Empire2.0, anyone?

The EU and the Commonwealth
By Steve Peers
Professor of EU Law and Human Rights Law, University of Essex
When the UK joined the EU, it reduced its trade ties with many Commonwealth countries in order to sign up to the EU’s common trade policy. It’s sometimes suggested that if the UK left the EU, it could simply reverse that policy, making up for any loss in trade with the remaining EU by increasing Commonwealth trade again.

But this argument rests on a false assumption. In fact the EU does not prevent the UK from trading with the rest of the world – or the Commonwealth in particular. First of all, the EU has no impact on the commercial type of trade deals, like the £9 billion worth of trade deals between the UK and India agreed during the recent visit of the Indian Prime Minister.

On the other hand, because it is a customs union with a common trade policy, the EU does have powers on the sort of trade deals which concern government regulation. But since the UK joined the EU over 40 years ago, the EU’s trade policy has been transformed, in part at the UK’s urging. The EU no longer focusses on trade deals with neighbouring countries only, but has been negotiating deals with states across the world.

For the Commonwealth in particular, this policy change means that the EU has agreed free trade agreements (FTAs), or is in the process of negotiating free trade agreements, with the vast majority of Commonwealth states – a full 90% of the 50 Commonwealth countries that are not in the EU. This includes the six Commonwealth states that accounted (in 2011) for 84% of Commonwealth trade – and many more besides.

More precisely, there are already FTAs in force between the EU and 18 of those 50 Commonwealth states (36% of the remaining Commonwealth). The EU has agreed FTAs with 14 of those countries (28%), subject only to completing the ratification process. It is negotiating or about to start negotiating FTAs with 13 states (26%). That leaves only 5 Commonwealth states (10% of the non-EU total) that the EU is not planning FTA talks with. (For full details of the status of EU trade relations with each of the countries concerned, with links to further information, see the Annex to the blog post on the EU Law Analysis blog).

It’s sometimes suggested that the EU’s trade deals with other countries don’t benefit the UK. But the UK’s exports to Commonwealth countries have been increasing at over 10% a year – with increases (over two years) of 33% to India, 31% to South Africa, 30% to Australia and 18% to Canada. In fact, since 2004, British exports to India are up 143%. Needless to say, this increase in trade with the Commonwealth (while an EU member) must have created or maintained many British jobs.

Is it possible that after leaving the EU, the UK could negotiate trade deals with Commonwealth countries more quickly, or deals which are even more favourable to the UK? First of all, as noted above, the EU already has agreed trade deals with 64% of Commonwealth countries, and is negotiating with another 26%. Some of the latter negotiations are likely to be completed by the time that ‘Brexit’ took place.

So the UK would have to ask perhaps three-quarters of its Commonwealth partners for trade deals to replace those already agreed with the EU. They might agree quickly to extend to the UK a parallel version of their existing arrangement with the EU, since that would not really change the status quo. But they might not be interested in negotiating any further trade liberalisation. If they are interested, they will ask for concessions in return, and this will take time to negotiate.

For the remaining one-quarter or so of states, the UK will have to start negotiations from scratch, in some cases having to catch up with EU negotiations that are already underway. And there is no guarantee that these other states will want to discuss FTAs, or that negotiations would be successful.

Overall then, there’s no certainty that UK exports to the Commonwealth would gain from Brexit. They might even drop, if some Commonwealth countries aren’t interested in replicating the EU’s trade agreements. Alternatively, they might increase – but it’s hard to see how any gain in British exports would be enormous, given the existence of so many FTAs between the EU and Commonwealth countries already, and the uncertainty of those states’ willingness to renegotiate those deals.

It seems very unlikely that the UK’s trade with the EU would be unaffected by Brexit, since the remaining Member States would be unlikely to create an incentive to leave by extending continued unlimited trade access to a departing Member State. So, even if the UK could increase its exports to the Commonwealth, would this make up for any loss in UK exports to the EU following Brexit?

The key fact to keep in mind here is that the UK’s trade with the Commonwealth is less than one-quarter of its trade with the EU. So to make up for even a 10% drop in exports to the EU, the UK would have to increase exports to the Commonwealth by more than 40%. How likely is that, when the vast majority of trade between the EU and the Commonwealth would already be covered by FTAs at that point?

