European and External Relations Committee

Meeting date: Thursday, September 29, 2016

Official Report 659KB pdf

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European Union Referendum (Implications for Scotland)

Good morning, and welcome to the eighth meeting of the European and External Relations Committee in session 5. I remind members and the public to turn off mobile phones. Any members who use electronic devices to access committee papers during the meeting should ensure that they are switched to silent. We have received apologies from Jackson Carlaw.

Our first item of business is an evidence session on the implications of the European Union referendum for Scotland. I welcome Mike Russell, the Minister for UK Negotiations on Scotland’s Place in Europe; and Frank Strang, deputy director of external affairs with the Scottish Government. Thank you for attending. I invite Mr Russell to make some opening remarks.

Thank you for the invitation to speak to the committee.

Following the referendum, the Scottish Parliament mandated the Scottish Government to have discussions with the United Kingdom Government, other devolved Administrations, the EU institutions and member states to explore options for protecting Scotland’s relationship with the EU, its place in the single market and the social, employment and economic benefits that we all draw from that. That mandate resembles much of my job description. In the role, I will focus on engagement with the UK Government and other devolved Administrations, with Fiona Hyslop leading in Europe. I will consider all options for Scotland’s future place in Europe and will engage with stakeholders to understand their views in order to better inform the Scottish Government’s negotiating position.

It remains the Scottish Government’s view that full membership of the European Union is the best outcome for Scotland. We campaigned for that outcome, because all the evidence shows that EU membership has brought sustainable and tangible benefits to all of Scotland and the UK. It has been the best way to tackle complex challenges such as inequality, climate change and global security together with our European partners. It has also brought peace to our continent after two world wars.

That is why I agree with the European Parliament’s President, Martin Schulz, who said last Friday at the London School of Economics and Political Science:

“the best possible deal with the EU is membership of the EU.”

He went on to add, however, that

“Any other arrangement necessarily entails trade-offs.”

Scotland now finds itself in the position of possibly being pulled out of the EU against its democratic will and having to consider imposed trade-offs. My job is to support the First Minister in considering all options in those circumstances.

To do so, we first have to gather as much evidence as possible to choose which option best protects Scotland’s interest and then measure all those options against the five tests that the First Minister has outlined. The evidence that we receive will come from policy analysis within the Scottish Government, the standing council on Europe and of course our engagement with stakeholders up and down the country. Just yesterday, Keith Brown and I met the Japanese consul general and Japanese business leaders working in Scotland.

The committee is of course playing a vital role in the process. Only six days after the vote, you took evidence from my colleague Fiona Hyslop. Since then, you have worked through the summer recess to gather views, issued a wide-ranging call for evidence and published a first report on the impact of Brexit.

The Parliament is vital to the whole process, too. It has to assess the impact of the referendum and consider options. The Scottish Government is therefore holding a series of debates to give members of Parliament the opportunity to discuss the impact on all sectors of Scottish society and on the Parliament’s devolved powers, and to bring forward ideas. I urge all the parties and every member to take part in them. The First Minister has also asked me to meet the party leaders to get their input, which I hope to do shortly.

I will mention one key issue before I close. Last week’s debate in Parliament on the economy highlighted the importance of membership of the single market to Scottish businesses and individuals. Scottish companies depend on the single market for trade. Seafood companies depend on common regulatory systems to ensure that their product meets the strict hygiene standards in their key markets in western Europe. Our engineering exporters can send their goods throughout the single market without any border formalities and can source components at the keenest prices in integrated supply chains. Many of our companies, especially in the digital technologies, hospitality, food and drink and engineering sectors, depend heavily on EU labour for skills and knowledge.

Those are just a few examples of how membership of the single market is vital to Scotland’s prosperity. However, the benefits of membership extend far beyond the economy. To quote Martin Schulz again, it is

“a community with a shared destiny, a model of society, not an accountants’ club.”

That means that, together, we share values and solidarity, as well as the economy. Leaving that community of values would have a wide-ranging impact on our society and identity, so we need to consider that carefully.

Finally, as regards my engagement with the UK Government, the committee will be aware of my first meeting, on 15 September, with the Secretary of State for Exiting the European Union. It was a cordial and detailed meeting that laid the groundwork for discussion. I am happy to explore further with the committee what structures for formal engagement we are trying to put in place. I hope to be able to confirm soon, along with the UK Government and the other devolved Administrations, how that engagement will work in practice. The letter from the First Minister that you received yesterday, convener, takes that matter a step forward.

I hope that all of that gives the committee a good overview of my new role. This is, of course, the beginning of my on-going engagement with the committee as events unfold over the coming period. I look forward to answering your questions and hearing your thoughts today and on many future occasions.

Thank you, Mr Russell. Can you elaborate on the nature of your meeting with Mr Davis? For example, did you get any indication as to where the UK Government is on developing its position on its future relationship with the EU?

The UK Government has indicated publicly that it does not intend to trigger article 50 of the Treaty on European Union this year, so we are in a period of preparation—that is how I would generously describe it. It is clear that the UK Government is doing a lot of work on sectoral analysis, as indeed are we. I made an offer to David Davis to work jointly with the UK Government on that and our permanent secretary made that offer to the UK cabinet secretary, but it has not yet been taken up. However, I hope that we can do some work together on sectoral analysis. I believe that we also have to do geographic analysis in Scotland because throughout Scotland there will be regional and local dimensions to the impacts of Brexit.

I have to say that I did not get any firm indication of the detailed policy position. However, I think that the conversation confirmed what we are all reading and hearing, which is that there is a very strong view that freedom of movement is not acceptable to the current UK Government, which is a matter that will cause great concern in Scotland.

