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Scotland, the EU and ‘indyref2’: the legal issues

c6zcmwzw0aacwhr-jpg-largeThe past few days has seen a re-run of several old canards and myths you will be familiar with about Scotland’s place, or not, in Europe. Here Steve Peers, Professor of EU and Human Rights Law at the University of Essex, sets the record straight. You can follow him at @StevePeers and read his EU Law Analysis blog here.

This week, Scotland’s First Minister (Nicola Sturgeon) announced the Scottish Government’s wish to start the process of holding a second independence referendum, once the main elements of the UK’s final Brexit settlement was known. This follows the UK government’s rejection of alternative suggestions put forward by the Scottish government in relation to Brexit – which I previously discussed here.

Obviously any new independence referendum raises issues besides Scotland’s relations with the EU. But since the second referendum, if it goes ahead, will be more closely linked to issues of Scotland’s EU membership than the first one, it is a good moment to outline the main legal issues – and to address one specific point (on Scottish deficits as a membership criterion) in a little more detail. Of course, this blog might well be returning to these issues again in the months to come. (Some of the following is an updated version of my blog post from October 2016 on these issues.)

Scotland as an independent non-EU country

An independent Scotland might not be an EU Member State, at least initially, but rather have an association with the EU either as an interim step toward membership or indefinitely, in the event of political difficulties obtaining EU membership on either the Scotland or EU side (or both). An association with the EU might well be closer than the relationship between the remaining UK (rUK) and the EU – particularly in light of the UK government’s intention to leave the EU single market and customs union.

The most obvious route for Scotland to consider would be membership of the European Economic Area (EEA), along with Norway, Iceland and Liechtenstein. The EEA provides for participation of these non-EU countries in the EU’s single market freedoms and all the EU legislation related to them, as well as most EU employment and environmental law. But Scotland would not be covered by EU laws in other areas, notably agriculture, fisheries, tax and justice and home affairs – although, like Norway and Iceland, it could sign separate treaties with the EU on these issues. Although the current EEA countries have joined Schengen, this is a separate issue (agreed years after the EEA), and Scotland would have no legal obligation to do the same.

There would be no obligation to join the EU single currency (or any related constraints regarding deficits), and most significantly Scotland would be free to sign separate trade agreements with non-EU countries, because the EEA does not cover the EU’s customs union. This is particularly important because it means Scotland could seek to retain a closer economic relationship with the rUK than the rUK might have with the EU. Scotland could also “go global”, as Brexiteers say, by signing up to the free trade treaties already signed by members of the European Free Trade Area (EFTA: the EEA states plus Switzerland) with non-EU countries. (In principle, EFTA membership requires this). And it would retain power to sign its own treaties on top (or to seek to retain its own versions of the EU’s free trade deals with non-EU countries, as the rUK is likely to do). Scotland would have to become a separate WTO member, but could try to fast-track this by copying the rUK’s process of detaching from the EU’s WTO membership.

Is there a downside to EEA participation? Some have argued against the UK joining the EEA due to objections to single market participation, the need to accept ECJ jurisdiction, continued contributions, its undue size compared to other members, or its lack of influence over EU laws which would apply to it. Are these arguments transferable to Scotland? The first to third objections are not, since Scots voted to remain in the EU, entailing the single market, ECJ jurisdiction and budget contributions anyway. (In fact, the non-EU EEA countries are not subject to the jurisdiction of the ECJ, but a separate body called the EFTA Court: it usually follows ECJ case-law, but its decisions are not always binding. EEA financial contributions do not go straight to the EU budget, and would logically be recalculated in light of Scotland’s economic position anyway).

The fourth objection (size) is unconvincing: Scotland is broadly comparable with Norway, in particular in terms of population, location and economy. Finally, EEA states have a modest say on EU laws, being consulted on draft EU legislation and having the option to reject the application of new EU laws (although the EU might retaliate if they do that). Anyway, this is certainly more say over EU laws than Scotland would get after Brexit as part of the UK. In fact, it’s more say than Scotland gets over EU laws while the UK is an EU Member State – given the marginal influence that Scotland has over anything that the UK government does.