Taken as a whole then, it’s clear that the UK can have it both ways, trading with both the EU and the Commonwealth – and this trade will only increase in future as more EU FTAs with Commonwealth states come into force or are negotiated. Leaving the EU, on the other hand, is liable to lead to reduction in trade with the remaining EU without any plausible likelihood that trade with the Commonwealth would increase by anything near the level necessary to compensate.

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Doin’ Ma Nut In

Breaking News…(imagine the text is moving across the bottom of the screen while a drum thumps in the background)

News just in…the government has released the latest import-export figures for Scotland and they confirm the arguments made in the blog below. Thank you, John, in National Accounts Statistics.

They sent them in tabular form which is pretty much encrypting them for all the use they are to me. But, with the aid of my eight-year-old, I found the 2015 stats. They appear to show Scotland’s exports to the rest of the UK to be £45 billion while imports from rUK to be nearer £51 billion, a difference of £6 billion. As I said, they need us just as much as we need them. Indeed, if you think of England’s exports totalling in the region of £220 billion, then the share they send to Scottish markets is about 23 per cent of their export total. Not as much as 63 per cent, I grant you, but a huge economic hit on a country which will be struggling to find markets post Brexit…and even if it wasn’t.

Of course you may consider that you’d rather be a net exporter than importer to another market and I agree with that but that’s another twist on the tale that confuses the message. It’s for another day.

There is in the publication another of those provisos about how hard it is to compare some companies and products with others. And in the latest edition of the Global Connections Survey, the one that shows 63 per cent of our exports going  to rUK, theres the rather telling caveat that the information is from a survey, one in which 5000 of Scotland’s 350,000 companies were asked to collate information and only 1500 did so. Many of them point out how incomplete their information is. So I’m not the only one confused enough not to buy simplistic messages about poor wee Scotland and mighty England.

ENOUGH! There’s wine in the fridge…

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The Union Abacus

Disclaimer. I’m pretty much innumerate and have come to rely on my eight-year-old to work out my change in the shop. I believe in regulated markets and the incentive of reward. I believe economic exchange is a civilising influence and mankind is better for it. But I still can’t count for tuppence – or to tuppence for that matter. Therefore I am literally the last person anyone should look to for advice on numbers or economics beyond barter. It’s because of this vacuum in my learning that I’ve become puzzled by recent arguments over the viability of Scotland’s economy and future prospects.

For example, I hear that that Scotland sells £50 billions of goods and services not including oil and gas, to the rest of the UK, several times the value we export to the EU. (Therefore we’re mad to leave the UK for the EU because, presumably, we’d lose all that business as we’d no longer trade with England at all…thousands of jobs lost, companies closed, shortage of money circulating, hardship and national poverty).

So my first thought was from my history classes where it was explained that countries trade with each other – that is, they bought and sold each other’s goods. It was an exchange. Yet, no, it seems that in modern Britain that concept has been abandoned in favour of cul-de-sac trading in which goods only flow one way – Scotland sell its goods to England where they are prepared to buy them. They  don’t have to, it is implied. They can just stop, or be stopped, and that’s that. The Money Tap will be turned off and England will say: there you go, Jock.You wanted to be on your own. Now you’ve got it. See you at the Last Night of the Proms.

Well, I’m not having that. Mrs Crabtree in History did a better job than that. There MUST be trade in the opposite direction. And of course, I’m right. It’s just that trying to quantify how much is a job for a super computer.  One of you bright lot out there will have this information I’m sure and will be shaking your head at my inadequacy.  But every time I Google sentences like How much does England Sell to Scotland or English exports to Scotland etc and other variations, the links all transpose my question into Scotland exports billions into England. I assume this is because virtually all of the articles ever written are asked on that same one-way assumption – England buys from us. English money pays for Scottish goods. England has economic power over Scots.

So I emailed  the government, I asked a professor of economics – and I drew a blank. Where can be found this tantalising answer? And if it’s so hard, how come everybody from Jackie Baillie to Gordon Brown to Lulu can tell you exactly how much flows the other way? Are you getting suspicious?

