Scotland Faces Tricky Test on Tie to Europe’s Single Market: Q&A

  • Brexit will likely drag Scotland out of the EU no matter what
  • Market access may be possible via the Norway-led EFTA alliance

Scotland's First Minister Nicola Sturgeon says her time-table for a second Scottish Independence Referendum is the right one. Sturgeon maintains that any resistance or delay from the U.K. Government is unsustainable. She speaks to Bloomberg's Anna Edwards. (Source: Bloomberg)

Scotland is caught on the horns of a dilemma. After choosing to stay part of Britain in an independence referendum in 2014, most Scots voted to remain in the European Union in the U.K.’s Brexit ballot last June.

With Britain on course to leave the 28-nation EU in 2019, Scottish First Minister Nicola Sturgeon is demanding a second independence referendum even though two-thirds of the nation’s trade is with the rest of the U.K. If it were to end its 310-year-old union with England, Scotland would face a hurdle-filled path back to the EU’s single market.

Following are the options and obstacles that an independent Scotland would confront in seeking to re-establish ties to the world’s biggest single market.

Could Scotland Inherit the U.K.’s EU Membership?

Probably not. The European Commission said last month that the question is “as interesting as it is hypothetical” while reiterating a doctrine espoused by former President Jose Barroso.

“The EU is founded on the treaties which apply only to the member states who have agreed and ratified them,” Barroso said in 2013 in response to a European Parliament question. “If part of the territory of a member state would cease to be part of that state because it were to become a new independent state, the treaties would no longer apply to that territory.”

In other words, were it to secede from the U.K. before Brexit, Scotland would cease to belong to the EU because the signatory of the original accession agreement was the U.K. The prospect of an ad-hoc agreement that would recognize Scotland as a successor state to the U.K. and treat the rest of Britain as well as Northern Ireland as defectors is far-fetched.

Could an Independent Scotland Re-Join the EU?

Yes, in theory. While Scotland could fast-forward through the myriad technical hurdles because the full body of European law already applies on Scottish territory, EU accession requires a unanimous decision by existing member states.

The Spanish government for one may be loath to give the green light to Scotland’s readmission lest such a move set a precedent for independence-minded Catalonia to secede from Spain. The question is so sensitive for authorities in Madrid that Spain has refused to recognize the 2008 independence of Kosovo from Serbia.

U.K. Prime Minister Theresa May has rebuffed Scotland’s plan for another referendum and Spanish government officials have expressed relief at her stance. Spain also argues that, were Scotland to become independent in agreement with the rest of the U.K. and to seek EU membership, Scots would have to join the line of countries including Turkey that have already applied to accede to the bloc.

“Because of a real and present danger stemming from the unilateral nature of the Catalan push for secession, the Spanish government’s position is both to oppose unilateral independence by any region and to cite obstacles to EU accession for a new applicant, including by saying it would need to go to the back of the queue,” said Ignacio Molina, a senior analyst at the Elcano Royal Institute in Madrid. “This is part of a goal to avoid ever having to face a choice over whether to veto a membership bid by an independent Scotland.”

While being opposed to an independent Scotland, Madrid would refrain from vetoing a Scottish application for EU accession, Spanish Foreign Minister Alfonso Dastis said in remarks published by The Guardian on Sunday.

“We don’t want it to happen,” Dastis said, according to the newspaper. “But if it happens legally and constitutionally, we would not block it. We don’t encourage the breakup of any member states, because we think the future goes in a different direction.”

Could an Independent Scotland Stay in the Single Market?

Yes, but again only if Spain were to play ball. To be part of the single market, known formally as the European Economic Area, a country must be a member of either the 28-nation EU or the European Free Trade Association, which is made up of Norway, Iceland, Switzerland and Liechtenstein. An independent Scotland could apply to join EFTA, which would be a stepping stone for the Scots back into the European single market as long as all EU governments agreed to open the EEA to a new EFTA member.

“Any model that would imply a differentiation between Scotland and the rest of the U.K. would be seen as a problem in Madrid,” said Amadeu Altafaj, Catalonia’s representative to the EU. “There’s no nuance in the Spanish government’s position. It’s simple, stubborn denial.”

Without Spanish support to join the European single market, an independent Scotland would see its EFTA membership benefits limited to free-trade ties with Norway, Iceland, Switzerland and Liechtenstein and with 38 other countries around the world with which EFTA has open-market agreements.

EFTA hasn’t expanded since 1991, when Liechtenstein joined.

Is Independence Lite an Option?

Possibly. Scotland could theoretically seek EFTA membership after winning a degree of extra autonomy that would stop short of independence.

While “any state” may apply to join EFTA, the convention establishing the association doesn’t define statehood. Scotland would need to attain a level of autonomy significantly greater than currently exists, including the powers to strike trade agreements and set economic policy, to be eligible for EFTA membership.

“An entity must have the legal competence to enter into a binding international agreement and to undertake the obligations that come with membership in the organization,” said Dag Holter, EFTA’s deputy secretary-general. “These obligations include free trade among the member states and also free movement of persons between the member states.”

Furthermore, extending EFTA membership to participation in the EEA requires further state powers, including “the competence to legislate and regulate in all areas covered by the EEA agreement, which in practice means everything related to the internal market of the EU,” said Holter.

While negotiating such an extensive devolution with the U.K. government could prove Herculean for Scottish authorities, it could be less controversial than full independence. Furthermore, the Spanish government could perhaps be persuaded more easily to accept the enlargement of EEA to include an autonomous region rather than a state that became independent after secession.

In this scenario, the European single market would end at Scotland’s land border with England. While that would create a trade barrier within the U.K., Scotland could at least take comfort in the fact that in the meantime Northern Ireland will have shown the way through any post-Brexit border arrangements with Ireland.

“If I were a Scot, I would be very upset,” said Michael Emerson of the CEPS think tank in Brussels. “None of the options is a sure bet, to say the least. Some seem to be dead ends.”

— With assistance by Esteban Duarte, and Macarena Munoz Montijano

    Before it's here, it's on the Bloomberg Terminal.
    LEARN MORE