 Good morning and welcome to the 12th meeting of the Culture, Tourism, Europe and External Relations Committee in session 5. I would like to remind members of the public to turn off mobile phones, and any members of the committee using electronic devices to access committee papers should ensure that they are switched to silent. Apologies have been received from Ross Greer MSP. Our first item of business today is evidence on the implications of the EU referendum for Scotland. I would like to welcome to the meeting our first panel of witnesses, who will be giving evidence on Switzerland's trading relationship with the EU. Professor Clive Church, who is here at the Parliament, is the emeritus professor of European studies at the University of Kent. Good morning. Via video conference, Professor Mathias Usch, chair of public law, European law and international economic law at the University of Zurich, Guten Tag. I'd like to begin by inviting our witnesses to make some brief opening remarks before moving to questions. Professor Usch, would you like to begin? Thank you very much, dear Madam Chair, dear members of the committee. Let me thank you for inviting me to participate in this session. It's a great honour to give evidence on the relationship of Switzerland to the European Union. I will make four short introductory remarks. Firstly, some figures. As you know, Switzerland is not a member of the European Union and there are no plans at the moment, no realistic plans at the moment to become a member in the near future. At the same time, Switzerland is highly integrated with the EU. This is no surprise when we look at the map of Europe. Switzerland is located at the heart of the continent surrounded by three of the six founding members of the European communities. Economically, the interdependence between Switzerland and the EU is impressive. Switzerland is the fourth most important trading partner of the European Union. More than 50 per cent of Swiss exports go to the EU and some 75 per cent of imports come from EU countries. Every fourth inhabitant in Switzerland is a foreigner and two thirds of these foreigners are EU citizens. Some 300,000 commuters travel back and forth to borders often on a daily basis, mainly, of course, from Germany, France, Italy and Austria. A second introductory remark, the agreements. Trade between Switzerland and the EU is governed. This is important first and foremost by WTO rules. Building there upon Switzerland and the EU have concluded a tight net of bilateral agreements consisting of some 20 main agreements and more than 100 secondary agreements. The free trade agreement of 1972 still provides the backbone covering industrial products and some agricultural processed agricultural products. In 1989 the insurance agreement was concluded, mainly granting market access rights in the non-life sector. In 1992 the people and the cantons rejected in a referendum to become a member of the EEA. Thereafter, Switzerland concluded, fought de Mieux, but still quite successfully, two sets of bilateral agreements. The first package was signed in 1999 comprising seven agreements, mainly covering market access. The controversial agreement on the free movement of persons is one of these seven agreements. Institutionally, these seven agreements are tied together by a so-called Gildin clause. This means that when one agreement is terminated, all the others are terminated automatically two. The package of bilateral agreements two was signed in 2004 comprising nine agreements. Among them are the Schengen and the Dublin Association agreements. This package does not contain a Gildin clause. Since 2004 Switzerland and the EU have concluded further agreements of minor importance, I shall say, for example to participate in EU agencies and to cooperate in competition matters. Institutionally, the classical two pillar approach applies. According to this principle, Switzerland and the EU are on their own responsible for the good functioning of the agreements. This institutional setting is not ideal. Substance and structure of the agreements do not match. Against this background, the EU has been insisting since 2008 that a new institutional framework agreement be negotiated. The EU has made it clear that without a new institutional framework agreement, there will be no new market access agreements. These negotiations are currently underway. A third remark, the popular initiative stop mass immigration. Over the last 15 years, the Swiss people approved the so-called bilateral way in various referenda. However, in February 2014, the people and the cantons voted in favour of a new constitutional provision according to which Switzerland shall control immigration of foreign nationals autonomously again. It shall do so by introducing quotas and by giving Swiss nationals priority. This new constitutional provision is not compatible with the agreement on the free movement of persons. The EU has made it clear that it is not willing to renegotiate the agreement on the free movement of persons to the effect that Switzerland would be allowed to introduce quotas and to give priority to the Swiss nationals. In two weeks in December of this year, the Swiss parliament will decide on the implementing legislation. It seems at the moment at least that the parliament will favour implementation which is compatible with the agreement on the free movement of persons contrary to the wording of the constitutional provision. Therefore, it is to be welcomed that a new referendum will be held on this issue. That means the people and the cantons will be called upon to vote once again on this very constitutional provision, hopefully in order to bring in line the constitution with the planned implementing legislation. It is unclear at the moment when this will happen and on what question we will exactly vote on. It will be either on a straightforward deletion of this existing new constitutional provision or in addition on a new provision which deals with immigration somehow but which explicitly allows to continue with the agreement on the free movement of persons. A fourth and last remark on the policy of autonomous adoption of EU law. In addition to the tight net of bilateral treaties, Switzerland has developed another instrument in order to mitigate the negative consequences of not being a member of the EU or the EEA, namely the policy of autonomous adoption of EU law. This principle has been applied in Switzerland since the late 1980s. According to this principle, Swiss law shall be aligned with EU law as far as possible. Deviations from EU regulations and directives are of course possible but they shall only be chosen if there are cogent, political and or economic reasons to do so. We estimate that 30% to 50% of