Scotland and Brexit: Brave Heart or Timorous Beastie?

ORIGINAL PUBLISHED ON EU LAW ANALYSIS (13/10/16)

by Steve Peers

At the Scottish National Party (SNP) party conference yesterday, Scotland’s First Minister (Nicola Sturgeon) announced that the Scottish Government would issue a draft of a second independence referendum bill next week. She also announced that the Scottish government would soon table an alternative plan “to protect Scotland’s interests in [the EU] and keep us in the single market – even if the rest of the UK decides to leave”. This would entail “substantial additional powers for the Scottish Parliament”, namely all the Scottish powers that “currently lie with the EU – and significant new powers”, namely the power to negotiate international treaties and “greater powers over immigration”.

Implicitly the Scottish government is offering the UK government a choice: negotiate to ensure that Scotland stays in the single market as a distinct part of the UK, or face another independence referendum. I’ll examine the legal issues arising from these two options in turn, and conclude with some broader observations about the Brexit process compared to the prospect of Scottish independence.

Scotland in the UK – and the single market

Is EU single market participation possible if a) Scotland stays in the UK, and b) the UK as a whole is not in the single market anymore? Some people have called this prospect a ‘reverse Greenland’, referring to the deal whereby Greenland left the EU but Denmark stayed in. Given the huge differences between Greenland and Scotland, I suggest we call this idea by a different name: say the ‘Scottish Economic Area’. I have written about this prospect separately in iScot magazine, but I will summarise my points again here.

Only independent countries which are EU members can fully participate in EU membership. But in theory at least, a part of a non-EU country could participate in the internal market, even if the rest of that non-EU country did not. Of course, the EU and the UK’s Westminster government would have to consent to this in as part of their post-Brexit treaty, and it could only work if there was significant related devolution to Scotland, as the First Minister suggested.

What would it mean in practical terms? The ‘single market’ consists of the free movement of goods, services, persons and capital, which includes the freedom of establishment of companies and the self-employed. To facilitate all this, there’s extensive EU legislation setting common standards for many industries. The single market also includes common rules on competition law and state aid to industry. But a number of rules on other matters (such as trade with non-EU countries) are not necessarily part of it. Full participation in the single market goes further than a free trade agreement with the EU which the Westminster government currently seems likely to prefer, as it will abolish more non-tariff barriers to the trade of goods and services. For instance, most free trade agreements don’t give as much access to financial services markets as single market participation does. So if Scotland is in the single market and the rest of the UK is not, more financial services businesses may stay in Edinburgh, or move from London to Edinburgh rather than to the EU.

Is this feasible in practice though? The easy part would be applying EU laws in Scotland which only have domestic effect, like consumer, environmental and labour law.  When it comes to laws with a cross-border effect on trade between Scotland and the EU, such as financial services market access, it would be necessary to define exactly when a firm was based in Scotland (benefitting from single market participation in the Scottish Economic Area), and when it was based in the rest of the UK (subject to a less favourable trade agreement).

The most difficult issues relate to movement of goods and people. Would different rules on Scottish/EU relations compared to the relations between the EU and rest of the UK mean that there would need to be border controls between Scotland and the rest of the UK? On this point, the Westminster government has promised there will be no border controls between Northern Ireland and the Republic of Ireland, even though that border will become an EU/non-EU border.  Surely whatever deal is reached to this end could be adapted for use at the Scotland/England land border too.

The Scottish government would not have a direct role in EU decision-making. But it could be given the same role as Norway and Iceland have in their single market treaty with the EU (discussed further below): consultation on proposed EU laws, the power to reject them (although that’s subject to the risk of retaliation), and participation in the EFTA Court that decides on single market disputes as regards Norway and Iceland.

The suggestion above is undeniably complex, although the whole Brexit process is complex anyway. However, the idea isn’t all or nothing: it would be possible in theory for Scotland to participate fully in parts of the single market, rather than all of it like Norway and Iceland.

Independent Scotland

There are two possibilities here: a) Scotland as a member of the EU, and b) Scotland as a non-member of the EU, but with a close relationship with it – possibly closer than the remaining UK (UK). It is also possible that the latter option could be an interim step towards full EU membership. Obviously any new independence referendum raises issues besides Scotland’s relations with the EU, but I will focus on that point.

