Scotland, Trade and Brexit
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House of Commons Scottish Affairs Committee Scotland, Trade and Brexit Seventh Report of Session 2017–19 Report, together with formal minutes relating to the report Ordered by the House of Commons to be printed 7 March 2019 HC 903 Published on 10 March 2019 by authority of the House of Commons The Scottish Affairs Committee The Scottish Affairs Committee is appointed by the House of Commons to examine the expenditure, administration, and policy of the Scotland Office (including (i) relations with the Scottish Parliament and (ii) administration and expenditure of the offices of the Advocate General for Scotland (but excluding individual cases and advice given within government by the Advocate General)). Current membership Pete Wishart MP (Scottish National Party, Perth and North Perthshire) (Chair) Deidre Brock MP (Scottish National Party, Edinburgh North and Leith) David Duguid MP (Conservative, Banff and Buchan) Hugh Gaffney MP (Labour, Coatbridge, Chryston and Bellshill) Kirstene Hair MP (Conservative, Angus) Christine Jardine MP (Liberal Democrat, Edinburgh West) Ged Killen MP (Labour (Co-op), Rutherglen and Hamilton West) John Lamont MP (Conservative, Berwickshire, Roxburgh and Selkirk) Danielle Rowley MP (Labour, Midlothian) Tommy Sheppard MP (Scottish National Party, Edinburgh East) Ross Thomson MP (Conservative, Aberdeen South) Powers The Committee is one of the departmental select committees, the powers of which are set out in House of Commons Standing Orders, principally in SO No. 152. These are available on the internet via www.parliament.uk. Publication © Parliamentary Copyright House of Commons 2019. This publication may be reproduced under the terms of the Open Parliament Licence, which is published at www.parliament.uk/copyright/. Committee reports are published on the Committee’s website and in print by Order of the House. Evidence relating to this report is published on the inquiry publications page of the Committee’s website. Committee staff The current staff of the Committee are Ben Williams (Clerk), Bradley Albrow (Second Clerk), Ben Rayner (Committee Specialist), Chloe Freeman (Senior Committee Assistant), Robert McQuade (Committee Assistant), and Nina Foster (Media Officer). Contacts All correspondence should be addressed to the Clerk of the Scottish Affairs Committee, House of Commons, London SW1A 0AA. The telephone number for general enquiries is 020 7219 8204; the Committee’s email address is [email protected]. You can follow the Committee on Twitter using @CommonsScotAffs Scotland, Trade and Brexit 1 Contents 1 Introduction 3 Devolution settlement 3 Our inquiry 3 2 How Scotland trades with the world 4 Scottish export statistics 4 Comparison with rest of the UK 5 Developing a UK-wide trade policy 6 3 Role of the devolved administrations in trade policy 8 Existing mechanisms for influencing trade policy 8 Future role for the Scottish Government 9 Setting the mandate 9 Representation during trade negotiations 11 Ratifying trade deals 12 4 Scotland’s trade priorities for future trade deals 14 Minimising disruption and providing continuity in UK-EU trade 14 Tariff-free trade 14 Non-tariff barriers for goods 16 Non-tariff barriers for services 18 Preserving trade within the UK 22 Rolling over of EU trade agreements 24 Maintaining high standards and quality 26 Protecting Geographical Indications 28 5 Promoting Scottish Exports 32 Coordination of policy 32 Joint Trade Missions 34 Conclusions and recommendations 35 Formal minutes 39 Witnesses 40 Published written evidence 42 List of Reports from the Committee during the current Parliament 43 Scotland, Trade and Brexit 3 1 Introduction 1. Scotland has a proud history as a trading nation with its exports worth around a third of Scotland’s GDP.1 This performance is underpinned by Scotland’s reputation for quality epitomised by globally renowned brands such as Scotch whisky and Scottish salmon. Through the UK’s membership of the EU, the trade policy Scottish businesses currently operate under is set at EU level, with the European Commission responsible for negotiating trade agreements with other countries for all member states. This will change as the UK leaves the European Union, with the UK Government having stated that it will “seek opportunities to pursue an ever more ambitious global trade agenda, to maximise our trade opportunities globally and across all countries”2 with the agreement of free trade agreements being “one important way” to “strengthen [the UK’s] trade and investment relationships with partners across the world”.3 Devolution settlement 2. Under the devolution settlement, international trade is reserved to the UK Government. The Scottish Government has no formal role in trade policy but is responsible for implementing international obligations which relate to devolved matters and for economic development, which includes promoting Scottish exports. The UK Government and the devolved administrations have agreed a Memorandum of Understanding which commits the two Governments to