You see we hear we have a massive unsustainable deficit that can only be  handled, like the oil industry, by clever folk in Whitehall wether it was incurred under their stewardship or not. Now we are told that the bulk of trade is also utterly dependent on the largesse of good English people, a benevolence that will be terminated if we get above ourselves and try to do things for ourselves.

We have got ourselves into a right mess, haven’t we? As Melanie Reid wrote in the Times…’spoilt, selfish, child-like fools’. Us Scots, eh? What are we like?

Then  I came across Scoland’s Global Connections Survey published by the government (ours) in 2014. Amid  it’s morass of numbers it makes clear it is, as it says, just a survey so it is not definitive. It is voluntary exercise so a few thousand firms were asked to estimate their sales and just over 2000 companies responded. Adding to the vagueness of the findings are the following sentences.

Issues with the organisational structure of the company refer to situations where companies are part of large international corporations, possibly functioning as a subsidiary or a franchise operation within Scotland. The Scottish part of the business may not know the sales figures or be able to split Scottish figures from the UK company account or be able to influence the company strategy for exporting. Furthermore, some companies use separate distributors to exports goods, who work independently.

Thirty one companies mentioned how difficult it was to split Scottish sales from UK sales or had difficulty determining visitor’s normal place of residence (particularly for the retail and hospitality sectors). For those companies having difficulty splitting Scottish sales from UK sales, this was mostly because accounting was done at a UK level.

Trying to identify accurate figures for trade in goods and services within the UK is notoriously  circumspect. It doesn’t mean Scotland isn’t indebted to English consumers.  We just don’t appear to know with the kind of precision that allows one side of the argument to state with conviction how much that is.

With a little further digging I came across an unimpeachable source, one I know you will all endorse – BBC Scotland. When  the survey was published the Beeb ‘s report produced a figure for English sales into Scotland, one I have to confess I can’t locate in the document myself. (Must ask my eight-year-old)

They claimed to find that Scotland sells £50 billion to the rUK (mostly England) but they, the rest of the UK, sell £62 billion to us. £62billion! They sell more to us than we do to them. I just asked my eight-year-old and she says that’s about 25 per cent more than we sell to them. Suddenly it looks rather different, doesn’t it? It means we too have a money tap of our own and, if we’re playing silly games over trade, well, we can threaten to stop buying English  goods. It may not be as high a percentage of their exported goods as £50b is of ours, but it’s still a stonking amount of trade that England won’t want to lose.

Look at it another way, between us we have £110billion pounds of mutual business and somehow we’re supposed to believe it is either going to stop altogether or will be so degraded by borders and imports that it will slide away in to nothingness. A mythical border will eliminate all trade.

As I said at the start, I believe in markets and the incentive of economic exchange. Transposed on to this cross-border conundrum, it means I don’t see thousands of businesses allowing this to happen or indeed governments letting the tax revenue stop or accepting the closures and unemployment that would follow. To go further, in my experience businesses will sell to whoever has the money to pay and no questions asked. They won’t be prevented by a political border.

Now it’s true that a border in a different jurisdiction can mean checks, delays or tariffs. And that can be a drag on business, if a long way from elimination. But none of that is insurmountable and no one is going  to give up on sales that have been long established just out of political disagreement. Heaven and earth will be moved to keep trade flowing within the British Isles whatever decisions are made on EU membership. The Commission would meet with a very tough response if it tried to impose heavy duty on trade between Scotland and England. And of course there is a way out, proposed by the UK itself. Britain doesn’t want a hard border with the Republic, something that would severely weaken the EU’s legitimacy were it to insist since peace is enshrined in the EU treaty detail. Can either the UK or the EU seriously argue in light of that they can still impose such a border on Scotland and England with £100billion of business at stake? The Common Travel Area provides another template for progress allowing a distinct and tailored solution for a particular problem withinin the archipelago.