all acts and ordinances on the federal level in Switzerland are influenced by EU law directly or indirectly. Let me wrap up my introductory remarks with the following tentative conclusion. The bilateral way, the Swiss-König way, the King's way as it is often termed in Switzerland has enabled Switzerland to prosper and at the same time to remain outside of the EU and the EEA. Currently, however, the bilateral way is under construction and put into question. The negotiations on a new institutional framework agreement and the internal debate on immigration are major challenges which Switzerland needs to come to terms with. Both issues are controversial. I look forward to your comments and questions. Thank you very much, Professor Oosh. I would now like to invite Professor Church to make a few short introductory remarks. Thank you, convener. Can I start by saying how grateful I am for the invitation that has allowed me to visit Edinburgh and to see your magnificent Parliament building. I hope that when we spend millions on Westminster, it will be as well preserved and nice as this. I also thank Professor Oish for laying out so clearly both orally and in his written documentation a lot of the details. He has allowed me to concentrate on what concerns me. That is the fact that in political discourse, when Switzerland comes up in the United Kingdom, it is usually offered as a model for the United Kingdom to follow. I do not believe this. I think that Switzerland is engaged in a parallel movement, not always in the same direction as the United Kingdom, which negotiators should be aware of. However, I think that there are a number of reasons why it is not a model. Firstly, of course, it is not a single clearly designed structure. It is an evolving one, as Professor Oosh has made very helpfully clear. Secondly, it is not a clean cut, easy to copy model. It is extraordinarily complicated, as again he has made clear. Alongside the reference to the various legal deals, the fact that there is a long undergoing current of what academics call Europeanisation, that is to say the penetration of the social and political fabric by relations with the EU. I think that this is often overlooked, but it is extremely important. There are other reasons, I think, alongside the closeness to EU legislation, why it is not a model, particularly for those who favour Britain leaving the European Union. The second thing is the very Swiss nature of the agreements. They are catered, they are designed to fit Switzerland's needs, and I would echo what Professor Oish says about geography. St Gotthard, which is being remarkably developed at the moment, is far more important to Swiss European relations than, shall we say, the channel tunnel is to British European relations. The third point is that the model is not universally accepted inside Switzerland, let alone by the European Union. Of course, it also has an effton dimension, which should not be overlooked. I think that the thing has been further complicated by the rise of the migration question, as Professor Oish has made clear. He referred quite rightly to what the Swiss called the RAUS initiative, which is German acronym for out-of-the-impus, which called simply to remove the offending article 121 of the Constitution from the draft and take Switzerland back to where it was before 2014. The Federal Council recently discussed this and decided that it did not like the initiative. It was not wholly democratic, but it is going to put up a counter project, as the Swiss call it, what that will be that we do not yet know. I think that the final reason why it is not a model is Brexit itself. A lot of people think that Brexit automatically is going to favour the Swiss, but, in fact, I think that there are a number of problems, notably the unhelpful impact that it has had on the already high level of the Swiss franc and, in fact, the loss of a useful ally inside the European Union. For all these reasons, I do not see Switzerland as a model. I see it as one of two countries in a parallel situation, moving over longer periods sometimes in different trajectories, but having to seek a new relationship with the EU after a referendum ruled out the obvious option, they are all seeking to make up for the fact that they are, in some way, outside the single market. They are both searching for deals that aid key national sectors. They both want bespoke arrangements. They are both bedevilled by a clash between populist pressures and business needs. They are both deeply affected, although then it was realised by the Europeanisation. They are both proceeding on the fact, which I have never wholly accepted, that the EU needs them more than they need the EU, and they are both having to face up to the possibility of contradictory referendum. Both of them find themselves in a situation of one state facing not merely 27 others, but the EU institutions as well. It is difficult to say where that is going to lead. A solution to, if you like, the 9th of February solution is possible, but it is risky. Signing up to a framework agreement would, I think, in Sahantree-Appleby's terms, be very courageous, because it is so likely the EEA. I really do not know what is going to happen. I think that a great deal depends on the evolution of Swiss internal politics and how the EU reacts to Brexit. Thank you very much for that. That is absolutely fascinating. Can I start by focusing on the issue of how much EU law applies to Switzerland? I think that Professor Osh would have talked about between 30 and 50 per cent of EU law applying to Switzerland. What is the position of the European Court of Justice as an arbiter in Switzerland? How much involvement does the European Court of Justice have in your law? This is a very difficult issue for the Swiss, because in the first constitutional charter that we know about, of 1291, there is a reference to an agreement to not having foreign judges, and that is produced by opponents of close relations with Europe at every juncture. They are resisting bitterly the idea that the ECJ should have any role in any future framework arrangements. The federal government has gone some way to accepting a role for the federal government. I would defer to Professor Osh's technical expertise on that, but that is an extraordinarily controversial and delicate issue, which I think will be one of the main factors which will decide any future referendum. Professor Osh? Thank you. I concur with my colleague what Professor Just has said. I would like to add perhaps that the impact of the jurisprudence of the ECJ in Switzerland is already quite high. I would like to point to three constellations. The first one is when it comes to the interpretation of the existing bilateral agreements. As I