might give a boost to plans for an ‘indyref2’ once the terms of a Brexit deal are known – by making a Scottish return to the EU much easier.

Transition and the EU27: Some key challenges

Until now, the EU27 have insisted that discussion of transition arrangements should come last (probably next summer) since, logically, without knowing the outline of a future UK-EU27 trade deal, an appropriate transition can’t be set up.

But the view in Brussels has also been, for a while, that there is no time for a bespoke transition and that the UK should essentially exit from the EU via the European Economic Area (EEA). In that case, there is no obvious reason why this couldn’t be discussed in early autumn. And it could also help in terms of a budget deal – since the UK would still pay into the EU budget under any such transition agreement. Paying for continued access will be an easier sell to the UK public than paying for exit.

What the EU27 have said much less about is under what sort of conditions the UK could remain part of the EU customs union. No country outside the EU is a member of the EU’s full customs union – Turkey has a limited, industrial goods-only deal. But perhaps, in the unique circumstances of Brexit, the EU27 could and would find a way to extend the UK’s current membership of the full customs union.

This possibility raises a number of interesting questions. Firstly, if the UK is temporarily still in the EU’s customs union, would it be able to remain in the EU’s existing trade deals with almost 60 countries around the world? Under a ‘normal’ customs union, like Turkey’s, this wouldn’t be the case. Either way, the UK has to renegotiate these deals at some point.

Secondly, countries outside the EU must join the European Free Trade Association (EFTA) to then join the EEA. But that means signing up to EFTA’s trade deals with almost 40 countries – which would contradict being in the EU customs union and applying its tariffs to third country exports. So to square that circle, there probably needs to be a bespoke extension of the EU’s ‘acquis’ – Hammond’s ‘standstill’ transition.

Such a transition would leave the UK with all its current access but applying EU rules including trade policy without any say in, or vote on, any of the EU’s new laws or trade deals. But there is a third key question here, beyond the democratic deficit the UK will face. And that is where agriculture and fisheries policies will sit in all this. If the UK is to have a standstill transition and be fully in the EU customs union, applying EU tariffs to third countries on agriculture and fish, the EU27 would surely not agree to that if the UK is refusing access to its waters, or applying new agricultural policies that disadvantage the EU27.

So the devil will, in part, be in the detail. And, if a UK-EU27 trade deal is to be negotiated as quickly as 2022, then it is likely to be a fairly standard free trade deal, perhaps comparable to the Canada-EU one. Any deeper, comprehensive deal would take many more years, not least if the UK wanted to negotiate serious access for services.

A basic free trade deal is likely to lead to substantial drops in UK-EU trade in goods and services (as many economic studies have shown). So Hammond’s standstill transition may ease the huge task of the UK resetting its policy and regulatory systems post-Brexit, but it won’t ultimately reduce the economic damage. It may, though – by allowing more time, and perhaps by helping to rebuild a more constructive relationship with the EU27 – reduce the risk of a ‘cliff edge’ no-deal Brexit, which could still occur once a time-limited transition was complete.

Scotland, Brexit and indyref2

One recurring question in Scottish debates over a second independence referendum has been whether Scotland could re-join the EU, how long that might take and how smooth it could be. There has also been much debate over whether an independent Scotland should instead be in the EEA.

Having called for a second independence referendum this March, Nicola Sturgeon then backed off after June’s general election, suggesting that any ‘indyref2’ would need to wait until a Brexit deal was clear – pushing the likely timetable to after the UK’s departure from the EU in March 2019.

The challenge of leaving the EU with the rest of the UK, and then perhaps asking to re-join the EU as an independent state some years later, has always been that Scotland’s laws, policies and regulatory structures could diverge sharply from the EU’s over time. That would make it more costly and time-consuming to re-join the EU – and perhaps less popular – and EU27 attitudes could change over time too.

A standstill Brexit transition that encompassed both the single market and customs union – an option that the Scottish government has pushed as a final UK Brexit deal – makes arguments about how an independent Scotland could re-join the EU much easier. If a second independence referendum were held in 2020 for instance, and the UK did not complete its standstill transition until 2022, then the chances of Scotland – if it voted ‘yes’ to independence – having a smooth transition to becoming an EU member state would go up sharply.

Once the UK left the EU in March 2019, Scotland, after a ‘yes’ to independence, would need to apply to re-join the EU. And it couldn’t do that until it became independent. Even under a fast-track accession process, negotiations and ratification of an accession treaty would then take 2-3 years.

But if the UK was in a bespoke deal that had simply extended the EU’s acquis across the single market and customs union, there is no obvious reason why Scotland could not remain in that bespoke deal after 2022, if it was independent and negotiating EU membership. So the UK would by 2022 move into its new free trade deal with the EU27 while Scotland – if it was independent by then – could remain in the bespoke standstill deal. In effect, it’s the old idea of a ‘holding pen’ in a new form. Scotland might, in such a scenario, stay in the standstill transition, perhaps joining the EU in 2024 or 2025.

There are many open questions here. The border issues – whether for an independent Scotland with the rest of the UK or for Northern Ireland/Ireland – will not go away. If the UK is heading for a Canada-style trade deal by 2022 then there will not be a frictionless UK-EU27 border. This will be an issue of much debate in any second independence referendum.

Arguments about whether Scotland should be in the EU or EEA will doubtless continue – both due to borders and due to other aspects of independence and EU membership (including questions of euro membership, deficit rules, agriculture, fisheries and more). But a bespoke, standstill UK transition via both single market and customs union means the argument that it is much easier for an independent Scotland to transit into the EEA not the EU would no longer hold. The EU route would look fairly straightforward.

Just like for the UK as a whole, what the EU27 wants in terms of agriculture and fisheries policies in order to offer such a standstill transition will also be a key question for Scotland. It will impact on current arguments over the Repeal Bill and new UK or devolved frameworks for agriculture, fisheries, the environment and justice and home affairs. At the same time, a Hammond transition may at least allow some more time for these debates.

New Brexit debates

The prospect of a standstill transition for the UK, until 2021 or 2022, opens up the possibility of a less confrontational Brexit in terms of UK-EU27 relations. While some may present it as a much ‘softer’ Brexit, if the UK is heading for a basic free trade deal by 2022 that would still ultimately be a hard Brexit. It would encourage manufacturing and services firms to relocate to the EU27 and would still have a major negative impact on trade. It may though reduce the chances of a no-deal cliff edge.

For Scotland, such a transition deal may breathe new life into debates about the timing of any future independence referendum, and about whether an independent Scotland should be in the EU or not.

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.