In terms of the structures that you are putting in place with the UK Government, there is already the joint ministerial committee on Europe. We received a letter from the First Minister that states that a meeting of the JMC will take place in late October. We have taken a variety of evidence from expert witnesses who have talked about the JMC’s possible lack of effectiveness in the past. I know that the First Minister said that she felt that there needs to be something extra in terms of the intergovernmental machinery to allow Scotland to have the full voice that the Prime Minister promised us when she came to Edinburgh in July. How do you feel about the way in which the intergovernmental machinery is being built? Is it being built?

There is certainly an attempt to build it. The First Minister’s letter reflects the fact that that process is on-going. It has been slower than anybody in Scotland would have wished, but it is on-going.

As Professor McEwen will have indicated to the committee, we should step back and look at the intergovernmental machinery, which is in need of much maintenance and considerable change. Since devolution took place, there has been a range of reports on the intergovernmental machinery by, for example, the House of Lords Constitution Committee; the Scottish Parliament Devolution (Further Powers) Committee; the House of Commons Public Administration and Constitutional Affairs Committee; the Institute for Government; and the University of Edinburgh centre on constitutional change. All have come to the conclusion that the intergovernmental machinery is not fit for purpose.

If the JMC structure is to be used, it has to be reformed and focused. Certainly, that is the burden of our discussions, and I raised the issue with David Davis. We have to have a structure that will work and that will allow two key issues to emerge, the first of which is how there would be agreement on issues. The JMC has never worked in that way before; it typically has a consensus meeting with an agenda that is set by the UK Government. The second issue is that there has to be oversight of what is taking place on the negotiating side. Those two words—agreement and oversight—are important and we need to use them to describe what we seek, which is an effective structure that will work for Scotland.

In my view, it would be inconceivable for the Scottish Government not to be involved in negotiations on major items of devolved competence.

Some of the evidence that we took last week, for example from Mr Paun, suggested that the devolved Governments will not get the kind of involvement that they had asked for and that they will be treated as consultees in the same way as a stakeholder would be treated. How can you ensure that the Scottish Government is not treated as a consultee, but is involved in agreeing the UK’s negotiating position as Theresa May promised us in July?

Our objective is to secure the full engagement and the full involvement that we were promised by the Prime Minister—I am sure that the Prime Minister is a woman of her word. That is what she offered, what the Scottish Government wishes to achieve and what we are going into discussions to achieve.

I do not know whether you are aware of the evidence that we took last week from the Government of Québec’s representative in London. He talked about the CETA—comprehensive economic and trade agreement—deal for which the provinces of Canada were at the negotiations table. That was not part of Canada’s constitution but it was insisted upon by the EU. What does that tell you about the potential for Scotland in the upcoming negotiations?

I was fortunate enough to have a meeting with Monsieur Sirros subsequent to your committee meeting and we discussed that in some detail. It is important to recognise—without diminishing that example, which is a useful one for us—that, because of federal competences, some trade issues are reserved to Canadian provinces. In order to get the comprehensive deal that the European Union was seeking, they had to involve some of the provinces or the deal would not have stuck. The federal Government could not negotiate on behalf of those provinces. We do not have exactly the same devolution situation because, technically, the United Kingdom Parliament is still sovereign in that regard.

What the example tells us is that, in a modern democracy, there should be the opportunity for that type of participation and I hope that the United Kingdom Government is taking that lesson to heart. I am sure that the EU is looking with interest to ensure that the negotiation discussions involve all those who have an interest. Look at the situation in Belgium where devolved competences allow the Belgian devolved Administrations to make international agreements and treaties—something, incidentally, that Gordon Brown referred to in his recent contribution on the matter, expressing the view that Scotland should be in the same situation. We need to bring those issues into the discussion.

We are up against time here, obviously. How quickly will there be an agreement with the UK Government?

I get up every morning hoping that we will make progress on that and I will go on doing that until we make progress. You are absolutely right, convener, that the clock is ticking. We have to ensure that we get that agreement. It is not just us, of course—Welsh and Northern Irish ministers are part of those discussions as well and I have been having discussions on the telephone with those individuals. I will continue to do that and to meet them, too.

Good morning, minister. Are there any viable options available to Scotland to seek a differentiated relationship with the EU?

We have to bring our tests to any option, although it is far too early to say what that option will be. The Parliament asked the Scottish Government to look at the options and they are being examined—the standing council on Europe is deeply involved in that task. I think that the committee received a note from me yesterday on the second meeting of the standing council so that you can see the work that is being done.

Let us remind ourselves of the important tests that the First Minister laid out in her speech at the Institute for Public Policy Research on 25 July. We have to ensure that our democratic interests are respected; that is, because of the Scottish result of the EU referendum, we have to ensure that our voices are heard and that our wishes are respected. There are our economic interests—safeguarding free movement of labour, access to the single market and membership of the single market. Our interest in social protection needs to be borne in mind, as does our interest in solidarity, which is the need to recognise the importance of independent nations coming together for the common good. Our interest in having influence is a particularly important test. For example, you can see that the financial sector will be concerned that, under a European Economic Area model, there might be regulation without participation, which, given the nature of the sector, it would find undesirable. Those five tests have to be brought to the table when we consider any of the options, and we are engaged in that process now.

