Devo max, #indyref2 or holding op?

Nicola Sturgeon’s paper ‘Scotland’s Place in Europe’ sets out some fairly clear tests for what she calls a compromise on Brexit – while maintaining that her preferred option is Scotland as an independent state inside the EU.

The paper outlines some central demands for what should be in the UK’s letter to the EU-27 triggering Article 50: a request for the UK to stay in the EU’s single market and customs union, ie a closer relationship even than that of Norway in the European Economic Area; a request for a clear transitional arrangement (between EU membership and full Brexit); and a statement that the UK wants to explore a differentiated solution for Scotland to stay in the EU’s single market even if the rest of the UK does not.

Theresa May’s Brexit approach is still unknown – but it is expected to involve seeking maximum access to, not membership of, the single market, while possibly staying in the customs union. In that case, Sturgeon’s differentiated demand for Scotland (already rejected by Chancellor Philip Hammond) would come to the fore.

But is it even possible for Scotland to be in the EU’s single market when the rest of the UK is not? And what is the real goal of the Scottish Government’s paper – a springboard for an #indyref2, a holding strategy while May’s Brexit approach becomes clearer or a genuine goal of maximal differentiation?

Technical and Legal Challenges

The paper acknowledges there are major challenges in a differentiated approach that would keep Scotland, like Norway, part of the EU’s single market. Most, though not all, of these challenges come from the fact that Scotland is not a state, but a sub-state. Even as an independent state, though, there would be questions aplenty about the economic – and border –  impact of Brexit by the rest of the UK (rUK) while Scotland stayed in the EU.

The best route to staying in the single market, according to the Brexit paper, would be for Scotland to join the EEA, having first joined EFTA. This faces various big hurdles. The UK government would have to request it. Then either the UK asks to be an EFTA member but with EFTA rules only applying to Scotland – a very unlikely version of the ‘reverse Greenland’ model. Or the UK asks for Scotland to join as a sub-state while rUK stays outside – just as the Faroes has requested via Denmark (a request that has received no response).

Both EFTA and EEA treaties are open to European states, so it seems very likely that the Sturgeon proposals would fall at this rather major hurdle. It’s not impossible that a sub-state could be included, but it would require treaty change to both EFTA and EEA treaties. It would also require EU-27 agreement (as signatories to the EEA treaty) and it would set a major sub-state precedent that many more countries than Spain would be concerned with.

The paper admits that its proposals would require a massive amount of devolution. It also insists that, after Brexit, agriculture and fisheries powers remain with Holyrood, rather than being ‘re-reserved’ by Westminster. One big step that is not taken though is on trade policy. Instead, the goal is either, preferably, for the whole UK to stay in the customs union with the EU, or for rUK and Scotland to be outside the customs union. This makes sense since it avoids part of the Ireland/Northern Ireland challenge where Ireland will be in the customs union, and Northern Ireland could be outside.

One major set of challenges with Scotland staying in the single market is that it may create a border between Scotland and England, and that it may introduce barriers into the pan-UK market.  Regulatory and legislative challenges abound at this point.

If rUK diverges from EU regulatory frameworks while Scotland stays within them, this could create non-tariff barriers to goods and services traded within the UK. The paper suggests there may be ways round some of these problems but the complexity is clear. If the UK has to pay (and collect) tariffs on some of its exports to and imports from the EU, then how are Scottish (no tariffs) imports and exports to be distinguished from rUK ones, even in the same shipment of goods – by point of sale distinction says the paper.

There may be ways round a hard border – but differences in tariffs, differences in regulatory institutions, standards and judicial/supervisory mechanisms all create a major set of headaches that make ensuring an open pan-UK market with minimal bureaucratic processes rather unlikely.

How the UK and EU will manage regulatory divergence, mutual recognition, services trade and other issues will be central to Brexit talks. If Scotland was in the EEA, the EFTA court would deal with any infringements of EU rules. But how rUK would show its goods met EU regulations, and how and to what extent rUK services could access the EU’s single market are for now unknown – other than the fact that, in the absence of adherence to freedom of movement for people, the UK will not have the same full access it currently enjoys.

The Scottish Government’s paper argues that a Scottish manufacturer, while being in the EU’s single market, could still trade freely across the UK – claiming ‘parallel marketability’ – but this is a less than convincing solution to a complex challenge. Indeed, if Scotland were in the same position as Norway (in the EEA), it is worth noting that the UK will have to negotiate a new trade deal with Norway post-Brexit, since Norway won’t be part of the EU-27/UK Brexit deal.

Under these plans, Scotland would respect the single market’s four freedoms including free movement of people. This would require devolution of migration powers and ways to ensure those resident in Scotland but not elsewhere in the UK could prove residence and so enjoy free movement across the EU (on which the paper provides little detail). The paper is surely right though, that given the existing Common Travel Area, different migration policies across the UK need not require checks at inner land borders.

The politics is central

It is noteworthy that in her emphasis on the EU’s single market, Nicola Sturgeon is situated well within the narrow confines of the UK’s current Brexit debate. While the EU faces major challenges at and beyond its borders (Russia, Ukraine, refugees, climate change) and internally (terrorism, productivity, inequality and more), the UK debate is fixated on the benefits of the single market versus other trade relations.

In this narrow context – where Sturgeon is currently rather quiet on the big, solidarity and strategic case for being in the EU (not the EEA), despite a few mentions of climate change in the paper – what is likely to happen next?

The ball is in  May’s court for now. The Prime Minister has said she will consider the Scottish Government’s proposals. May could say ‘no’ very bluntly, as she effectively did in her October party conference speech – which would put Sturgeon on the spot in terms of her response and whether to call an #indyref2 or not. Or May could, at least, wait until February, when the UK government may finally take an outline of its plans to Westminster before triggering Article 50 in March.

At that point, May could quite likely say that she is aiming for maximum access to the single market, and might say she will ask for the UK to stay in the customs union. She may also say she will look at some particular Scottish interests. Sturgeon then would have a choice – to wait and see how Brexit talks develop, and how the opinion polls shift once Article 50 is triggered – or to say May has not met her demands, and so call an indyref2.

Sturgeon is going to get little help from Scotland’s opposition parties apart from the Greens. The LibDems in November, despite their position of wanting the UK to stay in the single market, have voted, with the Tories, against proposals for Scotland to have a differentiated deal. Labour abstained in November, but Labour’s Brexit minister Keir Starmer – and leader Jeremy Corbyn – have made it clear Labour is aiming for access to, not membership of, the single market. So Labour support looks unlikely too.

Sturgeon’s paper is a serious in-depth piece of analysis. It respects the original Scottish Parliament vote by 92-0 a week after the Brexit vote to explore options to stay in the EU or its single market. The Scottish Government has followed up and respected that vote – but the politics has moved on. A differentiated deal for Scotland looks highly unlikely. And while the ball is now in  May’s court – it is likely to be back in Sturgeon’s very soon.

First published by the Centre on Constitutional Change and reproduced with permission

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