Tuesday, 8 July 2014

Scotland: some known unknowns

By Professor Iain McLean. This article first appeared in the spring 2014 edition of the RSGS's magazine, The Geographer.

If we vote ‘Yes’ on 18th September 2014, we do not know what we will get, apart from the departure of Scottish MPs from Westminster. To borrow Donald Rumsfeld’s useful phrase: the remaining terms of independence are ‘known unknowns’. The Scottish negotiators must enter discussions with several counterparties, such as the European Union, NATO, and the rest of the United Kingdom (rUK). I discuss seven of the ‘known unknowns’.

The European Union


The Scottish Government acknowledges that “it will be for the EU member states… to take forward the most appropriate procedure under which an independent Scotland will become a signatory to the EU Treaties”. Scotland wants to enter under Article 48 of The Lisbon Treaty. Many doubt whether that is feasible, but if it is, the parties would be the UK and the European Council. Scotland would not be a party at all. Under the more plausible Article 49, it would be in control of its own application. But it would not automatically inherit the various opt-outs and rebates that the current UK has secured from the EU, such as the contributions rebate and an optout from the Schengen common travel area. The outcome of those would emerge from negotiations with a counterparty (the European Council) whose composition is currently unknown.

NATO 


The Scottish Government wants both to join NATO and to get rid of the Trident submarine fleet from Faslane and the armaments store from Coulport by 2020. I cannot say how NATO’s Council would respond to these two commitments. But, as the Council acts by unanimity, I can say that its position would be determined by whichever member state was both most hostile to Scotland’s proposals and prepared to threaten a veto.

Rest of the United Kingdom (rUK) 


After a ‘Yes’ vote, there would have to be negotiations with representatives of rUK over a huge range of issues, including:
  • splitting UK assets and liabilities; 
  • sharing some existing UK services, including overseas embassies and consulates, the Driver and Vehicle Licensing Authority (DVLA), and the BBC;
  • the Common Travel Area currently comprising the UK, Ireland, the Channel Islands, and the Isle of Man (this negotiation would also involve the other counterparty governments);
  • sterling and the Bank of England; 
  • Faslane and Coulport. 

For some of these, international law offers a default position. Were the parties, after failing to agree, to submit their dispute to arbitration, there are principles of international law that would determine which party got what. Unlike in a divorce, I do not think it is remotely likely that Scotland and rUK would have to go to arbitration on any of these issues. But the common knowledge of what would probably happen if they did go to arbitration will set limits. On other matters – most obviously Faslane and Coulport – principles of international law will not help the negotiators. On those, a purely political bargain must be struck.

Splitting immovable assets – land and buildings – is easy. Those located in Scotland go to Scotland. Those located in rUK go to rUK. Immovable assets located outside the present UK would fall to the rUK as the ‘continuator’ state, although the Scottish Government wishes to negotiate for the shared use of UK diplomatic premises. Movable, tangible assets such as tanks and computers would be assigned according to their purpose rather than their location. In most cases, this would have the same consequence as a split by location, but in some cases (for example, military equipment, or equipment relating to UK government functions currently carried out in Scotland) it would not. 

Splitting liabilities could be more controversial. In relation to the UK’s existing stock of government bonds on issue, HM Treasury has stated that “the continuing UK Government would in all circumstances honour the contractual terms of the debt issued by the UK Government. An independent Scottish state would become responsible for a fair and proportionate share of the UK’s current liabilities. An entirely separate contract between the continuing UK Government and an independent Scottish state’s Government would need to be established. The respective shares of debt and the terms of repayment would be subject to negotiation.” 

Various principles for apportioning liabilities between Scotland and rUK have been suggested. The Scottish Government says, “The national debt could be apportioned by reference to the historic contribution made to the UK’s public finances by Scotland, or on the basis of our population share. We may choose to offset Scotland’s share of the value of UK assets against our inherited debt.” 

The problem with the ‘historic contribution’ proposal is that there cannot be an uncontroversial starting date except 1707. Data are scanty for the first 200 years or so of the Union. But any later starting date may be seen as arbitrary and chosen to maximise bargaining advantage. As there is no default position in international law for the ‘historic contribution’ apportionment, for most liabilities the choice would be between ‘population share’ and ‘relative GDP’. Population share is simple and an obvious default. Considerations of ability to repay may, however, push the parties towards an apportionment based on relative GDP.