So the EEA option includes things that Scotland seeks (single market participation) while steering clear of things it may wish to avoid (the single currency and deficit criteria, Schengen, EU trade policy with non-EU countries, and EU fisheries policy). It also has the advantage of being potentially far speedier than joining the EU: the EU can decide to apply treaties with non-EU countries provisionally, pending national ratification.

What about the prospect of a ‘Spanish veto’ over Scotland joining the EEA? Here we have actual evidence to suggest that it’s not very likely. For the EU has recently concluded an association agreement with Kosovo – despite Spain (and four other Member States) refusing to recognise the independence of that country after its unilateral declaration of independence. (Note: the EEA is also an association agreement, and Member States have a veto over the initial conclusion of such treaties).

Failing EEA membership, Scotland could still seek other forms of relations with the EU which may be closer than the rUK might enjoy, possibly as a non-EEA member of EFTA like Switzerland. Unless Scotland followed Turkey in joining the EU’s customs union, this would again leave it free to simultaneously retain a strong economic relationship with the rUK.

Scotland as an EU Member State

I blogged on this issue in 2014, during the first Scottish referendum, but I’ll summarise and elaborate on those views again. The basic point is that the Treaties list the Member States by name, and since the ‘United Kingdom’ is unlikely to be interpreted as automatically referring to Scotland alone after independence, either an accession Treaty (Article 49 TEU) or a Treaty amendment (Article 48 TEU) is necessary to include Scotland’s name as a member.

The Treaty amendment route – which the Scottish government called for in the previous independence referendum – could also entail an amendment to Article 49 TEU, if necessary, to refer to the special case of Scotland: “By way of derogation from the above paragraphs, Scotland shall accede to the European Union pursuant to the Treaty of Culloden”. One possibility is a Treaty amendment which simply replacing the words “United Kingdom” wherever it appears in the Treaties with “Scotland”; this would mean that Scotland retained the UK’s opt-outs from the single currency, justice and home affairs and Schengen (the budget rebate is set out in secondary legislation). This is perfectly feasible legally, and there is a firm precedent in the Treaty of Lisbon, which in Article 2(2) to 2(8) provides for a whole host of amendments just like this: replacing “Community” with “Union” wherever it appears, for instance.

However, the EU position at present is that it will insist upon an accession process under Article 49. This would entail a negotiation process, which could possibly be fast-tracked in light of Scotland’s existing de facto EU membership as part of the UK. It should be noted that when Iceland applied to join the EU in 2010, the Commission’s opinion on accession took account of Iceland’s EEA membership, and indeed it was possible to close many negotiating chapters quickly, before Iceland withdrew its application in 2013. By contrast, only one out of 35 negotiating chapters has been closed with Turkey, after many years of talks.

Since unanimity of Member States is required in any event, some have argued that there is a risk of a Spanish veto of Scottish accession, because of concerns that Scotland obtaining easy EU membership would inflame separatist tensions in Spain or other countries. On the other hand, some have argued that these concerns are misplaced.

Another argument is that the EU might not be willing to talk to Scotland until it is fully independent – although it should be noted that the EU has relations with Kosovo (see above), even though not all Member States recognise that country legally.

This brings us to opt-outs. If the EU is not willing to extend the UK’s current opt-outs to Scotland, this would in principle mean full participation in the single currency and justice and home affairs policies, as well as the loss of Scotland’s share of the UK’s budget rebate to Scotland. Each issue is worth further discussion.

The rebate is set out in secondary EU legislation which usually is reviewed every seven years or so, and must be agreed unanimously. Scotland would therefore be in a position to refuse its consent on the next occasion unless a rebate were agreed.

As for justice and home affairs, a distinction must be made between general EU policies and those related to Schengen – the border-free area. On the latter point, there is already a protocol to the Treaties which guarantees the continuation of the ‘Common Travel Area’ between the UK and Ireland – which will continue to apply after Brexit. The details will have to be worked out, but the starting point legally is a requirement imposed upon the EU to protect the common travel area. Arguably this not only protects the Irish position concerning the Northern Ireland border in Brexit talks, but also the position of Scotland in potential accession talks. And whatever solution is found for the island of Ireland is therefore transposable to the (rather shorter) border between Scotland and England.

