At the Scottish National Party (SNP) party conference yesterday, Scotland’s First Minister (Nicola Sturgeon) announced that the Scottish Government would issue a draft of a second independence referendum bill next week. She also announced that the Scottish government would soon table an alternative plan “to protect Scotland’s interests in [the EU] and keep us in the single market – even if the rest of the UK decides to leave”. This would entail “substantial additional powers for the Scottish Parliament”, namely all the Scottish powers that “currently lie with the EU – and significant new powers”, namely the power to negotiate international treaties and “greater powers over immigration”.

Implicitly the Scottish government is offering the UK government a choice: negotiate to ensure that Scotland stays in the single market as a distinct part of the UK, or face another independence referendum. I’ll examine the legal issues arising from these two options in turn, and conclude with some broader observations about the Brexit process compared to the prospect of Scottish independence.

Scotland in the UK – and the single market

Is EU single market participation possible if a) Scotland stays in the UK, and b) the UK as a whole is not in the single market anymore? Some people have called this prospect a ‘reverse Greenland’, referring to the deal whereby Greenland left the EU but Denmark stayed in. Given the huge differences between Greenland and Scotland, I suggest we call this idea by a different name: say the ‘Scottish Economic Area’. I have written about this prospect separately in iScot magazine, but I will summarise my points again here.

Only independent countries which are EU members can fully participate in EU membership. But in theory at least, a part of a non-EU country could participate in the internal market, even if the rest of that non-EU country did not. Of course, the EU and the UK’s Westminster government would have to consent to this in as part of their post-Brexit treaty, and it could only work if there was significant related devolution to Scotland, as the First Minister suggested.

What would it mean in practical terms? The ‘single market’ consists of the free movement of goods, services, persons and capital, which includes the freedom of establishment of companies and the self-employed. To facilitate all this, there’s extensive EU legislation setting common standards for many industries. The single market also includes common rules on competition law and state aid to industry. But a number of rules on other matters (such as trade with non-EU countries) are not necessarily part of it. Full participation in the single market goes further than a free trade agreement with the EU which the Westminster government currently seems likely to prefer, as it will abolish more non-tariff barriers to the trade of goods and services. For instance, most free trade agreements don’t give as much access to financial services markets as single market participation does. So if Scotland is in the single market and the rest of the UK is not, more financial services businesses may stay in Edinburgh, or move from London to Edinburgh rather than to the EU.

Is this feasible in practice though? The easy part would be applying EU laws in Scotland which only have domestic effect, like consumer, environmental and labour law.  When it comes to laws with a cross-border effect on trade between Scotland and the EU, such as financial services market access, it would be necessary to define exactly when a firm was based in Scotland (benefitting from single market participation in the Scottish Economic Area), and when it was based in the rest of the UK (subject to a less favourable trade agreement).

The most difficult issues relate to movement of goods and people. Would different rules on Scottish/EU relations compared to the relations between the EU and rest of the UK mean that there would need to be border controls between Scotland and the rest of the UK? On this point, the Westminster government has promised there will be no border controls between Northern Ireland and the Republic of Ireland, even though that border will become an EU/non-EU border.  Surely whatever deal is reached to this end could be adapted for use at the Scotland/England land border too …

This is an extract from a blog post of Steve Peers on EU Law Analysis

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