09:15  

The EU has managed to be flexible over the years regarding some countries and territories. Let us consider the situation of the Isle of Man. It is not a member of the EU, but it is part of the EU VAT area. The Isle of Man is part of the protocol 3 relationship with the EU, which allows free trade of manufactured goods and agricultural products. The EU has the opportunity to provide that flexibility where it has an agreement with particular countries or territories. Is that example something that Scotland should consider in its discussions with the UK Government and in any external discussions?

The British-Irish Council—of which the Isle of Man and the Channel Islands are members—is playing a role in considering some of these matters. At its meeting in November, the British-Irish Council will consider those issues further. Discussion is going on.

I return to the five tests. Considering the example of the Isle of Man, to my mind it would probably not pass the test of influence, it would not pass the test of social protection and it would not pass the test of democracy. However, those are issues for discussion. I think that we should be very open to discussion of a range of possible options. We should also be keen to have evidence-led policy. As I said on Tuesday in the parliamentary debate, those who are concerned, those with worries and those who come to the matter with a more positive view need to bring evidence to the table to support their view. That needs to enter into consideration.

There is a huge amount of information, and we need to have a rational approach to it. That means using the five tests, considering the basis of evidence and building an understanding of what is possible.

The Italian Prime Minister had a lengthy interview with the BBC today. One of the points that he made was that it would be unreasonable for any negotiated settlement to give a party that was leaving the EU a better deal than existing members—let alone others outside the EU. We should not underestimate that position. That is being heard right across Europe. There are people with existing deals, such as the Norwegians, who might be concerned that a new deal would disadvantage them. It is a complex process.

You have mentioned the British-Irish Council. How are the other discussions with the devolved Administrations progressing?

Discussion is taking place. There is a common interest to ensure, first, that we have a robust machinery for discussion and negotiation within these islands. We have a common interest in securing that. In fact, there is a common interest for the UK Government in securing that. Then, each of us will bring our particular concerns to the table. There are concerns about the single market in Northern Ireland, particularly around the need for an open border. The Welsh will bring different concerns to the table. I think we will all endeavour to work constructively and well. I make it clear that we are going into this in good faith. We will do that with the devolved Administrations of the other countries, as we will do with the UK Government.

What discussions has the Scottish Government had with the Department for International Trade on the preparations that it is undertaking on the negotiation of the UK’s position in the World Trade Organization?

Keith Brown has met Liam Fox, I understand, and we are endeavouring to understand the position of the department, although it is perhaps not easy to understand that position. If you read Liam Fox’s speech to the WTO in Geneva, you will find it a bit confusing, but we continue to endeavour to understand the position.

Richard Lochhead made a contribution to the debate on Monday about the customs union, which should be borne in mind. That issue is not much talked about, but it is very important.

Following on from the debate that we had earlier this week on the rural economy as well as raising some wider questions, I have been struck by the fact that the Government’s approach over the past couple of weeks has been focused on membership of the single market. That phrase has been used very specifically. As we discussed on Tuesday, membership of the single market is, contrary to what has been said by some, a substantial, real thing. Membership of the single market comprises the 28 member states of the European Union plus Norway, Iceland and Liechtenstein; it is a membership organisation with specific rules and specific exclusions.

During the debate on Tuesday, I asked you—and I would be interested in getting a fuller response today—about the Scottish Government’s developing view on membership of the single market, given that it does not include, for example, agriculture, fisheries or customs, and it does not prevent Norway, for example, from entering into external trade negotiations. The Department for International Trade said that we need to work within World Trade Organization rules, which is correct, and it is perfectly possible to be a member of the single market and negotiate one’s own trade rules with a third party. I would be interested to know the Government’s view on the opportunities and limitations of the single market.

The EEA is an organisation that comprises sovereign states, so there is an issue at the very start. It might not be insuperable, but it is an issue.

It really is too early to say where the EEA lies in the spectrum of options, because we do not know the UK Government’s view on that. Your question on Tuesday was a good one, as I think I said, and it is important that we consider that type of question.

Elements in the Scottish debate, such as fishing, might find EEA membership very acceptable, except that it might not assist those people in exporting their products and might therefore be a mixed blessing for them. As you have said, EEA membership excludes fisheries—and it also excludes agriculture.

Other elements, such as the financial sector, might find EEA membership less than the optimum, because they would not participate in the regulatory structure. Some prefer the EEA and Norwegian model to the Swiss model, because it is dynamic and changes with the EU, whereas the Swiss model consists of a hundred and something treaties—I cannot remember the exact number, but no doubt Michael Keating can—all of which have to be constantly updated. That means that a huge number of officials are in the air all the time.

The approach has advantages and disadvantages. Work is being undertaken to examine it, and we are talking to experts and listening to people who know the system. We are having a wide variety of conversations and doing a great deal of reading.

During the negotiation process within these islands, the matter will need to be looked at closely. A lot will depend on the position that the UK Government takes on the single market when it starts negotiations with the EU. The article 50 negotiations deal not so much with exit as with framework. Others would need to be consulted. We would have to join the European Free Trade Association, and EFTA members would have to accept UK membership; there would then have to be a discussion with the EU about moving into EEA membership. We should also remember that EEA membership was designed to be a halfway house on the way into the EU. It has not always been that—and at times it has been a static halfway house—but it was never designed for people on their way out of the EU. That is another issue to be borne in mind.

There is a great deal to be discussed, and this committee will be an important part of that discussion, but we are a very long way from a conclusion. One of the limiting factors is that we do not know anything about the UK Government’s view on the matter. I think that we can discern from the language on free movement of labour that membership of the single market is probably not on the table—whether or not David Davis has been slapped down by Theresa May for saying so.

