Chapter 5: International economic implications
of Scottish independence |
Scotland, the United Kingdom
and the European Union
108. Mr John Cridland, Director-General
of the CBI, told us: "Uncertainty is the biggest killer for
Any uncertainty over the future EU status of Scotland or the whole
United Kingdom has obvious economic implications, not least for
business confidence, especially if it risked fragmenting the long-standing
UK single marketwhich Mr Cridland reminded us is a
well as the more recent EU single market.
109. Scottish-based business leaders were clear
that Scotland should remain part of the EU single market. Sir Philip
Hampton, Chairman of the Royal Bank of Scotland, said:
"The overarching framework, assuming that
Scotland and the UK stay within the European Union, is that we
have a single market for the main products and services, including
financial services. The overriding existence of the European single
market and the presence of a potentially independent Scotland
and the United Kingdom within that should trump relatively smaller,
effectively regional differences that might arise."
Mr Rupert Soames, CEO of Aggreko plc, said:
"Being part of the European Union would
be the sine qua non of our having our headquarters and manufacturing
facilities there [in Scotland]. We need not only access to the
free passage of goods within the EU but the protection of all
the EU trade agreements."
110. The Scottish Government's policy is that
an independent Scotland should be an EU member state. There
is however no precedent to show how, after a "Yes" vote
in the referendum, Scotland would move from its present status
within the EU as part of the United Kingdom to membership of the
EU in its own right. While we were taking evidence in Scotland
in October 2012, there was controversy about the transition and
especially about what legal advice the Scottish Government had
or had not had from Brussels. Mr John Swinney MSP indicated
to us that Scotland's position in the EU would be for discussion
between a "Yes" vote in 2014 and independence in 2016:
"In that period after a referendum and before
the establishment of an independent state in the spring of 2016,
Scotland would be involved in a process of settling the independence
process and conducting negotiations with the United Kingdom Government
and with the European Union about the terms of Scotland's membership
of the European Union."
111. The Scottish Government's commitment
to EU membership for an independent Scotland recognises the economic
importance of the single market and the need of Scottish business
to remain part of it. But it is not clear how Scotland would make
the transition from its current inclusion in an EU member state
to EU membership as a state in its own right, since there is no
precedent in EU history.
112. We asked the President of the European Commission,
Mr Jose Manuel Barroso, for guidance on the processes which
would apply in a first case of transition by a part of an EU member
state to full membership of the EU as an independent state in
its own right.
"A new independent state would, by the fact
of its independence, become a third country with respect to the
EU and the Treaties would no longer apply on its territory
any European state which respects the principles set out in Article
2 of the Treaty on European Union may apply to become a member
of the EU. If the application is accepted by the Council acting
unanimously, an agreement is then negotiated between the applicant
state and the Member States on the conditions of admission and
the adjustments to the Treaties which such admission entails.
This agreement is subject to ratification by all Member States
and the applicant state."
113. Mr Swinney disputed Mr Barroso's
analysis. He said: "There is no provision within the Treaty
on European Union that provides for the scenario that President
Barroso has cited."
Asked if the Scottish Government would put clearly to the Scottish
electorate that there is a strong possibility that an independent
Scotland would have to reapply for membership of the European
Union, Mr Swinney replied: "No, we will not do that."
He added that the European Commission had made clear that "it
would only ever comment on a specific scenario if requested to
do so by a member state. The United Kingdom Government have made
it clear that they would not be prepared to do so".
But he clearly expects the United Kingdom actively to assist a
transition after a "Yes" vote in 2014, citing clause
30 of the Edinburgh Agreement: "The two governments are committed
to continue to work together constructively in the light of the
outcome, whatever it is, in the best interests of the people of
Scotland and of the rest of the United Kingdom."
114. Taking as authoritative the view on process
of the President of the European Commission, the European Treaties
would cease to apply to Scotland on independence. Scotland would
need to apply for membership of the European Union in its own
right and the outcome of negotiations on Scotland's admission
would need to be ratified by each EU member state.
115. An independent Scotland's transition to
membership of the EU would raise complex issues of substance as
well as of process. For example, the European Treaties require
from new member states a commitment to join the Euro (although
the case of Sweden shows that implementation can be deferred).
Scotland would probably wish to negotiate an opt-out like the
UK's from the EU's Schengen immigration arrangements. Scotland
might also bid to retain a share of the UK's rebate, (although
in the view of Professor Iain McLean and Professor Gavin
McCrone would be unlikely to succeed).
Scotland might also seek revision of the EU fisheries regime.
The EU may insist that a new member state should adopt its own
regime of financial regulation. There would also be other contentious
116. The United Kingdom's plans for a new relationship
with the EU may further complicate an independent Scotland's path
to EU membership. Mr Swinney referred to "the degree
of uncertainty that surrounds the United Kingdom's continued participation
in the European Union
there is some prospect
a referendum on the United Kingdom's continued participation".
The United Kingdom's intention to negotiate a new settlement with
the EU, to be followed by an in-or-out referendum, was announced
by the Prime Minister in January.
117. Negotiations after a "Yes"
vote for independent Scottish membership of the EU would most
likely be protracted and complex; Scotland, the rest of the UK
and the EU itself would have to navigate through EU procedures
as well as settle many intricate points of substance then win
acceptance of the outcome by all other EU member states.
Other international issues
118. Defence policy and relations with NATO (see
Chapter 6 below) is the main non-EU external issue an independent
Scotland would need to address. Applications for Membership of
other international organisations such as the UN, the IMF, the
OECD and the Council of Europe would follow naturally from independence,
as would the establishment of a modest network of diplomatic representation.
None of these appears to court controversy. Separate Scottish
representation in international bodies might be seen as reducing
the standing of the rest of the UK, with possible adverse consequences
for its voting strength or shareholding in some international
International tax treaties
119. An independent Scotland would have to take
early international action on some economically significant issues
including tax treaties, not least with the rest of the UK. Mr Frank
Haskew of the Institute of Chartered Accountants in England &
"Scotland will clearly need to have a double
tax agreement with the rest of the UK. That is the foundation
of international trade and commerce, tax and resolving disputes,
difficulties, and indeed allocating taxing rights. As part of
any independent settlement, a comprehensive double-tax treaty
will need to be negotiated
My guess is that that would
be based fairly solidly on the OECD model treaty
we would need to have a double contributions agreement for things
such as national insurance, and we would probably need an agreement
for inheritance tax as well. So we would need a fairly comprehensive
set of agreements covering a wide range of taxes."
120. Scotland would also "have to start
negotiating new treaties with other jurisdictions
be a long process, I would have thought, for Scotland to put together
a set of international tax treaties".
Extra costs for Scottish business would result, as Mr Soames
"One of the big impacts and complications
for us as a global business will be around double taxation agreements.
The people who will have a ball with independence are all the
professional advisersall the accountants and lawyers."
121. An independent Scotland would need to
have a double taxation agreement with the rest of the UK and to
negotiate tax treaties and similar agreements with a range of
128 Q 306 Back
Q 279 Back
Q 773 Back
Q 805 Back
Q 871 Back
Lord Tugendhat's letter of 29 October 2012 to the President of
the European Commission Back
Mr Jose Manuel Barroso's reply of 10 December Back
Q 865 Back
Q 876 Back
Q 878 Back
Q 864 Back
Q 128; Q 475 Back
Q 873 Back
Speech at Bloomberg, 23 January 2013 Back
Q 413 Back
Q 413 Back
Q 797 Back