have said, there is this two pillar principle at the moment, the classical, traditional classical public international law system, whereby the ECJ interprets the bilateral agreements for the EU and the federal supreme court in Switzerland interprets the bilateral agreements for Switzerland. In doing so, the Swiss federal supreme court always looks at what the ECJ has ruled on EU law, which has been transferred also to the bilateral agreements. The typical example being the agreement on the free movement of persons, where the Swiss federal supreme court quite consistently follows the jurisprudence of the ECJ. This is an indirect influence, but it is a relevant influence. Secondly, autonomous adoption of EU law. Of course, when we adopt autonomously EU law, then we also look for the interpretation of these laws. We look at what the ECJ says on the parallel EU law, and therefore there again is an indirect influence, which we can clearly demonstrate in Switzerland. And then the question has arised, and as to whether the ECJ shall be the final arbiter in a future institutional framework agreement. I shortly would add to what has been said by my colleague before that the other option, which could be discussed at the moment, and which is discussed in some circles in Switzerland, would be to use the EFTA court somehow in order to be the final arbiter for the interpretation of the bilateral agreements, at least for Switzerland. But this has, and I refer to my slide page 14, this has not been the route which the federal council has been taken. The federal council in Switzerland has favoured the ECJ to be the final arbiter, and the EU has agreed on that in order to base the negotiations on this very proposal. Thank you very much. Now, we don't have very much time. There's lots more I'd like to ask you, but I'll pass on to my colleague Lewis MacDonald. Thank you very much, and I'm very interested in a lot of what's been said already this morning. I think one of the things from our perspective, Professor Church addressed the question of whether there was any sense in which the Swiss arrangements, as they have evolved, could form a model for another country like our own. I think that my question would be a slightly different one, but perhaps bearing on the same thing. Given that the Swiss arrangement is clearly unique and has evolved in a multitude of different ways over time, is it from a Swiss perspective, if you were to roll back time to 1992 or even 1972, would this ever have been envisaged as the outcome, and would this ever be something that people in Switzerland would have wanted or would wish as the model, or is it simply a case of, this is what's happened and we have to live with it? It's very much a question of what's happened and we live with it. I think that it's true to say that over the last few years the whole bilateral approach has become infinitely popular in Switzerland and recent opinion polls suggest that attitudes have changed since the ninth of February 2014 and people would now give priority to maintaining the bilateral agreement over the right to impose quotas and ceilings, as the initiative allows them to do. I think that you put your finger on it, Mr McDonald, because Swiss opinion changes. We didn't mention in our introductory remarks that Switzerland agreed to join the EEA, but before that process was complete, the Government actually filed an application for membership in May 1992, and that remained frozen, as we said, on the table until this May, I think it was. They did that for various reasons, one of which was public opinion poll, which showed that for the first time in the autumn of 1991 over 50% of the population were in favour of membership, so that rather, as in the United Kingdom, opinion changes over time, but they have come not merely to live with but to love the bilaterals. Does that mean that Switzerland has an infinite capacity for negotiating around the margins of all of this? Is this something that will continue to evolve in an apparently random and certainly a unique fashion? Difficult question, perhaps from two angles on the first. The one perspective might be that indeed it is sort of a piecemeal which has been evolving over time, and when there were windows of opportunity and the demands on both sides which matched, one could go for bilateral agreements. We do not know at the moment where this leads to. When it comes to market access agreements, there is always a discussion as to whether we shall go for an agreement on energy, which is currently negotiated since a couple of years already, and sometimes there is a discussion as to whether we should go and we should try to go for an agreement on services. It is open as to where this route might lead. The other angle, of course, then is that we have begun to realise that this is a difficult route when it comes to institutional matters, and it is no surprise and it is logic that the EU has begun to insist on negotiating such an institutional framework agreement, which also might be profitable for Switzerland, by the way, just in order to make it more rule of law based the whole thing. Where this leads to, I do not know. I cannot give you a more precise answer on that. From the point of view of what Britain might do in the context of leaving the European Union, we heard last week evidence from Eftah and Norway in relation to Eftah. I was quite surprised to hear that the Eftah court had been set aside as a possible solution to the difficulty of squaring the circle between foreign judges and the European court of justice. Curious to know, does that mean, from a Swiss perspective, that Eftah has little relevance or does it simply mean that does it simply reflect a change in opinion towards the European Union within Switzerland? No, I do not. I think that the Swiss are fairly keen on Eftah. It is the kind of international organisation in which they prefer being wholly intergovernmental. It provides a very useful function. Going back a bit to speaking as the sort of historian I used to be, when the United Kingdom left Eftah, Eftah changed and became an extremely useful forum for the smaller nations of Europe to negotiate with the EU. To some extent, it goes on that role. The President in office of the Swiss Confederation has said in the last few days that he would be very happy to see the United Kingdom rejoin after, which I think is probably not a view shared in Norway. It is a useful addition, but basically the Swiss look at it from their point of view. What do they want? There is a historical difference. The Swiss started in 1992 with a small number of issues that they wanted to deal with. The EU added a number, including free movement, and they worked on that. Because the United Kingdom has been a member