EU Referendum

What are the key issues for trade and the economy?

Exports and imports are at the heart of the European project. And in this referendum, a lot hinges on how they would be affected. Here, I tackle some of the key questions in the debate.


How important to the Scottish economy is trade with the European Union?

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It's important. The Scottish government estimates we sold nearly £12bn worth of exports to European Union members in 2014.

That's less than half of our total international exports: less than quarter of everything we sell to the rest of the UK, less than a tenth of everything the Scottish economy produces. But it's still a lot.

Scotland's biggest single trading partner is the USA, for both imports and exports. For England, the top source of imports is Germany. Of Scotland's top five export markets, three are in the EU.

EU exports are reckoned to support 300,000 jobs in Scotland. That's just under one in every eight. But that doesn't mean they're all at risk. Even outside the EU, trade would continue. However, it might be reduced, or job creation might be curtailed, as employers seek different markets.

Remember that trade is not just about things you can put on a ship or plane. Britain exports a lot of services. The second biggest category of Scottish exports, after food and drink (mainly whisky) is "professional services" - that could be accountancy, architecture or education.

More and more trade is done digitally, down a telecoms link. And tourism is a form of trade too. A tourist coming to Britain is a form of export.

Remember also that the vast majority of businesses - particularly smaller ones - do not trade internationally. They may face competition from outside the UK, but they are not engaged in exporting.


How much does it matter that we have a balance with the rest of the EU?

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Not much. With rapid economic growth elsewhere, that is to be expected. And in most recent years, trade with the EU has been growing, but not as fast.

Nor does it matter if we sell lots to one country and import from another. A balanced economy should have an overall balance between imports and exports with the whole of the rest of the world.

But the UK economy is not balanced. It has been running very large trade deficits - buying more internationally than it sells. That is not a reflection of its EU membership. It's not simply solved by leaving the EU, or by staying in it. There are fundamental problems with investment levels, skills, productivity and competitiveness.

So it matters that we have strong exports, with which to pay for imports. It doesn't matter so much that we have a balance within the EU.

But the nature of an open single market means that it ought to be a big opportunity for Scottish companies to grow their markets, it's probably not an opportunity that enough companies are taking.


How could leaving the EU affect trade?

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There are different future paths for what would follow the open, single market Britain is now in - imperfect though it is, and particularly on services. The "Vote Leave" campaign doesn't have an agreed position on that.

Some say that the other EU nations would want to continue trading with the the UK, because they sell the British much more than they buy: why would they want to stop selling?

But when they keep selling, they may try to do so on terms that are more advantageous to them. They can influence the rules and regulations for the European market. Either British business is in the EU, and trying to shape those regulations (sometimes succeeding, sometimes not), or it has to accept whatever is decided by the remaining members.

Under some circumstances, tariffs could be imposed - that's a tax levied as trade crosses borders. Of more significance would be "non-tariff barriers" to trade.

These can be rules and regulations, often designed to protect the interests of one industry against competition from a foreign rival - for instance, safety specifications set at a level that suits one company over another, or slow processing at border customs.

In the case of the European Union, the risk is probably about future rule changes on, say, the energy efficiency of products, or the complex rules on banking to protect against collapse.


How could trade change if Britain comes out of the European Union?

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Many "Vote Leave" campaigners want to see more trade with older partners, such as Commonwealth countries. They believe the EU makes that more difficult at present, through the trade barriers it erects and the trade deals it strikes.

At present, trade negotiations are entirely handled by the Brussels institutions at present, and member countries, businesses and pressure groups can seek to influence them.

Outside the EU, Britain could negotiate deals in its own interests. It wouldn't have to compromise with competing interests within the EU - for instance, the political power of French farmers.

Doing so would probably not be straight-forward, however. Trade deals are complex. The negotiations can take many years, and the outcome tends to reflect the relative negotiating strength of the negotiators.

From outside, Britain would want a free trade deal with the European Union. And about 60 deals with countries outside the EU would cease to apply to Britain, and so it would need to move fast to replace them.

It would be attractive for the rest of the EU to get a trade deal with the UK, if it votes to leave. But the need for a deal is much greater on the British side of the negotiating table. And bigger trading partners tend to get more of what they want out of trade talks.

And where there's a clash of interests, that relative strength may be reflected in the outcome - for instance, on the ability of European citizens to work in Britain.

The EU sees free movement of people - of workers - as being as important as the free movement of goods and services. Britain may want to curtail immigration significantly, but it may find it difficult to do so while retaining strong trading links.


What about foreign investment into Scotland?

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That has been an important element of Scotland's growth for several decades. There was confirmation last month that Scotland was seen as the second most attractive part of the UK to foreign investors, after London.

From outside the EU, the UK would continue to have some of the factors that attract multinational companies - skills, infrastructure, the English language, relatively low tax and relatively simple business rules.

But it would not guarantee free and open access into the 500 million-person EU market. That could prove a competitive advantage to an EU member similar to Scotland, with Ireland being an obvious rival for foreign investment.

Many people say we should worry less about attracting inward investors, and do more to grow Scottish businesses.

But it's worth remembering that one of the advantages of inward investment is that it brings new skills, ideas and business practices, and helps the economy modernise.

Indeed, trade itself is a spur to being competitive. Economists say that type of support for productivity growth could be reduced if trade or inward investment are reduced.


How much does it cost to be a member of the European Union?

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Costs can be measured in terms of the long-term impact on the economy. We don't know how much the UK and Scottish economies would have changed since 1973 if they had been outside the EU.

What we do know is that Britain has gone from being "the sick man of Europe" to a relatively strong performer. Some of that is explained by the transition from old industries to new, which has been very painful for some.

Take textiles, for instance. Scotland has lost of its knitwear jobs and other clothes manufacturing to lower-cost competitors. Many of these jobs have gone outside the EU, so this is not just about European membership.

The fishing industry has more reason than most for grievance against rules set in Brussels. What we can't know is how things would have been different outside the UK. Over-fishing would still have been a problem.

The easier, though controversial, calculation, is how much governments pay to Brussels. The Vote Leave campaign has claimed the payment is more than £350m per week.

That does not account for money coming back in agriculture support, backing for economic and social development projects, and Britain's long-time deal on a budget rebate.

When they are factored in, the net bill in 2014 was £161m. Per year, the UK's net payment is currently around £8.3bn. That accounts for roughly 1% of government spending.

The numbers for Scotland are harder to find. But spending per head by European institutions has been higher, to support more economically deprived or outlying areas.

Outside the EU, the saving on Britain's contribution to the EU budget could be spent on public services, or tax cuts. But the Institute of Fiscal Studies reckons it would be more than cancelled out by a much larger reduction in tax receipts resulting from likely slower growth.


Would Scotland be better or worse off economically if it left the EU?

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The simple answer - we can't be sure. It depends on many factors. And few, if any, are different for Scotland than they are for the UK as a whole.

It could be that the whole British economy is boosted by the freedom to make its own rules and its own trade deals. It could mean a big jolt, but one that puts the economy on a faster growth path.

Most economists reckon the economy would continue to grow outside the EU, though some foresee a recession in the short term. Over the longer term, Britain would continue to get more prosperous.

However, almost all economists agree that it would do so at a slower pace than it would inside the European Union. And slower growth means not only less prosperity, but also lower tax revenue with which to support public services.

You may ask: "why should we trust 'most economists'?" Much of the outcome of Brexit is unknowable, and the future for the UK within the EU is also based on uncertain economic modelling.

In turn, here's my question for you: if not expert opinion, who do you trust?

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