As regards other JHA issues, the UK already takes part in most civil and criminal law EU measures, and so Scotland’s participation will not change anything. It should be noted that Scotland would not have to take part in the planned European Public Prosecutor, as that body will be set up by means of ‘enhanced cooperation’ and new Member States do not have to participate in measures set up by that EU framework, which is a system allowing for the adoption of EU law by a group of willing Member States, allowing the unwilling Member States to stay out (see Article 20(4) TEU).

That brings us to the single currency – and the related issue of deficits. Scotland’s deficit upon independence is sometimes discussed as if it can be calculated with absolute certainty. This is false: the actual deficit in practice would depend upon the terms of Scotland’s arrangements with the rUK, including its share of rUK debt, as well as broader trade and economic developments, including what currency Scotland uses and the decisions on tax and spending which a Scottish government takes upon independence.

While new Member States have in principle an obligation to join the single currency, it must be noted that the EU does not attempt to enforce this obligation. Sweden has not joined since the currency was created in 1999; Poland, Hungary and the Czech Republic have not joined since 2004, when they acceded to the EU; and Romania, Bulgaria and Croatia have not joined either.

As for the deficit criteria, there is a requirement of 3% of GDP in order to join the single currency. But that is not a requirement to join the EU. Otherwise why have so many new Member States not simply joined the single currency soon after EU membership?

In any event, this is easily provable: the Commission’s monitoring report on Croatia joining the EU noted that it had 4% and 5% debts in the years just before joining the EU. But its membership was still approved.

Of course, a large deficit is going to cause a country other difficulties besides EU membership, and in the event of EU membership the rule is in principle that a country should aim for deficits less than 3% of GDP after joining. But this rule is not absolute and the EU has little means to enforce it: sanctions for breaching it can only be imposed upon Eurozone countries, and the EU has never imposed them anyway. There would be strict conditions imposed upon any bailout deal (if necessary), inside or outside the Eurozone – but that would also apply outside the EU, for countries that need a bailout from the IMF alone. Whether Scotland might have an unmanageable deficit is certainly an important issue – but it’s quite false to say that “it can’t join the EU unless its deficit is less than 3%”.

Comments (15)

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  1. Wul says:

    Thank you for this, it is very helpful & informative. We will need more & more of this type of information in order to have a rational debate about independence in the months ahead.

    Re; your clarification that; …”it’s quite false to say that “it can’t join the EU unless its deficit is less than 3%”.”

    Why is it that supposedly impartial, well-researched TV journalists fail to correct anti-independence interviewees when they say things like this that are so demonstrably false?

  2. Bert Logan says:

    On that very last paragraph:
    Of course, Scotland does not start with a deficit. The ‘start’ state is an abstraction and how do you gauge what it really is until you have run the economy without Westminsters meddling?

    Pragmatic as ever, the EU know and will work on the assumption that Scotland is much more like Norway than the old UK economically. Their choice would be simple.

    1. Crubag says:

      Scotland would start with a share of the assets and liabilities of the former UK.

      1. Bert Logan says:

        Assets and liabilities? Thats the interesting part.

        If we don’t take the pound, then no debt. The UK and precedence of many others leaving the UK mark that as the case. Even if we have ‘8%’ or so, its not a running deficit, its a lump we must deal with in time. It would likely just be another financial ‘take over this lump’ type transaction.

        A deficit – we cannot take a deficit, we have none. After a year, actually 3 is better in the shortest term, you can say ‘its going X’. Otherwise its a guess based on data. I work in finance in the City of London and everyone here knows the oil is the key. Not the price now or later, but the overall potential – how many barrels – about 60% of Norways. Its why some are saying a downgrade for rUK would happen as soon as Scotland leaves. The pound would tank thereafter.

        The struggle will be in a new currency that investors will play with – so you peg it to something stable. Pound or dollar or Euro. Decide at the time.

