Meeting of the Parliament (Hybrid)

Meeting date: Thursday, March 31, 2022

Official Report 1097KB pdf

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Scotland’s Vision for Trade (Annual Report)

The next item of business is a statement by Ivan McKee on “Scotland’s Vision for Trade Annual Report March 2022”. The minister will take questions at the end of his statement, so there should be no interruptions or interventions.

14:59  

Scotland is a proud trading nation. For centuries, we have exported goods and services around the globe. Today, our food and drink, higher education and science and technology exports, to name but a few, are renowned the world over. In Scotland, we recognise that international trade is a force for good. However, it can present us with difficult challenges—from how we respond to world events outwith our control to how we ensure that the benefits of trade are shared equitably and responsibly.

In recent years, the complex system of international trading connections has come under considerable strain. The Covid-19 pandemic presented unprecedented challenges to the supply of critical products. The United Kingdom’s hard exit from the European Union compounded those challenges, creating barriers to our access to the goods and services that we take for granted and to our ability to share what we produce with our neighbours.

In January 2021, amid that disruption and uncertainty, I presented “Scotland’s Vision for Trade” to the Parliament. The vision offers a longer-term perspective on and a coherent approach to trade, and a set of guiding principles that we can use to underpin our trade decisions and relationships.

I am pleased to present the first annual report, which details our progress so far in implementing the vision. The context in which I do so is, of course, marked by further dramatic shifts in the global trading system. The need to apply principles to international trade decisions has become even more important. Russia’s invasion of Ukraine has resulted in a new global crisis and humanitarian catastrophe. Trade and economic relationships with Russia have been a particular focus of the co-ordinated worldwide response. The vision provides our guiding principles as we stand in solidarity with the Ukrainian people.

The report documents how we have been putting the core principles of inclusive growth, wellbeing, sustainability, net zero and good governance into practice to meet the needs of Scotland’s people and businesses. It sets out the actions that we have taken to implement our vision, our progress in using the levers that are available to the Scottish Government and how we have sought to influence the UK Government in areas in which levers are currently reserved. As I said last year when laying out our vision to Parliament,

“actions speak louder than words.”—[Official Report, 26 January 2021; c 22.]

I will therefore take a few moments to highlight a few of the actions that we have taken so far.

Last year, Glasgow hosted one of the most important gatherings of world leaders this century. Scotland can be proud of the 26th United Nations climate change conference of the parties—COP26—for many reasons. One of those reasons is that it marked the end of our overseas support and promotion activities that were solely focused on fossil fuel goods and services. We made that commitment in “Scotland’s Vision for Trade”.

Looking ahead, we are turning our focus to supporting the energy and climate transition, using momentum from COP26 to deliver opportunities for Scotland. For example, creating trade opportunities is a core part of our hydrogen action plan, which will help to make Scotland a leading nation in the production of reliable, competitive and sustainable hydrogen.

In this first year, we have focused on improving the trading environment for Scotland’s businesses, which can face a number of barriers to trading internationally. Something as simple as product labelling requirements can deter companies from entering a market or increase costs, and addressing such market barriers can open up significant opportunities for businesses. We have therefore developed a methodology to identify and prioritise the most significant market access barriers that affect Scottish trade, so that we can begin to address them.

In taking advantage of trade opportunities, we have consistently sought to strike the right balance between competing priorities in order to ensure that trade rules do not jeopardise other important aims. The vision provides us with a framework for doing so. For example, our green port proposals adapt the UK’s free port model to help to deliver a net zero economy and a fair work first approach, and our notification to the World Trade Organization of our single-use plastics regulations allowed us to demonstrate transparency and openness with regard to the scrutiny that comes with effective global governance, while ensuring that trade rules do not prevent Scotland from meeting ambitious environmental targets.

However, as the report makes clear, there is much more that we can do to advance Scotland’s economic, social and environmental aims through trade. We are at the beginning of implementing our vision, and we are open, honest and ambitious about the work that lies ahead of us.