of the EU for so long, it cannot, I think, avoid trying to come up with some comprehensive arrangement that deals with all the sectors. I do not think that either government or more emphatic levers would really want to spend 20 or 30 years filling it, coming up with yet more deals to cover this piece of the sector or that sector. I think that they would be looking for something more comprehensive. I wonder if Professor Wieserser has a view on Eftah from a Swiss perspective. I concur with my colleague Professor Church. I would like to add some point on the question of why this might not be an ideal setting for the United Kingdom, the bilateral way as it has been evolving over time for Switzerland, mainly also because of the institutional question. Because the EU has the impression at the moment that the EU does not accept participation within the single market even punctually, sectorally without having a fully-fledged institutional setting for the guaranteeing of the good functioning of this arrangement. And there are mainly these two controversial issues to be tackled somehow, dispute settlement and the adoption of new EU rules. As it has been done in the EEA on a weekly basis, on a monthly basis, but you have heard about this one week ago, I could not imagine, but this I'm saying as an outsider, obviously I could not imagine the UK accepting the ECJ or the Eftah court as the final arbiter on these issues, nor could I think at the moment that the UK would be ready to take over new EU regulations and directives on a periodical way without being able to decide on these issues itself. This is what Switzerland now discusses controversially in our country and which is equally controversial in the three EEA Eftah member states, implicitly or explicitly said so. Thank you very much. I'll now move on to Stuart McMillan and then Rachel Hamilton. Good morning panel. I just have a couple of questions regarding the free movement of persons. Am I correct in saying that in some of the earlier comments it was mentioned that politically there is a will to have free movement of persons, but with the population that's not the case? I think on the whole businesses in favour of it and as in this country there are social groups who believe in the value of this, but there is also an extremely strong opposing movement, so-called the Swiss People's Party, which if you're looking for Switzerland as a model, that's the one that UKIP should be following. It's by far and away the best organised of that kind of party in Europe and most successful. They are very opposed to free movement, both I think from outside Europe because that's been a trend since the late 1980s, but also to people particularly from Germany. I mean there is a friction I think between some members of the party and German professionals who have taken important posts in Swiss administrative society. Professor Rush. Thank you. I would like to add two small points. Firstly let us go shortly back to this initiative called officially called Stop Mass Immigration. These were actually two new provisions which as I've said obliged Switzerland to control immigration autonomously again. However, and this is important, it does not say explicitly that if there will be no renegotiations, no successful renegotiations of the agreement on the free movement of persons, that we shall terminate this agreement. So our politicians, the wider public is a little bit confused at the moment as to what this means. As a consequence now we have these constitutional provisions and we have the agreement on the free movement of persons and this is irreconcilable. There's no, it's not possible from a legal viewpoint to somehow sort out this coalition. Therefore we welcome this idea that once again we vote on this constitutional provision. Secondly I shortly would like to add that there is free movement of persons in a similar way as you know it from the EU but when I may refer you to page eight there are some slight deviations from this principle. Namely I would like to mention two which are important. There is free movement for self-employed people being able to open up their own their own uh uh uh uh uh uh gogift somewhere but only for natural persons. This does not include juridical persons firms enterprises and secondly there is a right to provide services but only quantitatively limited but only up to 90 days per year this is this is important ac yn dda'r ddaf? Felly, mae'n ddiddordeb y cyfathneg y cyfathneg y ffordd ym Mhwylfaeth, llawer i ddim yn ganddo o'r ddysgaf COVID-19 o'r barbwyll yn ei hirth. Mae hyn yn fawr, yn ddiddordeb y cyfathneg ym Mhwylfaeth, yng nghyd-rhodd bwysig, yn osgyrchu i ddim yn y cyfrifyniadau, yn ddiddordeb ym mhwylfaeth, yn oedd pethau enghreithio'r ddydd, yn ddiddordeb, ond mae'n ddiddordeb, in the Swiss attempts to negotiate an agreement with the EU on the free movement of people? I think that it has. The referendum cast a long shadow before it took place, and from Professor Oesh will correct me, I think that from virtually the end of last year the EU said, sorry, we're just not going to discuss this until Brexit is resolved, so that there's been a timetable delay. The other problem is that, of course, everybody now looks at Switzerland in relation to the Brexit argument. Is the EU going to play one against the other? Should we go down this road because it would be more likely to fit in with Brexit or the other? It raises all kinds of strategic uncertainties for Swiss negotiators. There was talk of, in fact, Swiss officials coming over to talk to their British counterparts a couple of months ago with a view to forming some kind of alliance, but I've never heard any further talk of it, so I can't throw any light on it. I'm pretty certain that the federal government will wish it hadn't happened because it has just made life yet more complicated. Professor Oesh? May I add again two or three points? Switzerland and the EU never have negotiated on the agreement on the free movement of persons over the last couple of years. Since February 2014, let me add shortly, one of these new provisions in the constitution obliged the government to renegotiate agreements which are contrary to this new provision in the constitution, and this, obviously, is directed at the agreement on the free movement of persons. So there is an obligation on the part of the government to try to renegotiate this agreement, but the EU has never agreed to formally open negotiations. There were, in diplomatic terms, there were discussions going on as to how one could somehow remedy or somehow come to terms with the situation, and what has seemed to be obvious from the start anyway was that even if there would have been negotiations formally opened up, then the EU never