Sunday, 18 May 2014

Independence & Scotland's Trade with rUK

The single most important purely rational argument in this debate for me is underpinned by the fact that 2/3 of Scotland's exports go to rUK ("rest of UK); as a direct consequence many jobs in Scotland are contingent on seamless trading between Scotland and the UK.  That independence will impact that trading relationship is undeniable, the only question is how much and in return for what upside.

I will discuss the upside case for Independence elsewhere; I have engaged, read and listened on that topic. I will also elaborate separately on the detail of the Currency Union debate and negotiations required to remain in or rejoin the EU; I've done the background work, I will share it, what follows is reasoned conclusion not emotional assertion.

One of the underpinning drivers for the Independence case is to allow divergent approaches to the EU; this inevitably creates risks for those trading between an iScotland and rUK and therefore for employment in Scotland.
  • It becomes likely (it can be argued as inevitable) that we will have separate currencies within a few years because Sterling-zone participation is incompatible with the conditions likely to be imposed for an iScotland to negotiate continued EU membership. I explain my reasoning in detail here, but you don't need to take my word for it: Chis Brodie (SNP MSP) stated in a public debate (a small village hall debate in Gifford East Lothian on 15/05/14) that in the negotiations to remain within the EU he expected an iScotland to be required to make commitments about joining the Euro. This is in direct contradiction with the currency assertions made in the White Paper, p.378 "Will Scotland join the Euro? No."
  • This point is important: the White Paper asserts that an iScotland can negotiate to remain in the EU without making any concessions on Euro or Schengen Area participation, while retaining the UK Rebate and other opt-outs and simultaneously improving our share of CAP payments, extending fishing rights etc. I don't believe there is an informed person in this debate who believes that is possible and I include in that the experts the SNP cite as being "on their side". The (informed) pro-independence lobby are knowingly misleading the electorate on this point, relying on the hope that you won't check the facts and understand the complexities of how the EU works; heaven knows I didn't until I researched it for this --if your interested I elaborate here
  • Independence also creates the conditions where it is possible for one of iScotland or rUK to be in the EU whilst the other is out; where sales from Scottish businesses to rUK could become cross-border from an EU perspective. That this "one in, the other out" scenario would make trade with rUK more difficult than it is today is obvious. To be clear; it's not inevitable, but it is a significant risk that only a pro-independence vote exposes us to.
  • The line that "the biggest risk to Scotland with respect to the EU is an in/out referendum" is often used in this context. Let's think this through
    • Independence doesn't protect Scotland from the major downside of a possible "out" vote. Excluding Oil & Gas, Scotland exports four time as much to rUK as it does to the rest of the EU [Scotland's Global Connections Survey 2012]
    • If one was to pursue a purely rational self-interest argument on this point alone: surely better to be "in the UK outside the EU" than "inside the EU outside the UK"?  
    • All of the above is why I want my vote to be able to keep the whole of the UK in the EU (by voting against the parties pushing for a referendum and/or by exercising my vote in such a referendum if it ever takes place). At the risk of stating the obvious; the Scottish electorate lose any say in that matter if we vote Yes on September 18th
  • Assuming both iScotland and rUK remain in the EU (in my opinion the likely end-game under an independence scenario) the concessions an iScotland will have had to make (nobody credibly argues concessions won't be required)  can only create complications to trade with the UK. Euro and Schengen area participation are the headline grabbers but EU attempts to drive VAT rate harmonisation will also be a material factor; I certainly don't claim to have assembled a complete list of the issues.
  • As the HM Government paper Scotland Analysis: Borders & Citizenship makes clear;
    • "In the event of a vote for independence, an international border would be created between an independent Scottish state and the continuing UK. Trade across that border, classed currently as domestic, will become international trade: import–export. This, together with the likely divergence over time of tax, excise duty, regulatory and administrative regimes would be expected to trigger a ’border effect‘: international evidence shows that flows of trade, labour and capital are much larger between two regions of the same country than between two (otherwise similar) regions of two different countries. This effect occurs even when there is no physical border between countries and even where trade agreements and structures, such as the European Single Market, are in place. While historical and cultural ties between Scotland and the continuing UK would prevent an immediate fall off in trade flows, evidence of previous separations points to the erosion of these ties as time passes. Combined with regulatory divergence, Scottish independence would lead to barriers to trade and obstacles to labour and capital mobility"
Two-thirds of Scottish Exports are to rUK, manufacturing industries account for 26% of those exports, Food & Drink forms a major part; continuing to physically ship goods "across the border" is vital to our economic success; adding possible (likely) exposure to currency risk on top of "cross border" shipping requirements would fundamentally change the risk profile of many Scottish businesses.

This is not a marginal issue, the businesses I can speak for are not unusual.  This is not about making threats or protecting the interests of a few rich shareholders.  I don't deny that I believe a vote for independence would damage my businesses and that would impact me directly (I don't expect anybody else to care about that, if you read My Bona Fides you might accept its not what motivates me in this debate); the point is there are wider implications for employment and the economic success of an independent Scotland that I feel should be understood by anyone wishing to make an informed decision as to how to cast their vote on September 18th.

The businesses I am involved with are already contingency planning around our options in the case of a Yes vote. Our heads tell us that we would need to relocate our stock-holding and warehousing to protect our businesses under that scenario; the prospect of having to do so fills my heart with genuine sadness. That's why I'm speaking out, adding my voice to those arguing for a No vote on September the 18th, doing what I can to avoid the outcome I dread.

To be absolutely clear: there are other arguments for and against (I will try and cover many of them) but for me this issue is the one which seems least well understood in the debates I have participated in and witnessed.  I am NOT saying that an independent Scotland couldn't continue to trade with rUK and EU, I'm NOT saying an independent Scotland couldn't succeed on the global stage: all I am saying is that this logic convinces me that Scotland as part of the Union will be more successful than Scotland outside of it because of our trade relationship with rUK.


Unknown said...

Thoughtful analysis, although I doubt many cybernats would agree with your conclusion.

Unknown said...
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