However—and I must stress this—membership of the single market should be on the table for us. This is about negotiation and discussion, so we must come to the table with and discuss the things that we believe to be in our best interest. There is no doubt in my mind or in the minds of my colleagues that, short of being a member of the EU, full membership of the single market is the best option. I have given some examples in that regard, but there are many other examples that we could talk about.

That answer was helpful. Implicit in what you said, particularly at the end, is the suggestion that the Scottish Government’s view is that it is possible to be a member of the single market without being a member of the European Economic Area. I am keen to understand that. The European Economic Area was originally a product of EFTA, and, as you have said, countries such as Iceland and Norway have no active intention of turning membership of the EEA into membership of the European Union, so it is a standing arrangement. Do you think that it is possible for either the United Kingdom as a whole or a part of the United Kingdom, such as Scotland, to have a different relationship with the single market that could be described as membership, other than membership of the EEA?

That appears to be the view of the UK Government in so far as one can discern it—and you will note that I keep using the word “discern”. That appears to be its view, but many people do not believe that to be possible.

I want to stress something that Stuart McMillan said. There is a flexibility in arrangements that we have seen over the years in negotiation with the EU. That might be possible—I am not pouring cold water on the suggestion. However, we are in the realms of degrees of probability, and the degree of probability in that regard is quite limited—we just do not know. It is important to say in these discussions from time to time that we are unaware at present of what the UK’s position is. If, as appears to be the case—and as the Visegrad group made quite clear after the Bratislava summit—free movement is an absolute sine qua non, it is not, in my view, likely that the UK will have anything to do with that.

I notice that there has also been discussion of free movement within sectors. That would be very strange, because you would be talking about free movement for bankers, and I think that there would be some resistance, even in the Conservative Party, to that being a negotiated settlement. The Swiss are, of course, trying to negotiate free movement on the basis of job offers, given their referendum outcome, and that has not yet been accepted.

You have helpfully provided a note of your meeting; it does not contain a great deal of detail, although I understand why that is the case at this juncture. Can I take it that you have not ruled out or come to a view on the variety of possible ways of maintaining membership or access to the single market?

That is absolutely correct. It is early days for that, but the clock is ticking.

The Treasury has guaranteed backing for EU-funded projects signed before this year’s forthcoming autumn statement, and agricultural funding that is currently provided by the EU will also continue until 2020. That has obviously given reassurance to farmers and crofters, but specifically with regard to Scotland, what can the Scottish Government do to reassure Scottish farmers in devolved areas in respect of agricultural funding, particularly pillar 1 funding?

In so far as we are able, we are doing that on the basis of the financial guarantee. There has to be a financial guarantee, otherwise it cannot be done. I would be happy to give permanent reassurance by saying that we are going to stay—that would be the ultimate reassurance—but because we cannot do that, we have to give reassurance in a financial way.

What worries me is not the reassurance that is being given but the reassurance that has not been given. I will give you a concrete example of that: pillar 2 reassurance has not been given. There is, as you will know from representing South Scotland and as I know from Argyll and Bute, considerable concern throughout Scotland about the pressure on LEADER funding and the fact that if you have not got an application in and likely to be approved before the autumn statement, you are not going to get it. That money supports our rural areas, and in Scotland it is a lower amount of money than we should have had in the EU negotiations. Mr Lochhead can give you chapter and verse on that—as can I, given that together we were involved in that in 2007 when pillar 2 was being negotiated. We have an enormous pending problem in rural Scotland, where a great deal of the vital good work that is being done in rural development will not take place. I would like to be able to guarantee all those things, but we need reassurance from the Treasury in that respect. Unless we get that reassurance, it simply cannot happen.

As for stability of policy, I am happy to talk in detail to the National Farmers Union Scotland and, indeed, we plan to do so. We will talk to other farmers and the Scottish Crofting Federation; we will have those conversations and we will, as we are doing across every sector, offer every guarantee that we can. However, we cannot do that without money, so the money guarantee has to come from the Treasury.

What messages will you take to the UK Government when you next meet and discuss the reassurances that you want to give to the Scottish agricultural industry?

For heaven’s sake, be sensible, realise the risks in this matter and do not go around whistling in the dark—which, unfortunately, has been a tendency. What we would say is, “Put the money on the table and help us make the guarantees that we want to make.” That would be my message, and if you would like to take that to your colleagues in London, I would be very grateful.

Thank you.

When will the Scottish Government be able to guarantee the funding status of EU students for 2017-18 and 2018-19? Concerns were raised by the sector in the Education and Skills Committee about the level of uncertainty and, given that the competency is devolved, it is a matter on which we can give assurances here.

09:30  

The matter is under active consideration, but I cannot say any more than that. John Swinney will be able to make the decision in the end. We were able to give a guarantee for this year and we would obviously want to see what is possible, but I cannot give you a definitive answer at this stage.

There has been talk of access to the free market versus membership of the European single market; indeed, Lewis Macdonald has identified that issue. However, many constituents have asked me what the difference is. Given that there are so many acronyms going about—EEA, EFTA, WTO and so on—can you define the debate a little bit for us?

Yes. We have to demystify the whole business, because it is very complex and full of acronyms of one sort or another. Someone recently described it to me as like trying to play three-dimensional chess inside a Rubik’s cube.

We have to say some simple things to people. The first thing to say is that Scotland voted to stay in the EU and that that was a sensible decision. Economically, we are looking at a very risky set of propositions, and it is not enough to go out and say that everything is going to be fine, because there is no proof of that.

