scotland flag and european union flag montage
A majority of Scottish people voted to remain in the EU at the June 23 referendum

The UK referendum on EU membership revealed a big split between the different British regions. Scotland, in particular, voted emphatically for staying in the EU: 62 per cent of Scots wanted to remain in the EU, against 48 per cent in the UK overall.

That has produced the predictable, slow-burning stand-off between UK Prime Minister Theresa May, who insists Britain will leave the EU as one country, and the Scottish first minister Nicola Sturgeon, who insists on saving as much as she can of Scotland’s current rights and access to what the EU offers. Just two years on from Scotland’s previous independence referendum, Sturgeon has now published a draft referendum bill which she threatens to introduce should Brexit take a form that in her view is not good enough for Scotland.

If a solution exists that meets both leaders’ demands and keeps Scotland within the UK, it would be this: Scotland should become a member in its own right of Efta (the European Free Trade Area that currently comprises Norway, Iceland, Liechtenstein and Switzerland) and the European Economic Area, which incorporate Efta members (except Switzerland) into the EU’s single market except for agriculture and fisheries.

Is this possible?

Look first at what Scottish Efta/EEA membership would require in practice. Scottish policymakers could usefully study what the EEA is and what it is not. It would involve Scotland complying with all present and future EU legislation on single market rules (except for fish and farming), maintaining the free movement of EU citizens to Scotland (and vice versa) and probably a membership fee. It would also require submitting to adjudication by the Efta court, which in practice must follow European Court of Justice jurisprudence.

Note also what it would not require: Efta is not part of the EU customs union, so there would be no need for a customs border between Scotland and England when the UK itself leaves the customs union. (If the UK ends up with tariff barriers with Europe, which is unlikely as a Canada-style deal is enough to avoid it, the weird but possible prospect arises of Scotland being in the single market, so allowed to sell as much of anything it likes, but facing trade duties. Alternatively and worse, it would face rules of origin that required disentangling Scottish from rest-of-UK content.) Nor is there a requirement for Efta countries to join the Schengen passport-free travel zone, even though all currently have. Scottish EEA membership would pose no obstacle to UK border controls as at present, nor any threat to passport-free travel between Scotland and England.

The challenges are practical, constitutional and political. Practically, many of the single market rules should be unproblematic to make stick. But two parts are thornier. First, maintaining free movement of people would require the UK devolving immigration policy as far as EU citizens are concerned to Scotland. But regionalised immigration policy is not beyond the wit of man, or even of politicians. It would mean Scotland could give Europeans the right to live and work in Scotland, without this giving any right to live and work elsewhere in the UK. Of course those Europeans could then physically cross into the rest of the UK without controls — but that is no different from the common travel area with Ireland. The City of London Corporation has published a report on regional visas, which points out that such systems exist elsewhere. London’s mayor seems interested, as does the FT’s leader column. (For this to add up to EEA membership, of course, Scotland would have to treat this “regional visa” as an automatic open-ended right for EU citizens to exercise their current work and residence rights on Scottish territory without other limits than the EEA agreement provides.)

Second, Scotland would have to comply with EU financial regulation. That requires a devolved regulatory regime, and therefore a difference between banks being domiciled in Scotland or the rest of the UK. Scotland would need its own financial regulator — though this could be the Bank of England playing a dual role — and would have to grant European authorities power over large banks. This sounds radical. But would it be any more radical than earlier acts of devolving power, which have led to different policy and regulatory regimes across the Scottish border in other policy fields?

Constitutionally, the question is whether a Scotland that remains within the UK can be given enough autonomy to be constitutionally capable of fulfilling the requirements of EEA membership if it so wishes. At the moment, of course, the fact that EU law applies in Scotland means that it does fulfil them. Sturgeon has argued that all powers that return to the UK as a result of Brexit, should, insofar as they apply to Scotland, be devolved to the Scottish authorities. If her wish is granted, or at least enough of it, it should therefore be possible for an autonomous but non-independent Scotland to continue to apply the relevant single market rules. But it would also have to bind itself to rules as they continue to evolve, as this is decided by the EU legislative process in which Scotland would not have a say.

Lawyers have to determine whether such a constitutional capability could be possessed by a Scotland remaining within the UK. But it looks possible. At least it cannot be an objection that the UK government could ultimately change or overrule Scotland’s status so that EU law no longer applied — after all, the Efta members of the EEA can leave the arrangement if they wish, without that option undermining their EEA membership for as long as it lasts.

Politically, is this an option that could appeal to the various parties? For Scotland, it would involve giving up as much sovereignty to the EU as, say, Norway does, but compared with its current status it would arguably amount to more, not less autonomy — and it would safeguard most of the economic and movement rights Scottish residents enjoy in Europe and stand to lose with a “hard Brexit”.

For the UK, it would keep the union together and, although governance would be much more regionalised than at present, there would be zero barriers to people or goods on the Scottish-English border. Scottish Conservative leader Ruth Davidson, who supported EU membership and opposes Scottish independence after Brexit, should be particularly interested. The dual regulation of finance would be tricky — but its most likely consequence would be for the financial industry to move from London to Edinburgh, and retain its “passports” into the single market. But isn’t that better for the UK than if financiers decamp to Dublin or Frankfurt?

The EU should look kindly on Scottish EEA membership as an expression of the continuing attraction of the European project, and of course a mild mitigation of the shrinking of the single market that Brexit will cause. And there are several precedents for EU membership applying only to parts of a country’s territory (although none where the central government is out while a region is in). As for Efta members, they have so far only pronounced themselves on possible UK membership. Norway has been cool; Iceland more welcoming. But Scotland’s population — the same as Norway’s at about 5m — should make its Efta membership much easier to digest.

To sum up, there is a lot to like for everyone. The biggest obstacle is constitutional. But if there is a will, there is a way. If politicians across the UK and Europe would only recognise a sorely needed constellation of aligned interests when they see one, they could put the lawyers to work without delay.

Other readables

  • In the interest of your self-education about Walloon trade politics, you may want to read a new briefing from CEPS which argues the objections to the EU-Canada trade agreement (Ceta) are misguided. A particularly interesting point is that the maligned investment arbitration in Ceta does away with the much worse arbitration mechanisms in pre-existing bilateral deals.
  • The Center for Global Development explains the good that could come of the UK not classifying students as immigrants.

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