The Referendum on Separation for Scotland: Scotland's Membership of the EU - Scottish Affairs Committee Contents


3  Conditions of membership

47. In the White Paper, Scotland's Future, the Scottish Government states that its negotiating position on the terms of its membership of the EU would be based on the EU Treaty obligations and provisions that currently apply to Scotland under its present status as part of the UK. The Scottish Government further asserts that its membership of the EU would cause no detriment to other Member States.[55] This belief, that Scotland would simply "inherit the position that the UK has",[56] masks the complex negotiations that would be required for Scotland to become a Member State of the EU. Jim Currie, former Director General at the EU, told the Scottish Parliament's European and External Relations Committee:

    I do not think that you can assert before any treaty negotiation on the terms of new membership what would happen automatically. I think that the negotiations will be tough.[57]

48. While it is reasonable to assume, given Scotland's present situation within the EU, negotiations about each of the 80,000 pages of acquis would not be required,[58] nevertheless careful consideration of each page would be necessary because, as noted earlier in this Report, Scotland is not exercising the same competencies under devolution as it would be exercising were it to become a separate state. Certain key aspects of Scotland's proposed terms of membership would almost certainly be subject to detailed consideration (irrespective of the chosen route to membership). Such conditions include the opt-outs that Scotland currently enjoys by being part of the UK, in particular opt-outs from the Eurozone, Schengen and Justice and Home Affairs measures, as well as the complicated matter of the UK rebate.[59] We consider these key terms of a separate Scotland's membership of the EU below. It should also not be forgotten that negotiations on the terms of Scotland's membership would be contingent upon the outcome of the necessary internal negotiations on Scotland's separation from the UK.[60]

Opt-outs

49. The Scottish Government has stated that a separate Scotland would seek to retain the opt-outs it currently benefits from by being part of the UK. While there is no legal reason why Scotland should not, or could not, seek to negotiate membership on these terms, the Scottish Government has not set out the potential problems that stand in the way of securing such a favourable outcome. A fundamental challenge, as the Minister for Europe told us, is that the EU is institutionally resistant to the principle of opt-outs.[61] Only Ireland, the United Kingdom, Denmark (all of whom acceded in 1973) and Poland (acceded in 2004) have been able to secure major exemptions for the long-term. On a more practical level, all new Member States are obliged to sign up to the acquis communautaire—the core body of EU law—which, for example, includes a commitment to join both the Euro and the Schengen zone.[62] The UK Government has opt-outs from both of these areas.

50. In addition, the UK Government, who would be likely to lead negotiations with the EU under an Article 48 process, could not be expected to negotiate certain special terms and opt-outs on Scotland's behalf if it felt they would be disadvantageous to its interests as the successor state. Most significantly, however, regardless of whether an Article 48 or 49 route is pursued, all Member States must agree to the terms of Scottish membership before it can join, including any favourable terms or opt-outs Scotland wishes to be granted. This would mean other Member States agreeing to opt-outs for Scotland that they themselves do not possess.

THE EURO

51. The Scottish Government has made clear its intention not to join the European single currency:

    While the Scottish Government recognises the political and economic objectives of the Eurozone, an independent Scotland will not seek, nor will we qualify for, membership of the Eurozone. Scotland's participation in the Sterling Area will not conflict with wider obligations under the EU treaties.[63]

As part of the acquis, all new Member States must make a binding commitment to join the Euro.[64] It is not clear whether in not seeking membership of the Eurozone the Scottish Government intends a separate Scotland to seek a formal opt-out. Only the UK and Denmark, both members of the community since 1973, have secured such an opt-out.[65] The Minister for Europe pointed to the experience of recent EU accessions:

    If you look at those member states who have come into the European Union since the Euro was created, all of them as part of their accession negotiations and accession treaty had to accept a binding obligation to join the Euro—not immediately, because they have to commit themselves to reaching the economic criteria necessary for joining the single currency, but they have to accept a binding treaty commitment, binding in international law, to join the Euro.[66]

No other Member State has sought an opt-out from the Euro, which would make the Scottish case unique if it were to pursue such a course.[67] Furthermore, it is difficult to see how Scotland could negotiate an opt-out from the Euro before having negotiated its preferred currency option—the retention of Sterling in a formal currency union—with the rest of the UK. In this regard, it is pertinent to note that both coalition parties in the UK Government, and the Labour Party, have already ruled out the possibility of a separate Scotland sharing the pound.[68] Any commitment to join the Eurozone, even if it was in the long term, would undermine the basis of any formal currency union as markets would not think the arrangement permanent. The lack of clarity over a separate Scotland's economic future would almost certainly delay Scotland's bid to become a Member State.