Scotland as an EU Member State

I blogged on this issue in 2014, during the Scottish referendum, but I’ll summarise and elaborate on those views again. The basic point is that the Treaties list the Member States by name, and since the ‘United Kingdom’ is unlikely to be interpreted as automatically referring to Scotland alone, either an accession Treaty or a Treaty amendment is necessary to include Scotland’s name as a member. In the past an accession treaty (as provided for in Article 49 TEU) has always been used to add a new name; this would entail a negotiation process, which could possibly be fast-tracked in light of Scotland’s existing de facto EU membership as part of the UK.

However, that would raise awkward questions, since the EU usually requires new Member States to apply Schengen and the single currency, and might be unlikely to extend a share of the UK’s budget rebate to Scotland. Having said that, a number of Member States have got away with not applying the single currency in practice.  It should be noted that the ‘deficit criteria’ which apply to joining the single currency are not applied as a condition of EU membership, but only when a Member State subsequently applies to join the single currency itself.

The alternative route to membership is by Treaty amendment (as provided for in Article 48 TEU), which could also entail an amendment to Article 49 TEU to refer to the special case of Scotland: “By way of derogation from the above paragraphs, Scotland shall accede to the European Union pursuant to the Treaty of Culloden”.  One possibility is a Treaty amendment which simply replacing the words “United Kingdom” wherever it appears in the Treaties with “Scotland”; this would mean that Scotland retained the UK’s opt-outs from the single currency, justice and home affairs and Schengen (the rebate is set out in secondary legislation).

When I suggested this possibility on Twitter a few months back, it was ridiculed by some as a “Tippex” approach to amending the Treaties. But as a matter of legal drafting, it is perfectly feasible, and there is a firm precedent in the Treaty of Lisbon, which in Article 2(2) to 2(8) provides for a whole host of amendments just like this: replacing “Community” with “Union” wherever it appears, for instance.

Undeniably, however, either approach requires unanimity between Member States, and so there would be a political risk that accession or amendments are not easily agreed. In particular, some have argued that there is a risk of a Spanish veto, because of concerns that Scotland obtaining easy EU membership would inflame separatist tensions in Spain or other countries. On the other hand, some have argued that these concerns are misplaced. Either event also raises timing issues: what happens if Scotland is independent before or after Brexit, but is not yet immediately an EU Member State? The gap could be filled, at least in the interim, by some other arrangement between Scotland and the EU – an issue to which I now turn.

Scotland as a non-EU Member State

The most obvious route for Scotland to consider would be membership of the European Economic Area (EEA), along with Norway, Iceland and Liechtenstein. The EEA provides for participation of these non-EU countries in the EU’s single market freedoms and all the EU legislation related to them, as well as most EU employment and environmental law. But Scotland would not be covered by EU laws in other areas, notably agriculture, fisheries, tax and justice and home affairs – although, like Norway and Iceland, it could sign separate treaties with the EU on these issues. Although the current EEA countries have joined Schengen, this is a separate issue (agreed years after the EEA), and Scotland would have no legal obligation to do the same.

There would be no obligation to join the EU single currency, and most significantly Scotland would be free to sign separate trade agreements with non-EU countries, because the EEA does not cover the EU’s customs union. This is particularly important because it means Scotland could seek to retain a closer economic relationship with the rUK than the rUK might have with the EU. Scotland could also “go global”, as Brexiteers say, by signing up to the free trade treaties already signed by members of the European Free Trade Area (EFTA: the EEA states plus Switzerland) with non-EU countries. And it would retain power to sign its own treaties on top (or to seek to retain its own versions of the EU’s free trade deals with non-EU countries, as the rUK is likely to do). Scotland would have to become a separate WTO member, but could try to fast-track this by copying the rUK’s process of detaching from the EU’s WTO membership.

Is there a downside to EEA participation? Some have argued against the UK joining the EEA due to objections to single market participation, the need to accept ECJ jurisdiction, continued contributions, its undue size compared to other members, or its lack of influence over EU laws which would apply to it. Are these arguments transferable to Scotland? The first to third objections are not, since Scots voted to remain in the EU, entailing the single market, ECJ jurisdiction and budget contributions anyway. (In fact, the non-EU EEA countries are not subject to the jurisdiction of the ECJ, but a separate body called the EFTA Court: it usually follows ECJ case-law, but its decisions are not always binding. EEA financial contributions do not go straight to the EU budget, and would logically be recalculated in light of Scotland’s economic position anyway).