Actions in that regard will not be taken in isolation from other strategies, but will underpin and support them by helping to create optimal trading conditions for Scotland’s businesses. For example, the vision will directly support the national strategy for economic transformation’s aim to strengthen Scotland’s position in new markets and industries and to generate new, well-paid jobs from a just transition to net zero, and it will support Scotland’s export growth plan, “A Trading Nation”.

For our economy, that includes identifying further opportunities to make it easier for Scottish businesses to trade digitally, while boosting our international recognition as an ethical digital nation. Those objectives are also set out in the recently published technology sector export plan.

For Scotland’s people, in recognition that there are winners and losers from trade, we will build our evidence base on what those differential impacts are and how we can address them. That approach aligns with our ambitions for our economy to drive progress towards a fairer and more equal society, as set out in our national strategy for economic transformation.

For the planet, we will continue to build coherence between our climate, environmental and trade ambitions, while developing our understanding of the strengths and opportunities that are presented by our environmental goods and services sectors.

Although we are clear about the actions that Scotland can and should take in relation to trade, we also rely on others acting in a way that supports our economy, our people and the planet. As the report details, we have pressed the UK Government to use the trade-related levers that sit with Westminster to support Scotland. For example, since leaving the European Union against Scotland’s wishes, the UK Government has pursued a series of ad hoc free trade agreements with countries around the world. Although they have been presented as a benefit of Brexit, in reality, the expected economic benefits from those deals are tiny, and they in no way compensate for the economic impact of our exit from the EU.

Given the impact of those agreements across a wide range of devolved and reserved issues, we and the other devolved nations have repeatedly called for a full role for the devolved Administrations and legislatures in all trade negotiations. Despite the UK Government’s refusal, we have engaged fully on each and every agreement, pressing for greater opportunities for Scotland’s strong services sectors and the reduction of tariff and non-tariff barriers for our priority goods exports. In doing so, we have drawn on the principles set out in the vision to promote and protect Scottish trade priorities.

Our call for increased involvement is not just about process. The UK Government recently signed free trade agreements with Australia and New Zealand, both of which raised issues of profound importance to Scotland, but our lack of a formal role led to our concerns being ignored. We have consistently pressed the UK Government to protect Scottish producers from imports that originate from countries with different environmental and animal welfare standards. Appropriate protection was not included in either agreement. Now, for example, a Scottish premium beef exporter risks being undercut by competitors from Australia and New Zealand who are not competing on a level playing field of like-for-like standards.

We also continue to press the UK Government in other areas. We continue to push for the UK Government to build on the terms of the trade and co-operation agreement and deepen the UK’s relationship with the EU, as our nearest and largest trading partner. We are also engaging with the UK Government to ensure that Scottish interests are identified, protected and promoted at the World Trade Organization, which reflects commitments made in the vision.

In the vision for trade, we issued an open invitation to individuals, businesses and other organisations in Scotland, and globally, to discuss trade policy with us. I reiterate that call for engagement. Those inputs are crucial to our work on implementing the vision, and they will ensure that our approach is informed by their experience and expertise.

Last year, I told the Parliament that the vision made clear the kind of country that we want to be, with strong principles to guide how we do business around the world so that people, companies and other Governments know who we are and what we represent as a nation. One year on, the report demonstrates that we remain absolutely committed to openly, transparently and unapologetically setting high standards for ourselves and for others.

I began my statement by reflecting on Scotland’s proud trading legacy. In a context of turbulent global affairs and strains on the international trading system that are unprecedented in modern times, Scotland does not forget its principles, nor does it compromise them when it suits. Today, we continue that legacy.

The minister will now take questions on the issues raised in his statement. I intend to allow around 20 minutes for questions, after which we will move on to the next item of business. I would be grateful if members who wish to ask a question would press their request-to-speak buttons now.

I thank the minister for the early sight of his statement.

In the first paragraph of his statement, he rightly mentions that the higher education sector is one of the key sectors when it comes to improving a range of economic factors. He is absolutely right about that. However, Universities Scotland has commented that Scotland is not sufficiently competitive when it comes to economic growth, and that was one of the unanimous conclusions of the Parliament’s Finance and Public Administration Committee.