This is one of those areas where common sense tells you there is a solution, one that not only can effectively guarantee cross border  trade but, with independence, can grow Scotland’s connection directly with our European neighbours. One reason we haven’t been able to export more is explained in the paragraphs above about the interlinking of company ownership and accounts that concentrates exports in English ports and airports. Doing it for ourselves obliges us to engineer new contacts, new ferry routes and air routes and promotes Scotland and her produce without a UK middleman. If there is a chance of bigger markets through the EU, how many companies already got trading with Scotland will take the decision to move here and use Scotland as the platform for an EU export drive?

The fundamental point is that we trade with each other and that is destined to continue out of both economic and political necessity. Scotland holds key cards of its own. The Euro separatists are being  disingenuous if not downright dishonest and this is just the latest barb from Project Fear.

When next you’re told we’d lose £50 billion trade with England in an EU Indy Scotland, tell them : Aye. But you’d lose £60 billion. If you’re daft enough…

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Interesting Times

A different take today. After publishing Jackie Kemp’s No to Yes article, I reverse the process with this piece by Gordon Young, a successful media businessman with offices in London and Glasgow. He moved south with his family because most of his business was generated there and he couldn’t expand further in Scotland, he felt. Some comments on Twitter doubt his story but I can vouch for him. Not only did he vote Yes (he was still registered here) but he spent voting night in my house.

He voices fears we don’t like to hear but I think his opinions are gold dust for anyone interested in how No voters are thinking and what issues need to be addressed. There are answers to some or even all but it’s helpful to have them laid out like this. The uncertainty in difficult times will chime with many as will concerns about trade with England. Not insurmountable, but clearly areas we need to discuss. I put his article here in the spirit of debate.

I voted  YES in the last Scottish independence referendum. Here is why I would vote NO this time round.

1. The economy stupid. The fundamentals are weaker this time round. Partly caused by the collapse in the price of oil, but also a weakness across the Scottish business generally. Scotland needs to sort its economy out, at the moment it has no reserves to help get it through choppy waters.

2. We’re punch drunk. The country has just been through two other traumatic referendums. A period of stability is required so people can get back to their day-to-day lives and Government can get back to its day job of looking after things like education, health and policing all of which seem to falling behind comparable service levels south of the border.

3. Access to our biggest market. England is by miles Scotland’s largest trading partner; and being outside the UK single market would be far riskier than being outside the EU. In the referendum both nations were part of the European single market, so independence in that context looked sustainable. That has now changed. Even the Republic of Ireland is worried about the impact of being cut off from England, and that alone should be a wake up call. Scotland may vote for political independence, but the reality is it would still be dependent economically on England.

4. Money: The last time I bought into the argument that Scotland could retain Sterling (even though others thoughts that was unrealistic). However, this time it does not seen even to be an option – meaning Scotland would either have to adopt its own currency or the Euro. Both options are frightening and confusing for those who have businesses that straddle both sides of the border. Inflation, austerity, deficits, credit crunches would be the language of the new Scottish economy in the short term.

5. Proof of the pudding: After the last Referendum the Scottish Government got a host of new powers making it one of the most powerful devolved assemblies in the world. I’d like to see how it gets on with these, before handing it complete control. Early signs are not good. It is already one of the most taxed parts of the UK.

6. Investment: The uncertainly facing those in other parts of the UK is bad, but it is nothing compared to that faced by those in Scotland. Not only do they have Brexit to contend with but now talk of a referendum. What ever the outcome of this latest vote investment in Scotland will be depressed – depriving real people in Scotland of real jobs.

7. Bad Brexit deal?: Even those who voted remain agree it is crucial the UK Government gets the best deal possible as it opens talks with the EU. The timing of the SNP announcement is a huge distraction, that complicates these talks. That is not in the interest of anyone; Scots, English, Northern Irish and Welsh alike. This is the wrong time for this debate.

8. Lack of clarity: This referendum has apparently been prompted by the UK leaving the EU single market against the wishes of Scots. But if independence happens it is not clear if or when Scotland would be able to rejoin. It seems likely that it would have several years both outside the UK and the EU. And if of course if rejoining the EU is an option, that course will probably mean yet another EU referendum North of the Border. Scotland would face a decade of angst and uncertainty, and remember many in Scotland, including senior members of the SNP actually backed Brexit.