The fourth objection (size) is unconvincing: Scotland is broadly comparable with Norway, in particular in terms of population, location and economy. Finally, EEA states have a modest say on EU laws, being consulted on draft EU legislation and having the option to reject the application of new EU laws (although the EU might retaliate if they do that). Anyway, this is certainly more say over EU laws than Scotland would get after Brexit as part of the UK. In fact, it’s more say than Scotland gets over EU laws while the UK is an EU Member State – given the marginal influence that Scotland has overanything that the UK government does.

So the EEA option includes things that Scotland seeks (single market participation) while steering clear of things it may wish to avoid (the single currency and deficit criteria, Schengen, EU trade policy with non-EU countries, and EU fisheries policy).  It also has the advantage of being potentially speedier: the EU can decide to apply treaties with non-EU countries provisionally, pending national ratification.

What about the prospect of a ‘Spanish veto’ over Spain joining the EEA? Here we have actual evidence to suggest that it’s not very likely. For the EU has recently concluded an association agreement with Kosovo – despite Spain (and four other Member States) refusing to recognise the independence of that country after its unilateral declaration of independence. (Note: the EEA is also an association agreement, and Member States have a veto over the initial conclusion of such treaties).

Failing EEA membership, Scotland could still seek other forms of relations with the EU which may be closer than the UK might enjoy, possibly as a non-EEA member of EFTA like Switzerland. Unless Scotland followed Turkey in joining the EU’s customs union, this would again leave it free to simultaneously retain a strong economic relationship with the UK.

Scottish independence and Brexit

Could the Brexit process be relevant for the Scottish independence debate – by analogy, or a part of a broader political dynamic? Certainly many of the arguments of Brexiteers – now taken over by the whole Westminster government – could be easily adapted to the Scottish debate. For instance, independence would allow Scots to ‘take back control’ of far, far more of their laws and finances than leaving the EU will do for the UK.

We can also make direct comparisons with certain issues. Does Scotland have a veto on UK tax laws, like the UK does in the EU? No. Does Scotland agree to over 90% of laws passed in Westminster, like the UK does in the EU? No. Does Scotland have a veto on UK defence policy, like the UK does in the EU? Hell, no.

The impact of Brexit on the UK economy can be argued both ways. If Brexit seems to be benefiting the UK, then arguably this shows Scottish independence is unnecessary; but equally it arguably shows that it could also be painless. If Brexit seems to be hurting the UK, then arguably this shows Scottish independence is needed to escape; but equally it arguably shows that independence could be even more painful.

It’s certainly now ridiculous to argue (as it was in 2014) that Scotland should stay in the UK if it wants to stay in the EU. Leaving the UK won’t automatically mean joining the EU, as discussed above; but staying in the UK now certainly means leaving the EU. While independence will likely be disruptive, Brexit will entail disruption anyway, so it’s now arguable which is the ‘riskier’ and which the ‘more stable’ choice. The plummeting pound may no longer be quite so attractive a currency to retain.

Adapting the words of Brexiteers, the UK would have an economic incentive to quickly reach new trading arrangements with Scotland. And if they refuse to, as an attempt to punish Scots, then, again in the Brexiteers’ own words, who would want to stay in a Union that treats you like that?

Given the changes in the UK since 2014, there is a strong case that another independence referendum is justified. How would Scots have voted then, if they knew that a “Yes” vote would lead to “hard Brexit” in a few years’ time?

As things stand, the current UK government has not suggested any new devolved powers for Scotland, and still less any fundamental change to the UK’s constitutional structure. It has promised to consult the Scottish government over Brexit, but not to provide for differential links with the EU. It has prioritised a very low net migration target over the country’s economic interests; it has refused to allow control by the Westminster parliament (never mind Holyrood) over the form that Brexit takes; it treats EU citizens in the UK as “bargaining chips”; and it aims to slash foreign students, expel foreign doctors and (at one point) to name and shame employers of foreign workers. It has made no attempt to reach out to the large minority of British voters – and the large majority of Scots – who voted “Remain”. Quite the reverse: its media allies refer to critics of Brexit as traitors who should be silenced and imprisoned.

If there is another referendum, Scots will have to decide if they would still be “better together” under these circumstances.

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