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Geoffroy Duparc-Portier

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Gioele Figus

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Graeme Roy

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New data, published last month, provides the first insight into Scotland’s trade flows post-Brexit.

In the run-up to the EU referendum, the Scottish Government argued that the Scottish economy – and in particular the international ambitions of the Government – would be negatively impacted by the UK leaving the EU. In the end, 62% of the Scottish electorate voted to remain. Since then, the Scottish Government has used these arguments to build the case for independence, arguing that Scotland would be economically better off.

A major concern of policymakers has been the potential impact of trade barriers with the EU on key export markets for Scotland. Export Statistics Scotland provides a glimpse of early trends in post-Brexit trading. The data covers the three years from 2019 to 2021 (so the two years of transition before the UK formally left the Customs Union and the Single Market on 1st January 2021).

There are two important caveats with the data.

• Firstly, and unfortunately, the Scottish Government have implemented a new methodology for estimating exports that they have not backdated beyond 2019. This is disappointing as it means that important questions around Scotland’s long-term trends in internationalisation cannot be tracked. Whilst the main aggregates are unlikely to have changed greatly – for example, the relative importance of key markets or products – the differences between this new publication and past editions are not insignificant, particularly at a granular level.
• Secondly, like all other economies, Covid-19 had a significant impact on international trade flows. Some trends, even into 2021, are likely to reflect temporary or Covid-19-related shocks and the full impact of any Brexit-induced shift in trade patterns may be accentuated or diminished by such trends.

Figure 1 shows the pattern of Scottish export markets in 2021.

As we noted in a CITP blog post in December 2022, Scotland exports more to the rest of the UK than it does internationally. This holds true in the latest data. This is not surprising as there is considerable evidence that trade between regions of the same country is easier than trade between different countries. But this does vary by type of export. Exports to the rest of the UK are dominated by services, whereas manufactured goods – influenced by the likes of whisky and petroleum-related products – are more internationally focused.

As we noted in our paper, “Trade Offs: Understanding future trade options for Scotland”, a difficult choice exists for Scotland in seeking to trade one border (i.e. the border with the UK) with another (i.e. the border with the EU).  If, for example, Scotland chose to leave the UK it could face increased barriers with the rest of the world including with the rest of the UK because it would fall out of existing UK trade agreements. Re-joining the EU would reduce these barriers with EU countries (and with countries the EU has a trade deal with) but not with the rest of the UK. Given the differences between exporting services and manufacturing goods – both in terms of non-tariff barriers and each sector’s shares of economic activity – changing Scotland’s market access arrangements will not be straightforward nor guaranteed to lead to immediate changes in trade flows.

So what about the impact of Brexit?

The chart below shows the change in export values between 2019 and 2021. At first glance, we can see a significant drop in exports to the EU (by 11.7%) and these have not recovered to pre-pandemic levels. This contrasts with exports to the rest of the UK which have increased (by 4.0%) over the same time period.

However, international exports to non-EU countries are also substantially lower in 2021 compared to 2019 (down by 11.5%). It is therefore difficult to separate the impact of Brexit from a general reduction in international exports, which could be linked to Covid restrictions.

Of course, there may be some exporters who have found that not only are exports to the EU more difficult post-Brexit but so are exports to other countries (perhaps through loss of access to supply chains or access to such markets). We also see some significant variation in performance within sectors. For example, agriculture and fishing exports are down 11.5% with the EU between 2019 and 2021 but have risen 7.1% to the rest of the world. We know that agricultural and fishing products have been particularly exposed to post-Brexit changes in administration, custom checks and delays in shipping products to markets.

Overall, however, the story is one of relatively weak international export performance across the Scottish economy. This is not surprising and similar to many other countries that are continuing to recover from Covid-19. It will therefore be some time before any Brexit effect – positive or negative – can be fully identified from such data.