        Assets though? Gold reserves – 8% or so. A share of military kit/jets/ships? Swap them for a 10 year lender of last resort to cover while you dissociate?

        1. DaveM says:

          Scotland is not legally liable for ANY of the UK’s debts. The UK’s debts are the legal responsibility of HM Government, as they confirmed in the run up to the 2014 referendum. Taking on a share of the UK’s debts when we have no need to is a ‘moral hazard’, which could actually count against us, especially if we are looking to borrow.

          1. Crubag says:

            No, that wouldn’t fit with the Vienna Convention.

            On the international level, we’ve got an interesting test case coming up, with the separation from the EU, though no central bank or currency to divide.

            Both want something from the other so there will have to be compromise on the assets and liabilities.

            In the case of rUK/Scotland, the peacetime precedents (Norway/Sweden, Ukraine/post-Soviet Russia, and Czech/Slovak) are all for allocating a share of the debt with the assets. Negotiations can go on for sometime, though.

  3. Cathy Watkins says:

    Very helpful to have the legal and technical situation clarified so expertly. However, it does not automatically follow that Scotland must join the EU or the EEA and I certainly think this should not be coupled to, or used to justify, the case for independence. ‘Scots voted to remain in the EU’ is not quite the whole story: a majority of voters in Scotland voted for the UK to remain in the EU (on the UK’s current terms), in a UK-wide referendum where much of the Leave campaign was poisoned by xenophobia etc. Many in Scotland who voted Remain declared they did so with reluctance – ‘holding my nose’ etc was a common remark – in order to distance themselves from the vicious aspects of the main Brexit campaign and despite the undemocratic and neoliberal nature of the EU. It is wrong to assume all these people will wholeheartedly wish for an independent Scotland to remain in/join the EU: that must be settled as a separate issue.

    1. Mathew says:

      I don’t agree Cathy – in this referendum Independence and the EU have to be ‘coupled’. You cannot possibly have a referendum triggered by Brexit from the EU, and then try to tuck the EU membership bit out of the way in a corner. Everything Sturgeon and Salmond have said in response to Brexit has ‘coupled’ the two together. That can’t be undone.
      Like it or not this referendum is a stark choice between Independence within the EU or years and years of Tory misrule from Westminster.

      1. Paul Codd says:

        They are separate issues, regardless of what’s been said and done so far by SNP chiefs. When we vote to leave we should vote again seperately on whether we want to join he EU. Just like the timing of the independence vote being tied to a time when we know what Brexit really means, likewise we should tie the vote to join the EU to a time when we know what Independence really means.

        The main power centre in the EU is the unelected and unaccountable European Commission. This makes the disfuncional aspects of the EU near impossible to reform from within.

        I’d also like to point out that as an expat my sense is that the EU is seen from the outside as a sinking ship, partly as a result of Brexit, but also Le Penn, the failure to deal with the refugee crisis in any coherent way, the weakness of the Euro, the devastation the Troika imposed on Greece, the basket case economies of Portugal Spain and Italy, and other reasons.

        I’m not saying it’s the wrong move to iniciate a request to join the EU. I’m saying it is plainly a different issue, and it needs its own debate. Besides the time for that debate is not now. There is no need to couple the issues.

        Just to be clear, its fine for the SNP to couple the issues. As a political party they can take any stance they want. But the final decisions must be made by the people. One decision at a time, with clarity of what is being decided.

  4. Crubag says:

    Generally good article, particularly on the EFTA/EEA option.

    Re “which could possibly be fast-tracked in light of Scotland’s existing de facto EU membership as part of the UK” – I think this is a bit over-optimistic. There are critical chapters to complete, most notably on the fiscal and monetary arrangements. An applicant Scotland would need its own currency and central bank, but then we would need to establish these quickly anyway.

    As noted above, Iceland was able to satisfy many of the chapters, but then it already had a central bank, currency, stats office, etc.

    I don’t think Schengen and euro are particular issues, member states can simply not conform with them, and we seem to be heading for a multi-speed Europe, rather than a more federal state.