Secondly, we need to explain to people that if we are to continue to benefit from membership of the EU—and we should be quite honest about the fact that we have benefited from the EU—Europe will insist that there are some things that we do, and they relate to having a fair system of trade and competition. Obviously it is unfair if you can undercut people on labour costs and social protections, so there must be fairness across Europe. That is what the single market is; it takes down the barriers to competition and creates fair competition. That is why what sometimes appears to be a regulatory burden is actually about ensuring fairness.

I hope that individual MSPs are engaging with their communities, constituencies, regions and stakeholders to simplify that message—and I also hope that they are listening, too. We should be listening to those who say that we have problems as well as those who say that we have possibilities. I am very happy to hear all evidence-based cases on what we should do next.

The committee is looking at information flow, and we now have a Scottish Parliament information centre bulletin on the subject. It might well be that we find some way of providing information that MSPs can use in their regions and constituencies. I would be happy to take that point away and consider how we could provide that, if it would be helpful.

Could we be heading for a hard Brexit? People are talking about the possibility. The negotiations are going to affect our ease of access to markets, so are we heading for a world trade option and, if so, how will that impact on Scotland?

In so far as we understand what the world trade option is—perhaps we understand it slightly better than the Secretary of State for International Trade—it is apparent that it is immensely problematic because we will have a far larger number of people to deal with, some of whom could create difficulties about any aspect of trade. It could be a nightmare of negotiation.

It is not correct to say that we would simply passport all our existing tariffs into the new situation. Those tariffs are not simply a list of percentages; in many cases, they are based on the quantum of the European market. You would have to work out the quantum, how much you were taking away and how much one could allow. It is immensely complicated.

The discussion of hard and soft Brexit is sometimes misleading, because it implies that at one end of the spectrum, people are actively working for the softest of landings while, at the other end, people are working for the hardest. I do not see anyone in the UK Government working for the softest of landings. It is therefore incumbent on us and others to argue the strong case for the single market, for example, because I do not hear it being articulated within the UK Government. In the UK Government, the discussion is about the degree of hardness.

Thank you.

I have a supplementary question. During our away day at the University of Strathclyde, we had a briefing from David Wilson, who was formerly with the Scottish Government and is now an academic at that university. He pointed out to the committee that informal discussions and formal ones—when, or if, we move on to them—about future trading relationships with third-party countries will be conducted without any Scottish input whatever, because trade is a reserved issue. How on earth can we protect Scotland’s interests and the interests of Scottish sectors in the trade negotiations when we are nowhere near the table?

Let us start from where we are. We are negotiating where the table is and what presence we have at it, so it would be wrong to say at this stage that what you describe is what will happen. However, it is a warning about what might happen. We should be very aware of that and apply the five tests to all the options. When the five tests are applied to the option of accepting a position in which we have no involvement, it fails the democratic, economic, social protection, solidarity and influence tests, so it is unacceptable to us in its entirety. We would have to make that very clear and negotiate on that basis.

Is that something that, for example, Keith Brown would have said when he met Liam Fox?

Indeed, and I am sure that it is something that I will say on many future occasions. We have to be very clear about how devolution—even devolution as it is now—changes how things are done. If Brexit had taken place before 1997, there would have been no structure in which Scotland’s voice could have been heard, apart from through the existence of the Secretary of State for Scotland. There is now a formal devolved structure that has been empowered on three occasions since devolution was established. Devolution is a dynamic process and we have to be in there arguing very strongly not just that our voice be heard but that we be part of the process of negotiating this.

Do the people with whom you are negotiating understand that? For example, I believe that the last time David Davis was in Government, it was in John Major’s Government prior to devolution. Similarly, Liam Fox was against devolution and Boris Johnson has never been seen as particularly friendly to Scotland either. Is it fair to say that you are dealing with people who perhaps, even in Conservative terms, are not quite up to speed with the devolution settlement?

I think that that is fair comment. However, some members of the Parliament were against devolution, so the leopard can change its spots. In addition, I am sure that the full information weight of the civil service, which is often a formidable machine, is being brought to bear when briefing ministers to tell them about the reality of devolution. Of course, it is my job—and the job of ministers in the National Assembly for Wales and Northern Irish ministers—to make the reality of devolution very clear to UK Government ministers. Other elements are involved, too; the voice of Gibraltar needs to be heard, as does the voice of London. Substantial counterweights to the UK Government are saying similar things to the things that we are saying.

Good morning to Michael Russell and Frank Strang. They are two people who I worked with closely for many years, so my questions will of course be very friendly.

I will pick up on Emma Harper’s theme of clearing up some of the confusion and demystifying the debate about the potential impact on Scotland of being outside the EU. At the same time, I return to Michael Russell’s reference to the debate earlier this week, in which I raised the issue of the customs union. I think that Lewis Macdonald said that a country can be in the single market but not necessarily in the customs union—I see that he is nodding. The debate has largely been about the single market, but is it not the case that the real economic impact for many businesses in Scotland would come from leaving the customs union and that therefore has to be much more prominent in the debate about the potential consequences for Scotland?

I agree. I pay tribute to Mr Lochhead because he knows more about and has more experience of European negotiation than anybody else in this room. His point is accurate. The absence of a customs union would be more problematic for most Scottish businesses than almost anything else. I will not say that it would be more problematic than the lack of a single market, because there are whole sectors for which the single market is absolutely vital. However, it is true that the loss of a customs union will impinge on any business or organisation.

To follow up on Emma Harper’s point, we have to demystify the issue as well as we can. It is hard enough to explain why the single market is important, but if we get into the customs union, it becomes byzantine in its complexity. However, you are right that we need to find a way to do it.