52. In reality, the EU could not force a separate Scotland to join the Euro. Before becoming a member of the Eurozone, a separate Scotland would first have to join the exchange rate mechanism, such a step is voluntary. Dr Fabian Zuleeg, Chief Executive of the European Policy Centre, told the European and External Relations Committee of the Scottish Parliament that "there is nothing in the legal framework of the European Union that could force a country to join the exchange rate mechanism so, although there might be pressure on a country to join the exchange rate mechanism, that condition cannot be enforced by law."[69] A separate Scotland cannot be forced to adopt the Euro, but Member States might well insist on a commitment to do so in the future.

53. In the event that Scotland was able to obtain an opt-out from the Eurozone, it would still have to comply with other EU economic and fiscal recommendations. Failure to do so could lead to the suspension of budget payments under what is known as macro-conditionality. The UK has an opt-out from these arrangements.[70] In addition, EU Member States have to comply with the Stability and Growth Pact (SGP) which sets limits for Government debt and deficit. Under the SGP Member States' debt-to-GDP ratio must be less than 60% or, if above, be clearly declining to less than 60%. Member States that fail to comply with this obligation face economic sanction.

54. A separate Scotland's debt-to-GDP ratio is predicted to be in the region of 86%.[71] According to the National Institute for Economic and Social Research (NIESR) this means that, "an independent Scotland is likely to require a more restrictive fiscal stance than proposed by the Coalition government for many years."[72] On joining the EU, the government of a separate Scotland would have to commit to meeting the EU target of getting national debt down to 60% of GDP within 10 years. To achieve this the Scottish Government would have to impose additional spending cuts to those planned by the UK Government or raise taxes higher, or both. We will give further consideration to fiscal limitations imposed by the EU in our future work.

SCHENGEN

55. Another major feature of the EU acquis the Scottish Government wishes to opt-out of is the Schengen travel area.[73] The Scottish Government instead prioritises membership of the Common Travel Area (CTA) that currently exists across the UK, Ireland, Isle of Man and Channel Islands:

    There are no circumstances in which the Scottish Government would countenance any measure being taken that jeopardized the ability of citizens across the rest of the UK and Ireland to move freely across our borders as they are presently able to do. It is for this reason that following independence Scotland will remain part of the Common Travel Area (CTA), which dates back to the 1920s.[74]

The Scottish Government states that, "there are absolutely no grounds to believe that the EU would challenge Scotland remaining part of the CTA rather than joining the Schengen area."[75] This assertion is completely without foundation, since all new Member States are required to commit to joining the Schengen area, an obligation that has been in place since 1999.[76] Once again, an opt-out would be required for a separate Scotland to remain outside the Schengen zone in the long-term, something only long-standing Member States of the EU—Ireland and the UK have been able to negotiate.[77] No new Member State has sought an opt-out from Schengen, so Scotland's attempt to do so would be unprecedented.[78]

56. Negotiations over the Common Travel Area would have to take place between Scotland and the UK, before Scotland could begin negotiations over an opt-out with the EU. One potential flash-point for dispute between Scotland and the UK is immigration. The CTA operates on the basis that members have broadly similar immigration policies (as the UK and Ireland presently do) but, it is the stated aim of the Scottish Government to promote greater immigration into Scotland as a post-separation policy. In his evidence to the Committee, Minister for Immigration and Security, James Brokenshire MP stated that it would be "wide of the mark" for a separate Scotland to run a markedly different immigration policy from the continuing UK and expect there to be no implications regarding a common travel area.[79]

57. In the event of the Scottish Government being unable to negotiate an opt-out and having to participate in Schengen as part of its terms of accession, the Minister for Immigration and Security described how the current regime of free and uninterrupted travel between Scotland and the rest of the UK could change:

    If Scotland were part of the EU and part of Schengen, in those circumstances it would be under an obligation to secure the external Schengen border. Therefore, it could itself be under obligations to put in place border checks, border controls and everything that that brings with it.[80]

The need to complete negotiations with the UK on key issues before Scotland can negotiate with the EU is not mentioned by the Scottish Government in the White Paper, but it is further reason to doubt the plausibility of the Scottish Government's 18-month timetable for negotiation and ratification of a separate Scotland's membership of the EU.

58. The Scottish Government seems to believe that opting out of joining the Eurozone and Schengen would be a formality, but Member States have no reason to give in to Scotland's demands, and they each enjoy a right of veto over a separate Scotland's potential membership. The case made by the Scottish Government in the White Paper that, in the event of separation, it could and should continue to receive the opt-outs and derogations negotiated by the UK appears to us based on wishful thinking rather than legal and historical precedent.