would have given a hand to negotiate the agreement on the free movement of persons substantially in order for Switzerland to be able to go for quotas and to give priority to Swiss citizens in the job market and thus to reduce immigration substantially. Secondly, what my colleague Professor Church has said, there are now discussions in Switzerland as to where the Brexit or the planned Brexit might help Switzerland in waiting a little bit and to see what the UK might get from the EU. My personal view on this is that this doesn't really make sense at the moment for Switzerland if there will be a new Europe, a new setting of whatever in Europe in 10, 15 years. This is fine, and then this might be a new situation, but Switzerland in particular with regards to the negotiations on the institutional framework agreement probably shall go on as it has been doing so for the last couple of years and try to do their own homework. I would like to say to the remaining panellists and members that we don't have very much time left if I could ask for questions and answers to be as brief as possible. Rachel Hamilton. I've got a very quick question for you. Do you agree with the President of the Swiss Confederation who recently said that the UK economy is strong enough that it would be resilient in the face of whatever trade relationship it chooses to pursue with the EU? In the words of Mandy Rice-Davies, he would say that, wouldn't he? Would you like to expand on our resilience and our strong economy? I'm one of the country's few experts on Switzerland. I don't see myself as an expert on the UK economy. Yes, what Mr Schneider-Arman was saying was that the UK is a big country, and it has in some ways more resources than Switzerland. Not qualitatively necessary, but in quantitative terms. Yes, it could survive, but, as the Irish would say, if I were you, I wouldn't be starting from here in the first place. Sorry, I cannot tell. I'm a lawyer, I'm not an economist. Okay, fine. That was quick. Okay. Emma Hall. Thank you, convener. I will be really quick also. I'm interested in agriculture and trade and tariffs and things like that. I recently read that some of the farms or agriculture have been subsidised up to 80 per cent, but that's been revised recently. Does that mean that the prices of the dairy products or processed produce increases for the consumer? Very definitely. Switzerland is a high-wage, high-price economy. Although there has been, understandably, much complaint about the common agricultural policy, the Swiss, for historic and identity reasons, have been very quick to provide very large assistance to Swiss farmers, which probably goes beyond the CAP. Swiss farmers on the whole tend to follow what the EU does very closely, to watch it. It's not unknown for them to take part in EU demonstrations because they can see a sort of spin-off, a negative spin-off if the EU goes down particular roads which aren't helpful. You have to remember that something like a third of Switzerland cannot be farmed because it's mountainous. All the pressures of modern society are pushing people down to what's known as the middle down, the plateau area north of the Alps, which leaves the mountain regions very exposed demographically. It's for that reason because, if you think of my colleague Jonathan Steinberg's third edition of his book on white Switzerland, what it has on the cover, it has a mountain and a cow because that's the way the Swiss think of themselves quite understandably. They are very concerned to keep agriculture going, to maintain the fabric of rural society because there's a large movement out of farming in increasing number of people who run farms and have other jobs. It's a secondary occupation and the Swiss are very worried because it affects their identity. Richard Lochhead. Just one quick question. Reflecting on Switzerland's experience, given that my notes say that the Swiss have 120 bilateral treaties with the EU, and no doubt there are other treaties and agreements with third countries, and given that the UK, once we trigger article 50, will have two years to negotiate effectively, how long do you think it will be before many of these agreements are signed up to by the UK should they choose to go down the Swiss route and what kind of resources would be required to facilitate those treaties in terms of civil servants and other resources? As I said, I think the problem for the UK is much larger than it was for Switzerland, that Switzerland has been able to do it incrementally. We are faced, I think, with the option of a big bang. You can't have anything else. Unless you make nice payments to Nissan and don't worry about anything else, you have to go to cover the whole hog. The reference to the two years, of course, is slightly misleading because the two years refers to the technical agreements to extricate the EU from the Union, and these are supposed to be conducted with an eye to future long-term relationships, but they don't require those relationships to be fixed and organised before the end of the two years. The likelihood is that they will go over a very long time. That's why people are now talking about a transitional arrangement to make sure that we don't get too hit by leaving before we have the time to arrange longer-term deals, and I'm sure that it's going to take a great deal of manpower. I wouldn't like to put a figure on it. I have a daughter who is a son-in-law who is civil servants, and I know that they are already under pressure in various ways, so that I'm pretty certain extra manpower will be needed and personal power, I should say. How much, I just wouldn't know, but it is a huge undertaking to unpick tens of thousands of regulations which have been passed over the last 40 or 50 years, and then at the same time to have to negotiate a whole range of new trade relations outside. It's a mammoth undertaking. This is an issue with what we are concerned a little bit about in Switzerland, of course, that the relationship between the UK and Switzerland now is based on WTO rules, but as I've said, of course, on all these bilateral agreements, and on the very day when the UK formally leaves the European Union, these bilateral agreements will not apply any more bilateral between the UK and Switzerland, and then the big goal is to mind the gap. Of course, hopefully we can somehow avoid to have a gap. What this means, Professor Church, has implied on it. It means manpower, it means resources, it means time, probably much more time than two years, but I cannot say more. It's a piece of Swiss string. How long is it over? Earlier, Professor Ish, you talked about an agreement on services being discussed. Obviously, your agreement so far do not cover services, and one tends to think of