I will read a short section of the Universities Scotland comment on that. It says:

“The research excellence grant has declined 18.2% in real terms since 2014/15”.

It continues:

“Over the same time period, Scotland’s universities have won a progressively smaller percentage share of UKRI resources, from a 15.4% share to a 12.9% share.”

What does the minister think is the reason for Scotland not winning so many of those research grant projects, and what is being done to address that?

Secondly, the minister talked about improving the trade environment for Scotland’s businesses. He will know that one of the big asks of the business community—and, indeed, of the Scottish Funding Council—is that much more needs to be done to upskill and reskill our workforce, and to provide a much greater focus on digital skills, data science and leadership and management skills, by making far more resources available through the national transition training fund. Is that going to happen?

On economic growth, as we emerge from Covid, we are determined to continue to grow Scotland’s economy. Of course, the biggest drain on our economic growth has been the policy of the UK Westminster Government in taking Scotland out of the European Union against our will. That has had the biggest impact on growth, international trade and investment opportunities for Scotland.

Liz Smith is absolutely right about the world-leading position of Scotland’s universities. I have just got back from Expo 2020 in Dubai. Heriot-Watt University is the biggest international university in the Emirates, which is a fact that we and the university are very proud of. I met the university on its new campus; I also met the University of Strathclyde on its campus in Dubai. Scotland’s universities are positioned extremely well—they occupy leading positions around the world. We continue to work with the university sector to promote and develop its profile, and to recognise that it is a cornerstone, not just from the point of view of academic excellence, but in promoting our values, as well as trade and investment opportunities around the world.

We are rightly proud of the fact that Scotland continues to lead Europe in our higher education research and development spend, and we will continue to focus relentlessly on that. As Liz Smith identified, Scotland gains 13 per cent of UK spend on R and D, which is far above our population share. We continue to work in a hugely competitive environment to make sure that Scotland punches above its weight.

Turning to the issue of digital skills, I am sure that Liz Smith will have read “Scotland’s Inward Investment Plan: Shaping Scotland’s Economy”, which identifies as a key action increasing the number of digitally trained people who are focused on digital careers from 4,000 a year to 10,000 a year. We are on target to achieve that.

On the wider upskilling piece across the economy, Liz Smith will be well aware of the significant funding that the Scottish Government is putting into digital upskilling and reskilling across a range of areas in which that is required for Scotland to maintain its leading position in the key industries of the future.

I thank the minister for providing prior sight of his statement.

He is absolutely right to emphasise the importance of trade. Trade is fundamentally important if we want to see improved prosperity and, most importantly, an increased number of high-quality jobs, particularly as we look to transition away from oil, which has been at the top of Scotland’s export table for a number of decades.

However, in order to make a difference, it is necessary to have targets, metrics and milestones. I have to say that the annual report and the report on which it is an update are rather light on numbers, which is a surprise, because the 2019 report, “A Trading Nation—a plan for growing Scotland’s exports”, did an excellent job of identifying metrics.

Will the Government, in future updates to that plan, commit to a range of metrics, so that we can measure progress? “A Trading Nation” pointed out that 0.2 per cent of Scotland’s gross domestic product is attributable to trade, and set a benchmark of 0.5 per cent. It also identified a number of opportunity gaps in key markets, especially the USA, which accounted for a 10.7 per cent share of the export value gap. Are there any updates available on those core benchmark metrics for our trade?

Similarly, it was identified that 97,000 firms do not export and that 10,500 firms export just 18 per cent of their output. Are any updates available on those numbers? Is an update available on the number of firms that the Scottish Government has assisted in the past year?

The real question that we need to ask ourselves is: what does Scotland want to sell to the world? For future updates to “Scotland’s Vision for Trade” to be helpful, we need metrics, so please can we have them?

