Speech in the Scottish Parliament debate
15 March 2017
I thank all the members of the Culture, Tourism, Europe and External Relations Committee for the excellent and thorough report that they have prepared for us.
Sometimes, events have a horrible habit of raining on our parade. Just as the committee has made some useful recommendations regarding article 50, two major factors come into play.
They have been referred to already.
The article 50 bill cleared the Commons on Monday, and the First Minister announced proposals for the second independence referendum.
More of that next week.
Triggering article 50 takes the UK into uncharted territories.
As members will know, no full member state has ever left the EU, so it is very difficult to predict the next steps, although we have a few clues.
Full single market membership is not sought by the UK Government, nor is it likely to be granted, because the gatekeeper condition of the four freedoms would not be met.
We know that the European Commission’s Michel Barnier is the chief negotiator and needs to take instructions from the remaining 27 EU countries.
The European Parliament also needs to give the go-ahead for talks.
The final Brexit deal can be ratified by a qualified majority of the other 27 EU leaders, but any new trade deal requires a unanimous vote of all 27 and likely approval by national and, in some cases, regional Parliaments, as we know from the CETA deal.
What would the effect be in Scotland?
The introductory paragraph of SP paper 99.1, “Determining Scotland’s future relationship with the European Union”, makes the valid point that, when we are considering future trading relationships, there are three models that we need to consider.
First, there is a future with the EEA and EFTA.
Secondly, there is a future through the Swiss bilateral agreement model.
Thirdly, there is a future through the World Trade Organization.
I will touch on those three models, and I will link them with the evidence that was taken by the committee.
Members will know that EFTA was set up in 1960, and the UK was a founding member.
When Norway, Lichtenstein and Iceland joined the single market, they became part of the wider European Economic Area, which includes all 28 EU members.
The EFTA countries are a part of the single market, but they are at arm’s length from the EU.
The advantage of that model is that, if the UK joined, it would avoid the ground-zero approach of a sudden dislocation from the single market.
However, it is not all plain sailing, as we would expect.
Membership of the EEA, as we have heard from Daniel Johnson, is not on a par with Scotland’s current deal.
Financial services would suffer, as the three European supervisory agencies on banking, insurance and the security markets are not incorporated into that agreement.
For an EEA agreement to work, Britain would require full equivalence from the European supervisory agencies.
There is another problem.
Ian Dunt, editor of politics.co.uk, said in his recent book:
“And even when equivalent status is secured, the EU has extraordinary powers to cut the life support at any time.
“It can withdraw equivalent status whenever it likes with just a few days’ notice.
“This imbalance of power is reflected in the way that EEA countries are in an almost servile state next to the legislative force of the EU.
“They must accept the rules the EU passes about the single market, but they cannot influence them.”
However, it is not all doom and gloom. EEA/EFTA countries such as Norway pay less in contributions than full EU members.
The UK, of course, is a net contributor.
Norway has the benefits of the single market but implements only just over a quarter of all EU laws.
It also has exemptions from areas of law such as fisheries and justice.
Would it not be ironic if the UK went full circle and rejoined EFTA after a 40-year gap, creating a two-speed Europe?
The second model is the Swiss bilateral model.
The Swiss deal is fiendishly complex, as members will know. Switzerland is a member of EFTA but not of the EEA.
It is in the single market but not the EU or the customs union.
It is a classic example of the Schleswig-Holstein question.
As Lord Palmerston is reported to have said, “Only three people … have ever really understood the Schleswig-Holstein business—the Prince Consort, who is dead—a German professor, who has gone mad—and I, who have forgotten all about it.”
It started with a referendum—which sounds familiar.
In 1992, Swiss voters rejected the idea of joining the EEA.
However, the Swiss Government thought that the single market was a good idea.
Six years later, the Swiss got their multiple agreement. However, for the Euro bureaucrats, that bespoke model is a fudge and a muddle.
They cannot file it under “EEA”, “Customs Union” or “eurozone”.
It is bespoke with a capital B.
Whether Europe will want to go down that road again is open to much debate.
Fiona Hyslop: Has the member had any indication from the Secretary of State for Scotland, or indeed any UK Government representative, whether it is that very complicated, challenging model—the Swiss model—that the UK wishes to adopt?
David Stewart: My advice is that the Swiss model was a one-off—it was a bespoke model that was difficult to reach.
With regard to my personal preference, the EEA model is an existing and welltrodden path, and it is what I would recommend to Parliament.
The final model is the WTO model.
Again, the UK was a founder member in 1995 and was in the WTO’s predecessor arrangement, the general agreement on tariffs and trade, which started in 1948.
The WTO has 164 members and accounts for 97 per cent of world trade.
We are currently members of the WTO and would default to its rules in the event of a hard Brexit.
The sting in the tail of WTO rules is the most favoured nation clause.
That means that a country cannot discriminate in its tariffs.
The UK needs to establish itself within the WTO, as currently all the negotiations are done by the EU on our behalf.
What the UK needs to do is to create schedules on goods and services.
There must be a full analysis of how we would trade with the rest of the world and how the other WTO members would trade with us.
We can probably avoid some of the problems with complaints from other countries by following EU external tariffs.
However, as the convener pointed out earlier, the Fraser of Allander institute suggested to the committee that there will be long-term economic downturns in the Scottish economy, GDP, real wages and employment if we revert to trade rules under the WTO.
Brexit is the most fundamental political seachange in my lifetime.
However, I believe that the reports that are before us today represent a firstclass analysis of the issues, and I commend them to Parliament.