Is it not also the case that, if Liam Fox is globetrotting and investigating whether trade agreements are possible with non-EU countries, he is ruling out being part of the customs union, because we cannot allow the EU to negotiate with third parties while having bilateral negotiations with third parties round the world? The logical conclusion is therefore that the UK Government is heading for hard Brexit and leaving the customs union.

You are indeed right. The existence of Liam Fox’s department tells us that the UK Government is not interested in the customs union, unless the department was set up without the full knowledge of the implications. There cannot be a Department for International Trade in an existing customs union with a set of agreed tariffs—it just cannot be done.

At the moment, we are trying to read the runes of the situation without knowing precisely what the UK Government wants to do. Those runes indicate exactly what Richard Lochhead is saying.

It would be helpful if the Scottish Government could look at the potential impact on the tariffs and import costs that other countries put in place on exports from the UK. For example, I am told that Brazil has a 17 per cent tariff on Scotch whisky. I read that somewhere, but I do not know whether it is exactly true. We have to understand what examples of potential tariffs there are around the world and that leaving the customs union will have a heavy price for Scottish business, so that we can convey that message directly to Scottish business.

I am happy to confirm that work is being done on that. There are a number of economic sub-groups of the standing council, and that features largely in their work. I had a conversation yesterday evening with a senior European official about some of those matters.

It is one thing having transparency in the negotiations and a promise to involve devolved Administrations with recorded meetings every few weeks or months, whatever is agreed, albeit that the minutes might not be made public because the meetings will be between the devolved Administrations and the UK Government. However, the real negotiations will take place at different levels in the European Union between the UK Government and the EU. Some of those negotiations will be formal and some will be informal. The UK fishing minister, George Eustice, has just said publicly that he can foresee fishing being a good bargaining chip in the negotiations, which would have an impact on Scotland, as we have two-thirds of the UK fishing industry. How on earth are we going to be able to stay in the loop of all the informal negotiations, technical negotiations and the negotiations at official level?

You know the system well and I remember the many arguments that you had with your UK colleagues about access to lunches and other events that were taking place. I remember all that happening. We will be aware of that. I cannot guarantee that we are going to be in every room, because we cannot do that, but we are aware of the problem.

We are also aware that, once a structure is established, it often starts to get eroded round the edges by that sort of thing. As well as the formal structure within the reformed JMC structure, there has to be a strong informal structure and a strong official supporting structure. It is fair to say that the official contact has been very detailed in recent weeks and will continue to be so. We have to keep our eyes wide open to see what is taking place. We do not want to be naive.

There are loads of ways of achieving that, but the important point is the Prime Minister’s commitment to full involvement. That needs to be extended beyond the triggering of article 50 to exactly how the negotiations will work in practice.

09:45  

I understand that, as well as the JMC, there is the JMC for officials. Will Scottish civil servants be involved in those working groups?

Yes. One of the JMC principles is that there is a joint secretariat to make it work. Those official discussions are preparing the way for the ministerial discussions as part of the same thing. Therefore, we are already preparing the way for the conversation that the First Minister mentioned in her letter.

There is a joint ministerial committee on Europe. Will there be a joint ministerial committee on Brexit?

It is too early to say whether that is the special structure. The detailed discussion has been to ensure that there is an understanding that the structure will operate in a way that is favourable to agreement and oversight, whatever it is called and however it operates, and is not simply a rubber stamp.

I told David Davis a story that I am happy to tell the committee. On one occasion when I was a member of the JMCE, 21 UK ministers were present, along with the Welsh First Minister and me, so the discussion was not exactly even—Richard Lochhead will recognise that type of thing. We need to ensure that the structure does not err in that direction.

Will you insist on being involved in reserved and devolved matters? You mentioned devolved matters earlier. If we look at the First Minister’s five tests, we see that social protection, for example, covers many reserved areas.

We will apply the tests to every item that is discussed. From the evidence that the committee took last week, it is clear that, in a scenario in which more powers accrue to the Scottish Parliament as a result of the process, they would not necessarily solely be in present devolved areas. There are examples in other parts of the world where other powers exist. Although our interest would be first and foremost in protecting Scotland’s interests in its current devolved competences, it will not solely be in that.

Have you started to have that discussion? Have you warned the UK Government that that is where the process could lead?

I am not sure that warning people is the best start to negotiations.

Have you advised it, then?

We have certainly made clear where our interests lie, and we will continue to do so.

I want to follow the line of questioning about the customs union, which goes back to the issues that I asked about earlier. I think that you told Richard Lochhead that explaining the customs union and its byzantine implications is terribly difficult. I think that there are 120 bilateral agreements on trading matters between Switzerland and the European Union.

Thank you for that information, but you should not do your committee adviser out of a job.

I certainly would not want to do that.

In addition to Switzerland’s many bilateral relationships, Norway and Iceland have additional agreements and economic pressures, as they are outwith the customs union. Some would say, for example, that the Norwegian seafood industry has largely relocated to Scotland in order to be in the customs union that is provided by the European Union. It is clear that that is an economic benefit that we would want to retain.

I go back to my earlier question about whether the single market is the sole focus of the Scottish Government’s attention. You appear to imply that the customs union, as well as being more difficult to explain, might be more important in some respects.

No. I would not give members a hierarchy, and I would not want to give the impression that the single market is the sole focus of attention, but I have emphasised its importance, and I should also emphasise the importance of the customs union. They are the existing fabric of our relationships. They allow us to operate in the European Union, and we present them to the world in our trading and other relationships. It is very problematic to redraw them, and I do not think that even the most enthusiastic Brexiteer would deny that. It is right that we point that out.