I am delighted to be able to respond to that question by making the member aware that we will soon bring forward an update on “A Trading Nation” and will provide the exact data that he requires. That report is in the final stages of being pulled together, two and a half years after we published the plan. I will also shortly bring forward an update on our foreign direct investment plan, “Shaping Scotland’s Economy”, to articulate the progress that we have made there. The member can be assured that a full suite of numbers will be available as part of those updates.

The member should recognise that we are talking about “Scotland’s Vision for Trade”, which is one of our four international plans. It sits alongside “A Trading Nation”, which focuses on what we sell around the world and how we sell it and support businesses to sell more, and alongside our inward investment plan, which focuses on how we continue to cement Scotland’s position as the leading inward investment attraction in the UK outside of London, as well as our global capital investment plan, which is very much related to the work on natural capital investment that my colleague Màiri McAllan spoke about in the previous statement.

The vision for trade is about our principles and the measures that we take to ensure that those principles are applied. It is about how we trade, rather than what we trade. The other plans in that suite of work focus on the numbers—the member knows that I am hugely focused on those. The report that we are talking about today is about our principles and the concrete actions that we are taking to embed and develop those principles, to ensure good governance of trade and to work with others to take forward environmental, social and other standards and tackle those aspects of our trading relationships.

The minister has said that no trade deal that the UK Government can strike will make up for what Brexit has taken away from Scotland. It is clear that the UK Government is not delivering on our vision for trade but is instead bargaining away Scottish interests. Does the minister agree that, with the full powers of independence, Scotland would be able to make our objectives and values part of our trade decisions and relationships in the future?

Governments around the world have a range of levers available to them to influence trade and its impacts. Today’s report outlines the progress that we have made, using the levers that are available to us and based on our principles. It also sets out how we have pressed the UK Government to use the levers that are currently reserved to Westminster to act in the interests of Scotland’s economy and people, and of our planet.

The UK Government is negotiating a series of ad hoc free-trade agreements which are, as I said, expected to result in tiny increases in the economy that will in no way compensate for the loss of trade as a result of Brexit. The UK Government has no wider strategy and has not prioritised building on the terms of the current trade agreement with the EU, which is our nearest and largest trading partner.

In contrast, our vision for trade is an example of a coherent, strategic and principles-based approach to the trade that Scotland could take forward as an independent country.

The minister has claimed that his Government seeks to reduce barriers to trade and has outward-looking principles, yet it remains the policy of his Government to put up hard barriers to trade with our closest neighbours and largest trading partners in other parts of the United Kingdom and to destroy the internal market that we enjoy.

To focus on something that he can actually deliver, will the minister advise what the Government is doing to support Scottish business and to increase operations and trade opportunities within our United Kingdom market?

The irony of that is remarkable. It is the Tory Government that has done the most damage to Scotland’s economy and our trading relationships through its completely misguided approach to Brexit. We would not have agreed with it, but the Tory Government could have done Brexit in a way that maintained our position in the single market and the customs union. However, it chose to ignore that because of some ridiculous and misguided points of principle and to sacrifice Scottish and UK business on the altar of its ridiculous obsession with being an island apart from the rest of the world. It is complete nonsense.

As is clear in the plan, the Scottish Government is focused on reducing barriers to trade. We will continue to trade with our nearest neighbours. We work with Scottish businesses, as I am sure the member is aware, to support their ability to export internationally and to the rest of the UK. Our staff in Scotland house in London focus on opening up opportunities for Scottish businesses to identify markets beyond Scotland, both within the UK and internationally.

The Government remains focused on reducing trade barriers, supporting Scottish business, increasing investment into Scotland and continuing to deliver on that agenda. We are very proud of that approach, which is in contrast to the policies of the UK Government, which has sought to erect barriers to trade at every opportunity.

Valneva’s decision to develop and manufacture its Covid-19 vaccine in Scotland is very welcome, as is the recent announcement of a Scottish Enterprise funding package, which will support high-quality jobs. Having one of the largest and most advanced manufacturing sites in the world in West Lothian brings with it substantial opportunities for exports of vaccines across the world. Can the minister say any more about how the Scottish Government and its vision for trade will help to ensure that we realise the substantial opportunities from trade for our life sciences and biotechnology industries?