JUSTICE AND HOME AFFAIRS

59. The UK has negotiated flexibility to opt in to EU measures relating to Justice and Home Affairs (JHA), in light of what it considers to be within its national interests. The UK Government's Scotland Analysis paper on EU and international issues gives the following example:

    The UK has used this power to protect the nation from measures that it does not wish to take part in, such as those that would require changes to UK immigration law, while participating where it is in UK interests to do so; for example, the UK participates in measures against human trafficking.[81]

60. Scotland benefits from this provision of UK EU membership and the Scottish Government is consulted on all decisions on whether or not to participate in specific JHA measures.[82]

61. It is the stated aim of the Scottish Government to seek to retain this current flexibility in the event of negotiations to seek separate EU membership.[83] Only the UK, Ireland and Denmark—all members for over 40 years—have managed to negotiate flexibility in the area of Justice and Home Affairs.[84] The Scotland Analysis paper suggests that failure to negotiate an opt-out would mean Scotland having to adopt the JHA portion of the acquis in full, requiring "major changes to its legal system."[85] However the paper does not provide detail on the exact nature of these changes. No new Member State has negotiated an opt-out from JHA measures and it is questionable that Member States would grant Scotland a greater flexibility than they themselves are able to exercise. The UK Government claims that a failure to negotiate an opt-out from EU Justice and Home Affairs measures would have major implications for a separate Scotland's legal system. This is an important matter which requires further clarification.

VAT

62. The rates at which Member States can charge VAT is dictated by the European Union's VAT legislation (Directive 2006/112). The Directive sets out the basic framework within which Members States are afforded a degree of flexibility. However, the Directive stipulates that Member States must have a standard rate of at least 15% while allowing for some reduced rates of not less than 5%. Some Member States, such as Malta, Ireland and the UK, have been able to negotiate the ability to charge a zero-rate of VAT and out of those the UK makes the most use of this ability, with 54 items listed by HMRC as attracting zero-rates of VAT. Items range from food, children's clothes, books and newspapers and equipment for the disabled, to parts of the shipbuilding and aircraft repair sectors.[86]

63. In the event of a vote in favour of separation, the Scottish Government would have to negotiate derogations from the VAT Directive if it wished to continue to benefit from zero-rates of VAT. However much the Scottish Government repeats the mantra of 'continuity' and claims that a smooth transition would benefit everybody, there remains no guarantee that other Member States would agree to grant a separate Scotland flexibilities that they are not able to exercise themselves. Furthermore, the granting of a derogation to Scotland would go against the objective of the VAT Directive of simplification and rationalisation. From 1 January 2013 Croatia replaced its zero-rate of VAT by a minimum rate of 5% ahead of its becoming an EU Member State six months later.

64. A Scottish EU Member State would be bound by EU legislation on VAT. There is no guarantee that the Scottish Government would negotiate the opt-outs that would be required to continue zero-rates of VAT on items such as children's clothes, food and books. Failure to secure an opt-out would see costs of these basic items increase by a minimum of 5%. Like other risks surrounding separation, this threat to the pockets of Scottish families is overlooked by the Scottish Government. The uncertainty over zero-rates of VAT does not exist if Scotland remains part of the UK.

Student fees

65. In the White Paper, Scotland's Future, the Scottish Government sets out plans to maintain the current arrangements on university tuition fees.[87] Article 18 of the Treaty on the Functioning of the European Union, which forbids discrimination against other EU citizens on the grounds of nationality, provides that the Scottish Government's present policy of free access to higher education for citizens domiciled in Scotland must also apply to students from all EU Member States, as they must be treated the same as students of the host country. The regulations governing discrimination between Member States do not apply to students from Wales, England and Northern Ireland, as, at present, they are within the same Member State. Scotland's higher education institutions are therefore free to - and do - charge students from the rest of the UK up to £9,000 per year in tuition fees.

66. In the event of separation and membership of the EU, plans to continue to charge tuition fees to students from the rest of the UK would clearly be contrary to Article 18 as Scotland would be overtly discriminating against students from another EU Member State. The Scottish Government's position is that it would seek a derogation from this fundamental part of EU law. As we discussed in our Report The Referendum on Separation for Scotland: the impact on higher education, research and tuition fees it is unlikely that the European Court of Justice would accept Scotland's position; the possibility of the Scottish Government achieving such a derogation is therefore remote. [88]

67. Unlike other areas from which Scotland would be seeking an opt-out, such as Schengen, in the case of student tuition fees the UK has a direct interest in making sure Scotland does not secure special dispensation. The Minister for Europe was forthright on this point:

    I cannot see it as probable that any UK Government would accept that students in Scotland from the UK should be disadvantaged in that way, and should lose out on a right that they would have under European law.[89]

68. It is appropriate to consider what this stance might mean for Scottish negotiations on terms of EU membership. If an Article 48 route to membership were pursued, it seems highly unlikely the UK Government would seek to negotiate a position on behalf of Scotland that would see thousands of its own students disadvantaged. Under an Article 49 accession, while Scotland would be arguing its own case, it would still have to persuade the other Member States, including the UK. On this basis, it is surely time for the Scottish Government to admit that its hopes of discriminating against students from the rest of the UK on the charging of tuition fees are dead; alternative plans must now be made.

