Optimistic and pessimistic scenarios possible for border trade in the event of independence - John Yellowlees

A comfort noted by Alan was that in the event of a Yes vote for Scottish independence the process of detaching Scotland from the UK and then readmittance to the EU would probably take several years, giving business more time to make the necessary adjustments than during some recent fiscal changes. Also, in that period there would surely be further progress in digitising customs procedures.

Currently lacking any significant non-food distribution centres other than Amazon, Scotland is at present dependent on movements from the logistics heartland of midland England. According to research by London School of Economics (LSE), so close is the economic integration between Scotland and the rest of the UK that the volume of trade is six times greater than what a gravity model would predict for two economies of their respective size and proximity. Most of this trade is in services, however, with only around 43 per cent of it being freight-generating.

Most of Scotland’s international trade passes through English ports and airports. The country lacks a direct RoRo ferry link to mainland Europe and its airports handle only 2 per cent of UK air cargo. With its limited traffic volumes and peripheral location, Scotland is presently reckoned to be too far north to become a major port of call for deep-sea container services.

If border controls significantly constrained cross-border freight traffic, a possible business response to independence might be to position more inventory in Scotland. This could impair logistical efficiency but would promote property development and employment. There might also be a modal shift from road to rail, offering easier border transit both to England and via the Channel Tunnel to other EU countries. Independence would promote an expansion of direct shipping services (containerised and RoRo) between Scotland and the European mainland and help Grangemouth to fulfil its potential.

Evidence of how countries can change economic direction is provided by the Irish Republic, where at the time of accession in 1973 the proportion of its exports going to the UK amounted to 55 per cent – now this is only 9 per cent, and since Brexit the proportion of Ireland-EU trade on direct ferry routes to the European mainland has doubled with seven new routes, while the share which crosses the UK “land-bridge” has dropped from 84 to 66 per cent.

Scotland has fewer crossing points by road to England than exist between Northern Ireland and the Irish Republic, however we lack a Good Friday Agreement to block the imposition of a hard border. If Scotland rejoined the EU single market as an independent country it could have border-free access to other EU countries via Ireland but routing of our trade on a double sea-crossing would be too circuitous.

Alan sketched out two scenarios. In the benign one, there would be minimal border friction: the Trade and Co-operation Agreement (TCA) would remain in force, providing tariff-free trade between UK and EU. Minimal divergence would prevail between UK and EU regulatory standards, and the Common Transit Convention would continue to apply to Scottish international trade “land-bridging” the rest of the UK. Advanced Customs IT and e-certification systems would have been tried and tested, minimising physical border checks, with alignment of EU and UK sanitary and phyto-sanitary (SPS) controls minimising checks and documentation and streamlined systems in place for monitoring and checking product rules of origin.

In his more pessimistic scenario, border friction would arise from divergence of UK and EU regulatory standards, requiring re-negotiation of the TCA and imposition of tariffs/restrictions on some classes of product. With less progress on the digitalisation of border processes including alignment of SPS controls and checking on ‘rules of origin’, we might see much greater border disruption with some categories of freight vehicles subject to routine or random checks. There could thus be an increase in the length and variability of cross-border transit times, with occasionally significant tail-backs. Scotland’s international logistics might also be affected by inconsistencies in such areas as truck fuel economy standards, cabotage rules and emissions trading, particularly after the EU introduces a carbon border adjustment mechanism.

John Yellowlees, Scottish chair, CILT