close cooperation on trade policy and trade promotion.4 Our inquiry 3. We launched this inquiry to identify Scotland’s priorities for future trade policy post-Brexit; examine what role the devolved administrations should have in setting UK trade policy, and to look at how the two Governments work together to promote Scottish exports. We received 28 pieces of written evidence and held seven evidence sessions where we heard from academics, trade associations, business representatives, campaign groups, think tanks and UK and Scottish Governments Ministers. We also met with industry and sector groups, civil servants, MEPs and the Canadian Ambassador to the EU during a visit to Brussels and held a roundtable with farmers & landowners at the Royal Highlands Show in Edinburgh. We are grateful to everyone who contributed to our inquiry. 1 Scottish Parliament Information Centre, Scotland’s exports 2016, 2018 2 UK Government, Trade White Paper: our future UK trade policy, October 2017, section 1,1 3 UK Government, Trade White Paper: our future UK trade policy, October 2017, section 3.3 4 Memorandum of Understanding and Supplementary Agreements, 2013 4 Scotland, Trade and Brexit 2 How Scotland trades with the world Scottish export statistics 4. In 2017, total exports from Scotland (excluding oil and gas) were estimated to have been worth £81.4 billion to the Scottish economy.5 International exports made up £32.4 billion of this while trade with the rest of the UK was worth £48.9 billion.6 As shown below, the EU was Scotland’s largest international export region accounting for 46% of all international exports, followed by North America at 17%.7 As would be expected as part of the UK, the rest of the UK remains Scotland’s largest market and has grown by more than 70% between 2002 and 2017.8 The EU continues to be Scotland’s largest international market, however trade with non-EU countries is growing at a much faster rate; Scotland’s trade with non-EU countries grew by 96% between 2002 and 2017 compared to 30% for EU markets.9 This growth has been driven by an increase in service exports to non-EU countries; particularly in financial services and professional, scientific and technical activities.10 The UK Government estimates that 90% of global economic growth in the next two decades is set to come from outside the EU.11 5. Scotland’s trade with the rest of the UK relies more heavily on services compared with international exports. The two largest industries exported to the rest of the UK are financial services, and wholesale and retail trade. The other top export sectors to the rest of the UK in 2017 are shown in the graph below:12 5 Scottish Government, Export Statistics Scotland 2017, 2019 6 Scottish Government, Export Statistics Scotland 2017, 2019 7 Scottish Government, Export Statistics Scotland 2017, 2019 8 Scottish Government, Export Statistics Scotland 2017, 2019 9 Scottish Government, Export Statistics Scotland 2017, 2019 10 Scottish Government, Export Statistics Scotland 2017, 2019 11 Q514 12 Scottish Government, Export Statistics Scotland 2017, 2019 Scotland, Trade and Brexit 5 Financial Services £9.1bn Wholesale £6.7bn Utilities £5.1bn Professional, £4.1bn Scientic & Technical Food & Drink £3.7bn 0.0 2.0 4.0 6.0 8.0 10.0 Exports (£billion) The two largest industries for international exports in Scotland are the food & drink manufacturing sector and the professional, scientific & technical sector, accounting for 29% of all international trade, these sectors were our primary focus during this inquiry. The other top exporting sectors from Scotland in 2017 are shown below:13 Food & Drink £5.9bn Professional, Scientic & Technical £3.7bn Petroleum & Chemicals £3.5bn Mining & Quarrying £1.9bn Wholesale £1.9bn 0.0 1.0 2.0 3.0 4.0 5.0 6.0 Exports (£billion) Comparison with rest of the UK 6. While Scotland has many similarities to the rest of the UK in its international exports, Professor Graeme Roy, Fraser of Allander Institute, told us there were a number of sectors which were of greater relative importance to Scotland than the rest of the UK.14 Notably 13 Scottish Government, Export Statistics Scotland 2016, 2018 14 Q3 7 6 Scotland, Trade and Brexit the beverages, seafood and natural gas sectors make up a greater proportion of Scottish exports than they do for the UK as a whole; the graph below sets out these differences in more detail.15 James Withers, Chief Executive of Scotland Food & Drink argued that this was also reflected in the wider food and drink sector, with Scotland having built itself an identity as the “land of food and drink” at a time where the sector was not as high a priority UK- wide.16 The Scottish Government said these differences were “distinct”, and argued that the UK Government needed to consider the importance of these sectors to the Scottish economy when negotiating future trade deals.17 7. During the inquiry, we also heard concerns from representatives of Scotland’s main exporting sectors that they might lose out in future trade deals in favour of sectors that were of greater importance to the UK’s economy as a whole.