69. If a separate Scotland's universities were unable to charge tuition fees to students from the continuing UK there would be a £150 million funding black hole in the higher education budget. The Scottish Government has failed to say how, or even if, that gap in funding would be filled.


55   Scottish Government White Paper, Scotland's Future: your guide to an independent Scotland, November 2013, p220, Speech made by the First Minister at the College of Europe in Bruges, 28 April 2014 Back

56   Evidence taken before the European and External Relations Committee of the Scottish Parliament, 3 April 2014, p1958 Back

57   Evidence taken before the European and External Relations Committee of the Scottish Parliament, 20 February 2014, p1813 Back

58   Evidence taken before the European and External Relations Committee of the Scottish Parliament, 23 January 2014, p1739 Back

59   Scottish Government White Paper, Scotland's Future: your guide to an independent Scotland, November 2013, p222 Back

60   Q5242 Back

61   Q5191 Back

62   HM Government, Scotland analysis: EU and international issues, January 2014, Cm 8765, p65 Back

63   Scottish Government White Paper, Scotland's Future: your guide to an independent Scotland, November 2013, p222 Back

64   HM Government, Scotland analysis: EU and international issues, January 2014, Cm 8765, pp68-69.  Back

65   Sweden has still not adopted the Euro, despite having joined the EU in 1995 and having made a binding commitment to do so. See HM Government, Scotland analysis: EU and international issues, January 2014, Cm 8765, p68. Back

66   Q5189  Back

67   HM Government, Scotland analysis: EU and international issues, January 2014, Cm 8765, p63 Back

68   Scottish independence: 'Yes vote' means leaving pound, says Osborne, BBC News Online, 13 February 2014,  Back

69   Evidence taken before the European and External Relations Committee of the Scottish Parliament, 20 February 2014, p1829 Back

70   HM Government, Scotland analysis: EU and international issues, January 2014, Cm 8765, pp69-70.  Back

71   Independent Scotland would face immediate £23bn debt - thinktank, Guardian, 8 April 2014; NIESR, Public sector debt, borrowing, taxation and fiscal rules: evidence presented to the Scottish Parliament's Finance Committee, 25 April 2014 Back

72   Independent Scotland would face immediate £23bn debt - thinktank, Guardian, 8 April 2014  Back

73   Scottish Government White Paper, Scotland's Future: your guide to an independent Scotland, November 2013, p223  Back

74   IbidBack

75   Scottish Government White Paper, Scotland's Future: your guide to an independent Scotland, November 2013, p224 Back

76   HM Government, Scotland analysis: EU and international issues, January 2014, Cm 8765, pp70-71 Back

77   The UK has chosen to opt-in to police co-operation aspects of Schengen but has the right to opt-out of measures building on this, See HM Government, Scotland analysis: EU and international issues, January 2014, Cm 8765  Back

78   HM Government, Scotland analysis: EU and international issues, January 2014, Cm 8765, p63. Both Rt Hon David Lidington MP and James Brokenshire MP indicated in their oral evidence to the Committee that the continuing UK would be supportive of Scotland seeking an opt-out from Schengen, however, as Mr Lidington pointed out, "I do not think it is the UK that the Scottish Government in those circumstances would have to worry about."[Q5253] Back

79   Q5276  Back

80   Q5267 Back

81   HM Government, Scotland analysis: EU and international issues, January 2014, Cm 8765 Back

82   Ibid., p71 Back

83   Scottish Government White Paper, Scotland's Future: your guide to an independent Scotland, November 2013, p224 Back

84   Q5189  Back

85   HM Government, Scotland analysis: EU and international issues, January 2014, Cm 8765, p71 Back

86   European Commission, VAT Rates Applied in the Member States of the European Union, 13 January 2014  Back

87   Scottish Government White Paper, Scotland's Future: your guide to an independent Scotland, November 2013, pp197-200 Back

88   Scottish Affairs Committee, Seventh Report of Session 2013-14, The Referendum on the Separation of Scotland: the impact in Higher Education, Research and Tuition Fees, HC1144 Back

89   Q5235 Back


 
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Prepared 27 May 2014