financial services when one thinks of Switzerland. How has the lack of an agreement on services affected Swiss financial services and other service companies? It's correct that there is no comprehensive agreement on services at the moment. It was discussed already back in the 1990s. It was again discussed in the aftermath of the package one, but there were never serious negotiations on an agreement, a comprehensive agreement on services. The agreement on the free movement of persons covers some services. My page eight, where you have these possibilities for natural persons to provide services, to freedom of establishment, to provide services, natural and juridical persons across the borders up to 90 days per year, but of course this does not amount to a comprehensive agreement on services. We do not know exactly in Switzerland why there is not more pressure on the part of the industry to go for such a comprehensive agreement on services. It seems that the big ones, the big well-known insurance companies, banks, they do not necessarily need that at the moment because they have their branches and so the EU passport anyway because they have their branches within the European Union and for the others it doesn't seem that necessary at the moment. Let me say one point when it comes to an agreement on services. Let's shortly go to WTO law. You know WTO law and you know that it is allowed under WTO law to go for free trade agreements when substantially all the trade is covered and the very same applies in the field of services. I think this is article five of the GETS. You need to include in an agreement on services a substantial sectoral coverage of services in order under WTO law to be compatible with the GETS, with the general agreement on trading services. This is often forgotten when one speaks about the possibility or the idea to go for financial services only, for example. Last point, an agreement on services would have quite far-reaching consequences because we probably would need to take overall the flanking policies including perhaps competition, state aid, something which Switzerland is not. There is no sensitivity in Switzerland for the disciplining state aid and some more consumer rights perhaps. Whatever else might come with this whole package and therefore this might be an additional reason why a certain reluctance is to go for such negotiations. Okay and thank you very much and at that I will end our session with our two witnesses. Can I thank you both for attending? It's been very interesting hearing you and I'll now go to a short suspension before we go to our next panel of witnesses. Thank you again. Hello. Our second item of business today is a discussion on the implications of future trade relationships for a wide variety of business sectors. I'd like to welcome to the meeting Professor Gordon Masterton, chair of Future Infrastructure at the University of Edinburgh and former president of the Institute of Civil Engineers, Peter Hardwick, head of exports at the Agriculture and Horticulture Board, David Branch, head of business development at Cochran UK, Derek Elder, chair of Engineering Policy Group Scotland, Ken Sutherland, president of Toshiba Medical Visualisation Systems Europe, David Lonsdale, director of the Scottish Retail Consortium, and Tim Reardon, the policy director of the UK Chamber of Shipping. Welcome to you all. Can I perhaps open by talking about trading relationships? We have spent quite a lot of time in this committee looking at the single market and alternatives to the membership of the single market. Can I ask you briefly in your own sectors to explain how important the single market is to you and whether any of the alternatives that have been presented on full single market access are attractive to your sectors? Mr Hardwick, yes. I think it's worth saying that the UK food and drink sector according to the latest DIT figures is worth around £96 billion. There are about 7,000 companies involved and the employees are around 400,000 people. It is the largest sector in the United Kingdom. It's the largest sector in Scotland as well, where it was worth £14.4 billion in 2014 and is still growing. It accounts for around 19 per cent of the Scottish manufacturing workforce and Scottish manufacturing turnover, so it's a significant sector. It is highly dependent on its trade of the European Union. Of our exports, around 60 to 70 per cent depending on the sector and as high as 90 per cent if you take the beef sector, for example, depends on exports to the European Union. On-going tariff-free access to the European Union is absolutely essential to that sector because if we default to so-called most favoured nation tariffs—and that's rather a misnomer because it could be as high as 65 per cent for beef, for example, 50 per cent for lamb—that would be extremely damaging for us. Whatever model we come up with, whether it's a free trade agreement or one of the models—I listened to the first session this morning—it's essential that we have that. Therein lies the difficulty, particularly for agriculture, because although it wasn't discussed in detail this morning, what is notable about the Norway arrangement or the Swiss arrangement is that agriculture is not included in it. That's very important. There isn't tariff-free access to Switzerland. I've worked in the meat trade most of my working life. I can tell you that it's extremely difficult to sell into those markets. Tariffs are extremely high, sometimes as high as 100 per cent, and they're variable depending on market conditions in the country. Whatever arrangement we come up with, it's essential that we understand that we have a very good and easy relationship with the European Union, which is unique, frankly. If we step outside of that, we take a massive risk of falling off the cliff that has been discussed recently. That has a number of consequences. One, of course, is directly to the sectors within the UK, but also in terms of our trading relationship in the other direction, because the one thing that the Government is going to want to avoid is increasing food costs. There are risks to that, both if we have to impose tariffs on import and pay tariffs to export. My overriding comment in short is that we have to focus, as far as agriculture is concerned, in maintaining tariff-free access to the European Union, which other model we follow. Can I just bring the Scottish Retail Consortium, Mr Onsdale, in at that point? Since Mr Hardwick has raised the issue of food prices in the shops, I take it. That comes about as if our farmers face tariffs selling into Europe, so there would be a problem with us imposing tariffs the other way. I endorse many of the points that Mr Hardwick has made. Our understanding is about 28 