It is also right that we look at alternatives, as we believe that they exist, and how they present themselves to us. We can apply the five tests and understand the situation, but we are not yet in a position to draw conclusions on that.

You rightly criticise the UK Government for being very unclear about its objectives, but would it be fair to say that you are yet at an early stage in drawing up the Scottish Government’s objectives in the discussions with UK ministers? Is that an unfair comment? I am open to either answer.

We have been much clearer about what we want than the UK Government: there is no dubiety and we do not lack clarity. Certainly, developing those objectives in detail is the work of the moment and is going on.

We do not see any clarity from the UK Government. One day David Davis says that it is not likely that we will remain in the single market, but the next day he is slapped down, while Boris Johnson makes the extraordinary remark that trading relationships will be fine because we drink 300 million bottles of prosecco, and someone else, without denying the figure, denies the assertion. It is all very confusing.

We are clear: we think that the best solution would have been to remain. We are clear that the single market is extremely important to us. We have explained in detail why that is and I have given you examples today. We are absolutely clear that the absence of a customs union would be problematic.

In chamber debates I have spoken about sectoral interests, and we have talked about problems and issues in the rural economy. I am very much looking forward to getting on to higher education—an area that I know particularly well—and to the environment, which is very close to my heart. In both those areas it is important that we talk about Europe. Gail Ross contributed to the debate on Tuesday and gave some very important information about the impact on higher education research in her constituency. I can do that for my constituency, and the Scottish Government will do that across Scotland. All those things are within our purview and we are talking about them.

If you look at horizon 2020, for example, you will see that there are countries that contribute to it by paying into the pot, so that might be an option. However, that would not take care of a wide range of issues to do with free movement of labour, which is as important for higher education as it is for any other sector in our economy. We have all those things to talk about.

We are being clear; we are developing our position and we are talking about our principles. I would love to see those principles being articulated by the UK Government. We are preparing our position on the negotiating machinery and we are urging others to move as fast as we are. We are not failing to articulate what we are doing: the First Minister has been very clear over the summer, when others have said nothing.

In terms of reaching conclusions on the options—you have described it as work that is ongoing—one of the issues that has been raised in the committee relates to the capacity of the UK Government to negotiate international trade, and of the Scottish Government to support the work that you have described. The convener has had this week from the head of the department of external affairs a reply setting out the staffing complement of that department and explaining that the staff who are supporting you are also supporting the First Minister, Fiona Hyslop, and Alasdair Allan—as well as working with other departments. Do you feel that you have the capacity to develop deliverable options from the complexity of issues that you have described today?

I will, in a minute, ask Frank Strang to say a word or two, because he is at the sharp end of that.

It is true that the people who are working with me are also working in a wider sphere. That is very helpful. From the very beginning I have seen my job not as being about building an empire or a department, but as being about building a team that can support the negotiations that we will undertake. That team must be flexible. Many of the people whom I talk to regularly are involved in other parts of the Scottish Government’s work; that is their strength, because they have expertise in that other work, on which we can draw. The smaller and more flexible team that we have been building has that capability. We are also open to bringing people in as we need them.

We are also getting a lot of help from the standing council and from organisations and individuals who want to talk. I have been involved in a series of detailed meetings with all sorts of people who want to sit down and talk about what they can bring to the table, how they can help and what they are thinking about. Even at my constituency surgeries there are people who come along and talk about the issue. There is enormous engagement, and the resources of Scotland are being used efficiently and effectively in that.

I will just add a little bit to what I said at the away-day discussion that we had in the summer. There are lots of unknowns in all this, but what we do know is that Brexit is something that Scotland needs to take very seriously. I talked before about how the directorate of the Scottish Government that I am part of is now focused entirely on external affairs, and is not including culture and other work. The team has increased: 56 people are now focusing on external affairs—by which I mean people in Scotland; that number does not include people who are overseas—and the number is increasing. There are new functions. For example, it is really important that we demystify the intelligence, so the intelligence and briefing function will, alongside the Scottish Parliament information centre, try to get the information that is needed. There is also a function to support the standing council, which can operate only if it is well supported, and there is an important project management function, because this is a big project that needs to be well co-ordinated. Those functions are growing.

The really important point is that we are working with others, as the minister said. This has to be a whole-Government effort. We are working particularly alongside our UK relations colleagues, because that is where the action is in relation to negotiations with the UK, as we said, but we have also put in place governance structures to ensure that the whole organisation is involved. There is, as you know, a Cabinet sub-committee, and a project board to ensure good governance. There is also informal engagement with all parts of Government on policy, so that we can consider how to equip directorates to do their business with stakeholders and be part of the story. It is a big team effort.

There is a visible sign of that in the debates that we are having, in which the cabinet secretary leads and I sum up, and we are working with all the cabinet secretaries and ministers. Last Wednesday I did a stakeholder event on energy with Paul Wheelhouse, and I did another recent event with Fergus Ewing. I have engagements in Brussels with Fiona Hyslop in October. There is a range of events, and there is collaborative activity between ministers and across the civil service.

You mentioned higher education. The committee made a call for evidence, to which education organisations responded. We have also taken oral evidence from the higher education sector, which is a key sector that is affected by the situation. How will you represent the sector’s interests in your negotiations with the UK Government?

I will do so with vigour. It is important that the Scottish higher education sector speaks with a united voice; I think that it will do so. The sector must be clear about, and prepared to articulate, the impact that leaving the EU will have on it, as all sectors must be. It must also consider what it needs if it is to minimise the potential for damage.