Fiona Hyslop is absolutely right; Scotland’s life sciences sector is a key part of Scotland’s economy. We identified that in our national strategy for economic transformation. It is a key export sector in “A Trading Nation” and continues to punch above its weight in terms of research and development, investment in the sector and inward investment. We are working with the sector through the industry leadership group to develop a life sciences sector export plan, which will continue that growth.

The Valneva site, which I had the pleasure of visiting on Monday, is remarkable. For Scotland to land such globally significant inward investment to manufacture Covid vaccines and many other vaccines at scale is a testament to the growth and strength of the sector. It has not been helped by the UK Government doing its best to cut the legs away from Valneva through its ridiculous behaviour in relation to the contract that it had with it to supply vaccines. The Scottish Government stepped in, rescued the deal and made sure, through Scottish Enterprise investment, that the plant will be one of the cornerstones of Scotland’s life sciences sector. That is one of the many inward investments that are coming down the track, which will be announced in due course, to continue to support the sector.

The vision for trade supports those aims by identifying actions that the Scottish Government can take to influence the trading environment by building the necessary conditions for growth. That offers opportunities for the life sciences and biotechnology industries right across Scotland.

The statement is a bit light on delivery plans, but the Government is committing to a methodology to prioritise addressing identified market access barriers. What is the timescale for using that methodology? Will the minister share the analysis with the Parliament and who will be responsible for delivering the actions that are needed to address those barriers?

I point the member in the direction of “A Trading Nation”, which is the plan for growing Scotland’s exports. It is jam-packed full of targets and I will come back very soon to update the Parliament, as indicated earlier, on the detail of those.

The vision for trade is about how we trade, how we interact with others around the world to be able to take forward our principles and how we interact with them on good governance and tackling environmental challenges. It is also about making sure that we recognise that there are winners and losers from trade, how we position Scotland’s trading behaviour in that regard, and taking steps, as I identified, to exit from our support for fossil fuels as part of our net zero mission.

As identified in the vision for trade, we are taking forward a process for identifying market access barriers, where businesses can notify us of them. We can then deal with those directly when we have the scope to do so on the world stage or engage with the UK Government when it has the levers to do so. We will continue to identify and tackle those barriers. As I said, if the member wants to know where we are on the export plan actions, she should come back for the next instalment, when she will hear about the update on “A Trading Nation”.

I appreciate that the minister wishes to provide comprehensive responses, but several members would still like to put a question.

The minister mentioned the Australia and New Zealand agreements in his statement and pointed out that there was no formal role for Scotland in those. Does he agree with the comments from the NFU Scotland president, Martin Kennedy, that the UK-New Zealand trade deal

“offers virtually nothing to Scottish farmers and crofters in return but risks undermining our valuable lamb, dairy and horticultural sectors by granting access to large volumes of imported goods”?

Yes, I absolutely agree with that, and if the UK Government had engaged us in the full process of those negotiations, as many other international trading partners do with their sub-national jurisdictions, we would be in a much better place.

Unfortunately, however, the UK Government has refused to do that and, as part of our efforts through our vision for trade, we continue to call on it to behave in a much more connected and inclusive manner and to include the devolved Administrations in the process of negotiating those trade deals.

It is depressing that the minister comes back to the chamber and reports on yet more disputes with the UK Government. His inability to reach agreement with the UK Government is hampering our efforts in this area. We need better from our two Governments. That is important because, since the Scottish National Party came to power 15 years ago, the trade deficit has grown significantly. What will be the effect on the trade deficit of awarding two ferry contracts to Turkey and of constructing in the far east many of Scotland’s offshore wind farms?

Willie Rennie should be aware that Scotland’s trade position is much better than that of the UK as a whole. Recent data has shown that Scotland has a trade surplus in comparison with the rest of the UK. That is something that we want to continue to build on.