per cent of the food that we consume in the UK comes from the rest of the EU. Obviously, as Mr Hardwick has said, if at the end of the day we found ourselves under WTO rules, or most favoured nation rules, we would be talking about potential tariffs, potential disruption to supply chains. As Mr Hardwick has said, some of those tariffs are pretty steep at the end of the day, whether on meats somewhere in the region of 25 or 27 per cent. On average, they can be higher for other products as well. In one sense, that presents opportunities for domestic indigenous producers, but the reality is that almost half of our food that we consume in this country comes from abroad. The issue of tariffs and supply chains is very important, particularly to grocery retailers. What about importing from outwith the EU? Is there a problem with countries that already have preferential trading agreements with the EU? How would that affect those countries' relationships with Scotland? You are absolutely right. As I understand it, the EU has a number of preferential deals with countries across the world. One might call them developing nations, and we are talking about places such as Bangladesh, Sri Lanka and places like that. It is not just about food, but it is also about broader retail or sale in this country. Clothing and footwear, for example. Our own figures suggest, based on analysis of trading with Bangladesh last year, that in terms of clothing and footwear imports from that country, if we had reverted to WTO rules, we would be talking about £250 million worth of additional tariff costs if they were implemented straight into the UK. Those are pretty hefty sums, particularly for developing nations. Regardless of what happens at the end of the day, we would like to think that this country will have equally good preferential agreements with developing nations. Perhaps perhaps an opportunity to develop more of those going forward. Mr Harbert, do you want to come back in? I absolutely agree with what Ms Loncell said. What I would say is to add to that is that the EU currently has a wide range of free trade. Actually, they only have one technical free trade agreement, and that is with South Korea. The rest are called association agreements, and there are a large number of those. They are comprehensive. I looked at the one for Egypt the other day, and it is a 355-page document, and it covers everything from felt hats to ladders' apparel, sea drills to washing machines and so on. Actually, there is a good reason for that, and that was explained in the previous discussion. That is that under WTO, you have to have these comprehensive agreements. You cannot have a selective one commodity-type agreement, and they are reciprocal, so they allow us tariff-free and quota-free access to those non-EU markets the day that we leave the European Union unless we have our own arrangement. It is a question of understanding, and I think that the real challenge is always going to be here, time and resource, to get each of those agreements in place. I think that Richard Lochhead wants to come in there. Yeah, thank you. Just in terms of the potential impact on food prices on agricultural exports that you are referring to, I first let you say that it is ironic, given that the vast majority of primary producers, the farmers I have spoken to, voted for Brexit. Therefore, perhaps you should have made your views known in a much louder way over the last year or two to your primary producers. In terms of the potential impact outline, and I know that the retailers during the independence referendum were in there and down the streets speaking to Prime Minister about the views of Scottish independence and the impact on Scottish economy, what engagement have the retailers and the agricultural sector had with the UK Government? Did the UK Government explain to you the strategy or the policy for dealing with these big threats to your industry? Personally, I have had a lot. This is not the first inquiry that I have spoken at. I think that the irony is that some of these detailed questions have only come post the vote, so I spoke to the House of Lords Committee covering the same areas. This committee is three weeks ago and raised these same issues, and certainly in the run-up to Brexit we had a lot of engagement with the Government to warn of these challenges. Government is certainly aware of the difficulties, and most of all aware of the time that it is going to take to get these things done. Have the UK ministers spoken to your sector about their policy or strategy for dealing with Brexit in terms of the threats that you are outlining? Not yet, no. And the retailers? Well, if I may go back to your original question, Mr Watkins, I think that you made some sort of comment about Scottish independence, and obviously the Scottish Retail Consortium does not take a position on the issue of Scottish independence, just to be absolutely clear. We have 255 members within our organisation, and if a tiny fraction of those took a position on independence, then so be it, but moving swiftly on. One of the challenges that retailers will have, if we end up facing tariffs and non-tariff barriers, is what do they do about that? What are the options? Do they want to pass that on to consumers? Obviously, as we heard yesterday from the Chancellor and the Autumn statement, the expectation is that over the next two or three years consumption is going to half, so consumers are facing some headwinds. At the same time, retailers themselves are facing some headwinds. Members around this table will know about some of our gripes about business rates and the large business supplement, apprenticeship levy, and I've got a large list that I can bore the committee with at a later date, if they'd so like. So there are some genuine challenges for retailers to absorb some of those costs, so they'll be looking obviously to sharper deals with suppliers to see whether or not they can get a better price. They'll be shopping around, just as we would advocate consumers do, to see if they can get the same quality of produce at better prices. It would be very difficult, as I say, to absorb some of the potential costs that rise, and as I say, it would be very difficult to pass them on, given the current climate and the stiff competition out there to consumers. Just for clarity, though, in terms of the very serious consequences of outlined for food prices, for exports, imports from a hard Brexit, have UK ministers met the retailers or communicated with the Scottish Retail Consortium to explain their policy or their strategy on Brexit? Yes, we met with the Brexit Secretary in Glasgow a few weeks ago, and my colleagues at the UK level within the British Retail Consortium have met both