The Scottish Government insists that, once North Sea activity and tax receipts are assigned to Scotland, Scottish GDP per head will be higher than that of rUK on Independence Day. A relative GDP assignment of liabilities would therefore be less favourable to Scotland than a population share assignment. For the liabilities and contingent liabilities arising from the UK bailout of failing banks in 2008-9 (including RBS and the then Bank of Scotland group), I am not aware of any agreed principles of international law that may be applicable.

Shared services 


This should not be difficult, so long as the distinction between assets and institutions is borne in mind. As recently explained by Adam Tomkins, John Millar Professor of Public Law at the University of Glasgow, “international law shows you that, in the context of a state succession of this nature, there is every difference between institutions and assets. Institutions of the UK become institutions of the rest of the UK, but assets of those institutions fall to be apportioned equitably.” The assets of the DVLA and the BBC (studios, computer systems, vans, etc) may be apportioned equally. But as institutions, they would be institutions of rUK after independence. It is only common sense that Scotland should then seek to buy some services from them, but that would be a matter of contractual agreement.

Common Travel Area (CTA) 


The CTA should be easy, on two conditions: (i) that the EU does not insist on Scotland joining the Schengen Area, which would normally be part of the acquis communautaire; and (ii) that Scotland is willing to co-ordinate its policy on migration with rUK, Ireland, the Isle of Man, and the Channel Islands. Condition (i) is a matter of common sense, which I hope will prevail. Condition (ii) may be more problematic if the Scottish Government after independence maintains the current Scottish Government’s wish to “take forward a points-based approach targeted at particular Scottish requirements… [and] a new model of asylum services separate from immigration.” An immigrant to one member of a common travel area is an immigrant to all of them. Therefore, in negotiations to remain in the CTA, all of the other parties would have to approve Scotland’s migration policy.

Monetary policy, and Nuclear policy

 

This leaves the two most difficult areas. The Scottish Government insists that Scotland would remain in the sterling area, and would seek membership of the Monetary Policy Committee of the Bank of England. It argues that that is in the interests of rUK as well as of Scotland, because the present UK is what economists label an ‘optimum currency area’. The UK Government insists that the rUK government would not agree to that; a stance backed by both the Liberal Democrat and Labour finance spokesmen. Sterling is an institution, not an asset. Therefore, after independence, it would become an institution of rUK. Its negotiators may then reconsider whether admitting Scotland to a currency union is indeed in the interests of rUK. The ‘optimal currency area’ argument should have some traction; but so too will arguments which conclude that the near-collapse of the eurozone from 2009 onwards occurred, among other reasons, because some eurozone members were fiscally undisciplined. rUK would insist that if it admitted Scotland to a common currency area, Scotland would have to agree to harsh rules capping its maximum public debt and deficit.

Mark Carney, Governor of the Bank of England, said in Edinburgh in January that “Any arrangement to retain sterling in an independent Scotland would need to be negotiated between the Westminster and Scottish Parliaments.” He went on to point out that a monetary union requires close co-operation between its member states on budgeting and bank regulation. On bank regulation, for instance, “The European process illustrates the difficulty of building the institutional arrangements for a common insurance scheme across sovereign states. This is unsurprising since mutualised deposit guarantee schemes imply a pooling of risk and loss of sovereignty. All member states must be persuaded that they won’t simply be left with the bill for the mistakes of others.”

Whereas on currency and banking Scotland’s position appears weak, on Faslane and Coulport it appears strong. An independent Scotland could not be a nuclear weapon state, because of the Nuclear Non-proliferation Treaty (NPT) of 1970. Therefore it is proper for Scotland to give notice to rUK that the nuclear-armed submarines and warheads would need to be removed from Scottish soil. What is unclear is how the rUK would respond. In any case, the UK political parties and the armed services are in the middle of arguments about how, or whether, to replace the present Trident deterrent force. These arguments cut across parties (and services). I cannot predict the stance to be taken by the UK government which will be elected in 2015. Even if negotiations are started by the current coalition government, its position on Trident and Faslane may be altered by the new government. Apart from the terms of the NPT, international law is no help here. The outcome, whatever it is, will be intrinsically political.

I also predict that deals on these difficult issues will be linked, even though they are conceptually separate. There is no logical connection between Scotland’s currency and rUK’s nuclear-armed submarines, but there will certainly be a political connection. I do not know how this most important pair of known unknowns will end up.



Professor Iain McLean, Official Fellow in Politics, Nuffield College, University of Oxford