9. The world is a more dangerous place: It is easy to forget that the freedoms we enjoy in countries such as the UK are the exception not the norm. In other parts of the world I would not be able to write blogs like this. But these values are under attack; it is no coincidence that a Russian news agency has opened a branch in Edinburgh, allegedly to influence the outcome of votes such as this. There are pressures in the South China Seas, and worries about North Korea, not to mention what is happing in the US and the rise of nationalism in Europe. This is a time for the UK to stand together to protect its common values; which to me actually transcends the Scottish independence issue for now at least.

I am not ideologically opposed to Scottish independence. But politically, economically and in terms of basic security this is not the time.

PS: In the interest of full disclosure I should also point out that I no longer live in Scotland, so could not vote even if I wanted to. However, I still co-own a Scottish registered business, that employs around 60 people in Glasgow, so feel I should be able to put my tuppence worth in!

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Jurassic Bark

Something strange has been going on beneath the swirling seas of the constitutional stand-off. Yes, of course the sole elected Tory MP looked ridiculous telling the mass-elected SNP majority they couldn’t even get a vote on the biggest issue of the UK’s recent history. (There’s only been one Tory MP, or as in 1997, no Tory MP, from Scotland for 20 years.)

No it was the vehemence of some Labour people that was striking. London dictating to Scotland was bound to offend many beyond the YES community and so it proved with even Unionist voices raised in doubt and protest. But when I tweeted that May’s intervention meant that effectively all those voting against a referendum at Holyrood next week will be supporting the Tory government’s position, the Labour dinosaurs began roaring in denial. How Tom Harris objected to being lumped in with the Tories. Even moribund lord and failed socialist George Foulkes murmured in protest. Labour would vote on its own motion, he said. And of course that’s probably right – there will be a Labour formulation although ultimately it will come down to a Yes or No to an SNP-Green motion.

But the point is that by moving ahead of the vote, May has taken the lead for them all. She has laid out the ground which is no vote before Brexit. That’s what they will be voting on and any opposition will be in support of the Tory position. Her stance is de facto the counter to the SNP, begging the question in the chamber: Whose side are you on?

It gets worse. As far as I recall, Kezia’s last known position (and this is liable to change) was simply no referendum. She has occasionally qualified it with ‘not within five years’ but broadly she has stuck to a direct No. There should be no referendum. Yet yesterday  after May’s declaration, Kezia tweeted…’there should not be another referendum until after Brexit at the earliest.’ In pinning down a timetable this way, she has explicitly followed the Tory Prime Minister’s formulation. Kezia has in effect taken her lead from May who has said the same thing and tailored her own policy accordingly. She is mimicking the Tory government and next Wednesday will vote along with the Tories in support of their rejection and timetable.

No wonder the Labour rump is on the defensive. As a political gambit, this is catastrophic. Having been cast as Tory surrogates in 2014, here they are again, learning nothing and bowing down to Tory diktat.

Is it going too far for Labour to say they both don’t want a referendum and don’t think a London government should block one? Seems logical to me both to discourage another vote and simultaneously stand up for Scotland’s right to call one if the votes are there. That is democratic. Siding with Westminster against the expressed will of Scotland in parliament is suicidal and is the key reason Labour lost the election in 2007 when Scots were sickened with McConnell and his crew kowtowing to London HQ and being told off by Blair’s  ministers. Maybe Kezia missed that period when she was applying for work with the SNP then getting schooled in politics by Foulkes.

Labour tweeters tried to draw a comparison between them backing a Tory position and the SNP getting Tory backing in government after 2007. That’s true – although it was occasional support – but if they can’t see the difference between winning votes to get through domestic legislation and standing up for Scotland against a Tory government on a critical question, they need to examine what the think politics is for.

There is in this the seeds of discontent. These moments are when politicians are tested. Times like this demand to know what you’re in politics for. The dizzying truth is that Labour no longer does know the answer, either in Scotland or the UK. They’ve surrendered Scotland to the SNP and the UK to the Tories through arrogance and ineptitude. I guess the agony of the dinosaurs like Harris and Foulkes is that they know it too. Hence the dying bellows from the Land That Time Forgot.

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