  5. bringiton says:

    May has just confirmed the clear intention of the Westminster establishment to interfere in our independence referendum again.
    The lies told by Cameron during the last one about it being a matter for Scots alone to decide were quickly exposed when it became possible that we would vote to reject continuing London rule.
    May is claiming that now is not the time because they will be in a much weaker position to interfere until after they have finished EU exit negotiations.
    Also,she will have to convince the EU that the UK as an entity will remain unchanged until at least negotiations have completed.
    Catalonia and Scotland now face intransigent right wing central governments who are desperate to hold onto their cash cows and are prepared to overrule the democratic wishes of people in order to do so.

  6. Eleanor Ferguson says:

    So now we know. Scots have no rights whatsoever in the UK and will just have ‘to do as we’re told’!
    Apparently no-one in Scotland wants another referendum…. So that’s that.

    1. c rober says:

      naebidy ever sees the irony of England wanting to leave a “union of equality” , and it NOO granted , for one of its own creation of future failure with empire 2.0 seeking inequality based on the old model of wealth rape and colonialism.

      Yet Scots cant stand back and go “hing oan a second its the EXACT same reasoning the brexiteers are leaving the EU” that Scotland voted to Keep in 2014 – an unfair union , only this time its actual and not in the CASE of membership of the EU for the UK being in portrayal only.

      The final nail for even some of the Labour supporters in Scotland might well be a proper investigation and documentary into McCrone , of Brown stealing the North Sea , and seeing that deceitful union for what it is.

      I doubt any former clydesiders could stomach the party line , having seen 17 years of Thatcher destroy Uk and Scottish yerds and mines , 14 years of Nulabour failing to follow a mandate on re industrialistion…. and they are still saying better together after all that?

      Glasgow effect and dementia , its the only reason why any working class person would vote to keep , to enable , WM and the wealthy elite – well other than being a 10 percenter working for the 1 percenter.

  7. c rober says:

    Pretty much every argument in the article I have said personally for a long time , and more eloquent than I could ever have put it. Thanks.

    The currency question from the article above is the HOLY GRAIL , its not NSO.

    Its a sovereign currency , based on a central bank , where investment WILL FOLLOW! And be very lucrative.

    This is the big fear of those in the money machine in WM and London , that line in the McCrone report on currency is a fking god send. But I have to also add if its say a NEW scots pound , pegged to the difference on both the UK pound and Euro , the models show how workable this is , well if your the average guy with the token in the pocket – rather than big tax avoiding corporate.

    EFTA EEA , Iceland , Norway model is best imho , perhaps then there is Scope for talks with at least Norway , same population and industry as Scotland , about a NEW currency for both? Norway remember already has a soverign bank , so perhaps there is scope there as an investment lender to get started and rather than gold reserves , oil fields instead ?

    As a risk averse personal investor , I dont rate Scotland high on the risk Scale at all , at this moment , but this may well change if there is no strategy other than simply an indy ref along the comical lines of the brexit one as has been seen this week – “no real thought given , or planning” , says brexit minister on tarrifs.

    Scotland is heading for 20 years of austerity under WM , Tory and Labour , both of whom have caused it or are making money from it – where today its wealthy have increased their numbers and wealth.

    We cannot simply allow this to continue , and those that cannot see it , ignore it just for populist 5 year policies and mandates on their pockets , and that my people is how the EU , for me , works. It is looking further down that line than those we elect… if its socialism that is wanted then the EU is that which is protecting us from worse things than those working conditions imposed by WM.

    Its protecting us from American biased trade deals , removing workers rights , unlike Westminster which will see us all on zero hour contracts on top. That is 26 nations working in a hard harmony to get the best for all , the Uk on the other hand is about getting the best for the few , and for Scotland that means the rich of the media owner and London banksters…. the same banksters now leaving London that said they would leave an indy Scotland , rat , ship.

  8. Willie. says:

    A most Interesting and informative article.

    This is the type of article that we need to encourage informed debate and. A light year away from the rubbish and propaganda peddled by the MSM.

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