When I was speaking yesterday to Japanese businesses about the issue I drew a distinction that I think is important for every sector. We can talk about the positive benefits—I am happy to hear about them, if the evidence for them exists. If we can assist people in deriving positive benefits we will do so. There is no doubt about that. However, the minimum that we can do for others is try to ensure that they are not disadvantaged. Therefore, the first objective is probably to find means by which we can do that, and it might be difficult in some areas. Only then might we be able to see whether other things can be done to assist sectors.

We are applying that matrix everywhere and will apply it to higher education. Higher education must be very clear about what it thinks will happen and what resolution it wants. I am having discussions on that with a range of people in the sector.

Sir Michael—I am sorry, I mean Professor Michael Keating; I have elevated his status. Professor Keating has been ably guiding us through the areas of devolved competence—or trying to do so. EU law will cease to apply in Scotland and the rest of the UK, subject to the terms of our future relationship with the EU. The Scotland Act 1998, as amended in 2012 and 2016, gives the Scottish ministers powers to make legislation in areas of devolved competence. It appears that EU legislation works for Scotland in some ways but not in others. How will you go about starting to unpick the areas of legislative competence that we currently have, in the best interests of Scotland? Might we shadow some of the EU legislation that currently works for us?

Those are good questions. This is an example of real concrete differentiation; there is a different legal system in Scotland so, whatever happens, there will be a different solution. People who are looking at differentiated solutions might want to start thinking about that.

We know from the initial response from the Faculty of Advocates that it is very concerned about the capability of the Scottish institutions to re-transpose the legislation—to take a mass of legislation and bring it back home. We could not do that with some things. We are not going to take the common agricultural policy payments system and simply say that we will carry on with it, because that would be impossible, so we will have to have a new set of rules and regulations. We can certainly assume that we would continue to have other things in place for a period of time until we got round to unpicking them.

10:00  

If we were to set today the task for every member of the committee to look through the statutes and work out how we would deal with each one, we would not be finished within the two-year period following article 50 being triggered. We are therefore going to have to take as read quite a lot of information, and prioritise the changes that we bring about. That is going to be a big burden on the Scottish legal system and on the Scottish Parliament. That is one of the things that we should perhaps start to think about. Were we to get to that stage—we are not saying that we would automatically get to that stage—there might be a huge legislative burden to be dealt with by a Parliament that has 129 members. There were, at one point, two justice committees because so much legislation was going through Parliament. You ain’t seen nothing yet.

So, scoping is first, then it will be about working out how it can be done and prioritising what is going to be done while acknowledging that there will be a differentiated solution. The solution that will apply south of the border will not be the one that applies here, because Scots law is different.

Thank you. When the First Minister was before the committee a couple of weeks ago, she said that the Scottish Government is paying very close attention to the various legal challenges in relation to the triggering of article 50 and the involvement of the UK Parliament. I am not sure whether you are aware of the skeleton argument that was presented by claimants challenging the UK Government’s ability to trigger article 50. It has been analysed by our adviser, Sionaidh Douglas-Scott, and that analysis is on the committee’s website today. Basically, she outlines how part of the skeleton argument of the claimants is based on the devolution settlement and on the Act of Union 1707. The argument is that leaving the EU will affect Scotland’s private law, which is protected by the Act of Union. Have you had the opportunity to reflect on that?

Yes, and as the First Minister said, we are keeping a close eye on the legal proceedings that are taking place in London and Belfast. It is important that we understand them as they proceed. The Scottish Government is very sympathetic to the view that leaving the EU should be a parliamentary process and that the royal prerogative should not be used. I think that that view would gain widespread support across Parliament.

However, we will obviously consider at each stage of the proceedings what our appropriate reaction is. At the moment, that is all that we can do. However, it will be a developing situation and no doubt, convener, you will want to ask me or the First Minister your question again as the cases proceed.

Thank you. Finally, you will be aware of the advice that we were given when we took evidence in Brussels and which Conservative members of the committee have raised in debates in Parliament on several occasions. The advice relates to Scotland’s ability to speak to EU institutions as the Brexit process continues. The advice, which has been repeated by several Conservative members, is that if we act in good faith in our negotiations with the UK Government and it indicates to Europe that it is happy for us to have our own discussions, they can go ahead. However, it was said that the shutters would come down—I think that was the phrase that was used—if it was seen that we did not have the UK Government’s permission to speak directly to Europe.

My reflection on that, which I have raised publicly, is that surely the impetus is now on the UK Government to say “Yes, you’ve acted in good faith. You can go ahead and have these direct discussions with Europe about the possibilities for Scotland’s differentiated relationship.” Do you see any possibility of the UK Government giving that indication to Europe?

I can say only that I am entering into the negotiations on behalf of the Scottish Government in good faith. I hope that the UK Government understands that, that its judgment is sound and that it can see that. In those circumstances, I cannot imagine that there will be any problem.

It is perhaps slightly exaggerating the influence of the UK Government to say that whenever it says to a shutter in Europe “Come down,” it comes down. The reality is that the Scottish Government is entering into the discussions in good faith. I hope that the committee has seen today that a great deal of hard work is being done by officials, volunteers and people contributing across the board. We are going into the discussions intending to get the best deal for Scotland. I hope that that message gets to the UK Government and I certainly hope that it gets to countries across Europe and, indeed, even more widely than that.

Thank you, Mr Russell and Mr Strang. We will have a short suspension.

10:05 Meeting suspended.  

10:12 On resuming—