Scotland in the European Union Table of Contents Contents i Foreword by the Deputy First Minister ii Executive Summary iv 1 Introduction 1 2 Why EU membership matters 5 3 The road to independent membership 11 4 Giving Scotland a positive voice in Europe 14 5 Promoting priorities and engaging partnership 18 6 Contributing to the EU reform agenda 22 7 Conclusion 27 ANNEX 1: The Scottish Government‟s economic strategy and the Europe 2020 agenda 28 ANNEX 2: Why Scotland, a wealthy and productive country, can be influential in EU decision making 39 ANNEX 3: The economics of European Union membership 53 ANNEX 4: Why the alternatives to membership are not attractive 69 ANNEX 5: Scotland‟s transition to EU membership 80 ANNEX 6: An independent Scotland and the Euro 90 ANNEX 7: Schengen and the Common Travel Area 96 Glossary 101 i Foreword by the Deputy First Minister On 18 September 2014 the people of Scotland will have the opportunity to decide if Scotland‟s future should be as an independent country, taking its own decisions on domestic, European and international affairs in its own Parliament, based on the aspirations of its own people. The alternative is to remain part of a Westminster system of government that has repeatedly failed to deliver for Scotland. If the people of Scotland do vote for independence in next year‟s referendum, one of the main benefits will be that Scotland will be able to take its place as an independent Member State within the European Union (EU). As such, the Government of Scotland will join the other 28 sovereign governments who collectively decide the scope and content of the various laws and policies that fall within the remit of the EU level of governance. Independence inside the EU will enable Scotland to play a full and constructive role in shaping a wide range of policies decided at EU level that impact directly on the people, and the economy, of Scotland. An independent Scottish Government will, for the first time, be able to represent and defend Scotland‟s national interests when EU legislative and policy proposals are being decided. This will lead to better outcomes for the people of Scotland. Today the EU is facing one of the most serious challenges in its history. The financial and economic crises that began in 2008 led to a series of extraordinary and sometimes deeply unpopular measures being implemented at EU level, designed both to ensure the survival of the Eurozone and to reform and recapitalize Europe‟s troubled banking sector. These circumstances have triggered a far-reaching debate across the EU about its future direction and governance and, more immediately, the reforms that are necessary in the short-term to assist the EU economy recover from its current economic malaise. Like many EU governments, the Scottish Government believes the crisis has exposed weaknesses in two areas. Reforms are required both at the level of individual EU policies, to boost economic competitiveness and increase the pace of economic recovery, and at the wider level of the system of EU governance in order to close the “democratic deficit” that an increasing ii number of our citizens believes deprives them of an effective say over the nature and content of EU laws and policies. Addressing this reform agenda is one of the major challenges facing the EU today. But it is a challenge that will only be successfully met by the EU Member States working collectively in a constructive and determined manner, according to established procedures. It will not be resolved by ultimatums or threats to leave the European Union. That approach serves only to undermine the integrity of the EU system, weaken the UK‟s negotiating position and side-line its influence in EU policy discussions. So while we agree that reforms to the EU are needed, our view is that, as in the past, these can best be achieved by using the mechanisms that already exist within the EU treaties. What really matters to Scotland is that it has an independent government directly involved in that process, looking after Scotland‟s own particular interests. The Scottish Government recognises that membership of the EU will require negotiations with other Member States and the EU institutions in order to agree the terms on which an independent Scotland will become a full member of the EU. We also believe – and this has been echoed by independent experts – that these negotiations could be completed within the 18 month period between a „yes‟ vote in September next year and day one of independence in March 2016, ahead of the May parliamentary elections. That is the intention of the Scottish Government and that is the timetable we are working to. Accordingly, in this paper we examine the case for, and the process by which, an independent Scotland will take its place as a sovereign Member State within the EU. The EU is both a union of nation states and a union of citizens. Independence will allow Scotland to take its proper place within the family of nation states comprising that union, and as such be better able to represent its people as citizens of that union. Nicola Sturgeon MSP Deputy First Minister iii Executive Summary Independence will allow Scotland to take its place as a full Member State within the European Union. Independence in the EU is not an end in itself. Instead it is a means to improving the lives and livelihoods of everyone living and working in Scotland. The Scottish Government firmly believes the only government capable of properly representing Scotland‟s interests in the EU decision-making process is a government elected by, and directly accountable to, the people of Scotland and will be able directly to promote its economic interests, protect its citizens and participate on equal terms with all other 28 Member States in EU affairs. Why EU membership matters The Scottish Government believes that the EU provides the best international economic framework within which to optimise the economic and social gains from independence and to tackle the global challenges we, and other countries, face. Today the EU is the world‟s largest single market, comprising upwards of 500 million consumers. Membership of the EU, and access to the Single Market, provides Scottish firms with access to more firms to trade with, and more potential customers to sell to. Independent membership of the EU will protect Scotland‟s vital place in the EU single market allowing for the free movement of goods, services, capital and persons. As a result an independent Scotland will, as a matter of EU law, retain unimpeded access to the markets of all EU member states, including of course markets in the remainder of the UK. The road to independent membership The process by which Scotland will become independent is based on a constitutional and democratic process agreed between the UK and Scottish governments, consistent with Article 2 of the Treaty on European Union which affirms the EU is founded upon certain core values including respect for human dignity, freedom, democracy and the rule of law. These same values are fully reflected and observed in the agreement that was reached between the UK and Scottish Governments with regard to the referendum to be held in September 2014 that will determine Scotland‟s constitutional future. The Scottish Government considers that there is a legal framework within the EU Treaties by which Scotland can become an independent member State of the EU from the date of independence. Following a vote for independence in the 2014 referendum, the Scottish Government would immediately enter into negotiations with the UK Government and all other EU Member States to ensure that an independent iv Scotland achieves a smooth and timely transition to independent membership of the EU and avoids any disruption to the continuity of Scotland‟s current position inside the EU single market, including the rights and interests of EU citizens and enterprises located in Scotland. The Scottish Government has always recognised that the terms of Scotland‟s independent membership of the EU will be subject to negotiations with the other Member States consistent with the relevant provisions of the EU Treaties. The Scottish Government has made clear its intention that sterling will remain the currency of an independent Scotland for the foreseeable future. Therefore while the Scottish Government fully respects the political and economic objectives that underpin the decision to establish the Eurozone, an independent Scotland will not seek to participate in the Eurozone. Nor does the Scottish Government intend that an independent Scotland will join the Schengen Area. Protecting the integrity of the current social union with the remainder of the UK and Ireland requires an independent Scotland to remain within the Common Travel Area presently comprising the UK, the Republic of Ireland, the Channel Islands and the Isle of Man. Giving Scotland a positive voice in Europe Under devolution the Scottish Government has, and will continue to have, no direct influence over EU decisions. The UK Government speaks for the whole of the UK in EU-level negotiations even on those matters that fall within the authority of the Scottish Government. And while the Scottish Government can, and does, inform the UK Government of its views on prospective EU laws and policies, especially where these are likely to impact on devolved competences, the UK Government is not obliged to take these views into account when deciding what position it will take in EU Council negotiations. It will fall to the government of an independent Scotland to speak in EU negotiations with a positive and constructive voice on behalf of the people of Scotland and maximize the benefits from EU membership whilst contributing to addressing common challenges faced by Member States and citizens of the EU.