As for disagreements, he should listen more closely. We have been keen to engage with the UK Government. We have produced comprehensive documents articulating Scotland’s position for all the FTAs that the UK Government has negotiated, and have made those available in plenty of time. Four years ago, we produced a paper articulating how Scotland and other devolved Administrations should be involved in that process.

The UK Government has refused to engage with us on any of that. That is the root cause of the problem. We stand ready to engage with it, present Scotland’s case and be part of those trade negotiations, but the UK Government, through its misguided policies, refuses to engage with us on that. If the member wants to make a difference, he should be pushing the UK Government to take the devolved Administrations seriously in that regard.

I am sure that members of all parties will agree how important it is that work continues to ensure that Scotland operates as a good global citizen. The minister touched on that in his statement, when he spoke about values. Will he provide an update on the steps that have been taken to continue to develop and strengthen connections between human rights and trade?

“Scotland’s Vision for Trade” importantly recognises that human rights must be a central consideration in our trade policy. As a part of that, we are looking to embed human rights considerations in our trade-related activity, including through additional guidance on due diligence. We will continue to review that and to benchmark ourselves against developments in the European Union. We will also seek to engage constructively on that with the UK Government, including on the negotiation of free trade agreements. The UK Government should ensure that future trading partners comply with fundamental human rights and international law.

I thank the minister for early sight of his statement. The annual report references fossil fuel subsidy reform, and the minister referred to the free trade deals that the UK Government has made with Australia and New Zealand. Will he provide further information about the impacts that those deals will have on our environmental and animal welfare standards, and about how, alongside the United Kingdom Internal Market Act 2020, they will limit our ability to prevent environmental harm and to maintain high regulatory standards in areas such as food safety, energy, animal welfare and climate?

We take all those issues extremely seriously, and “Scotland’s Vision for Trade” has that at its core. As I said, we continue to engage with the UK Government to make sure that those principles are embedded in any free trade agreements that it takes forward, and we continue to highlight areas in which that is not the case. The vision for trade, which is recognised internationally as a benchmark on how to trade in such a manner, has that at its very core, and we are proud of the fact that that allows us to articulate those important issues of how we trade as much as what we trade, and to make sure that they are absolutely central to Scotland’s approach to international trade.

After today, the devolved Government is ending overseas trade support for oil and gas service companies. Does the minister agree that it will be left up to local authorities in the north-east to defend the thousands of jobs of workers in that sector, and will he take the opportunity to apologise to the people of the north-east for this latest betrayal by the SNP-Green coalition of chaos?

I hate to break it to the member, but the UK Government is doing the same, in withdrawing support from businesses that are focused solely on fossil fuel exports.

That is absolutely the right thing to do. It allows us to refocus our support. We are still spending the same amount of money on supporting those businesses; we are just focusing it on businesses that are transitioning to the renewables sector, rather than businesses that are not.

Frankly, the member should also know that the vast majority of businesses in the oil and gas sector, which I meet regularly, are well down the road of transitioning away from sole reliance on oil and gas to renewables. For the member to encourage them not to transition is absolutely counter to what he is trying to achieve, and if such businesses do not transition it will be harmful to the economy of Scotland and those whom he represents.

Edinburgh and south-east Scotland city region deal recently approved a £30 million investment in the food and drink innovation hub at Queen Margaret University in East Lothian. East Lothian Food and Drink is the sector’s only business improvement district in Scotland. The sector is one of our major growth areas.

With the continued effects of Brexit still impacting on the sector, what can the vision for trade do to support growth in the food and drink sector in East Lothian and Scotland?

The Scottish food and drink sector is renowned around the world for its high-quality standards and provenance, and our support through Scotland’s food and drink export plan helps the industry to exploit the most significant international opportunities. That sits alongside the food and drink sector recovery plan, which mitigates the impact of Brexit and Covid.

The vision for trade supports that by identifying actions that the Scottish Government can take to improve the trading environment to benefit the sector. We are keen that new free-trade agreements offer opportunities for Scottish exports, although of course they will not compensate for the barriers that the UK Government has erected between Scotland and the EU.

That concludes the statement on “Scotland’s Vision for Trade.”