ministers and Government officials to relay our points of view in the industry's perspective. What did they tell you? I think that they've been consistent with their public utterances thus far. They're doing allegedly a lot of homework at the moment, getting their ducks in the line with a view to developing their negotiating strategy. I don't think that we're any the wiser than I suspect members from this committee. Before I move to Tavish Scott, does anyone else want to come in on the issue of the single market membership for your particular area? Is there anyone? I can bring a slightly different perspective, which is that of the engineering profession. I commend a report that the Royal Academy of Engineering has produced, not in isolation, that is with all the engineering institutions and quite extensive consultation with industry and academia universities. It is probably the best published source of joined-up thinking from the engineering profession on engineering a future outside the EU. It sets out a number of facts in the report. The first being that engineering skills in the UK is in crisis, because engineering UK estimates that 182,000 new engineers and technicians are going to be required every year for the foreseeable future just to feed the UK economy and its aspirations. Our output within the UK currently falls quite far short of that. When big projects are under way and new projects are started up, skills are typically complemented by imported skills from elsewhere and a lot of it is from EU countries. In a post Brexit UK, one hopes that the need for engineering talent and engineering skills will still be there because we still want a growing and a vibrant economy. Whatever the structures that we have put in place for access to skills, labour, talent, expertise, we have to recognise that the wheels of industry have to keep rolling on. Unfortunately, at the moment, we simply do not know what the new arrangements are likely to be for access to skills. It will be particularly acute for research and development-based industries that rely particularly on a talented and a mobile workforce. The skills that are required on high-tech operations and research and development are global, and they are picking and choosing where it comes from. Industry does not want artificial constraints if it can avoid it. I used to be vice president of a company that had about 66,000 people in countries throughout the world. There were times when we needed to deploy the right people in the right place, that meant mobility from within the organisation, within the rules of the country's concern. It was not easy but it was impossible to relocate staff particularly for short periods of time to get the best-quality delivery. Being in the EU made that easier because of the regulations that prevailed. Companies like my old company now are currently operating in a field of uncertainty in that regard. The worst business and investment risk that it can possibly have is uncertainty. We really must navigate through this period of uncertainty as quickly as possible. I do not want to repeat what Gordon said. I endorse it and represent the professional engineering sector in the UK and Scotland as well. I would simply re-emphasise his point about migration, which is a proxy term for skills in the engineering sector. It probably is in other sectors as well, but I can only speak about the one I know of. A lot of Scottish companies, whether they are owned in Scotland, owned by UK operations or owned by overseas ones in the EU or otherwise, will staff as best they can and they will take their skills from where they can get them within whatever the constraints are. Just an example, I read Sky Scanner, a Scottish unicorn company as they are styled, has sold out to Chinese interests. It will be extremely interesting to see how that company develops under different ownership, because I know from personal links with that company that it has people from all over the EU working in it. Will that change? I can only go back to Gordon's point about uncertainty. It is the most difficult thing for business in any sector to deal with, particularly in professional engineering. Universal standards apply to the recognition of qualifications, but that does not mean that people have access to different geographies. Mr Branshire, with an engineering manufacturing company that is doing a lot of exporting, how do you think that that will affect your business? To be frank, we are just like some certainty of where we are going, but we export about 40 per cent of what we manufacture. Very little of it goes into the EU, in fact. It goes to countries like Bangladesh that we have already talked about. I think that, from our perspective as a business, it is more the inward investment coming into the UK. We have seen quite a drop-off in inquiries from the UK since the Brexit vote with, I guess, the lack of certainty for both domestic customers wanting to look at where their markets are going in the future. Do we invest for growth in the EU or not, or retraction? Overseas companies coming in and deciding whether the UK is the best place to put their facilities. That is our short-term concern at the moment. My company is involved in the crossover between healthcare and the IT sector, and healthcare and life sciences is a global market. It is more the same than it is different, even though the model of delivery for healthcare is different globally, the challenges being faced and the solutions being created in terms of pharmaceuticals, medical technology and medical devices are very similar. Companies operating in Scotland are thinking about a global market, but the biggest single healthcare market is the US. It is not the European market, although the European market is huge and has a home market available to companies working in Scotland. It is a fantastic opportunity. I see real challenges ahead. My company is a wholly-owned subsidiary of Toshiba in Japan, and we are an army services company, so we export almost all of what we do as software to Japan under WTO rules. WTO has an arrangement around IT and ITA, specifically covering quite a lot of computer equipment and stuff like that that is transacted tariff-free, although there are still real barriers. Recently, for example, we had to import some equipment from Japan, just a test piece of equipment coming from our headquarters in Japan. It has got to go through customs, it has got to go through clearance, we have still got to pay that, we have got to deal with all that sort of stuff. As the two other gentlemen have just spoken about, moving people around the world has lots of challenges as well. Clearly, if my head office was in Spain, or Germany or wherever, that would be easy. We can move people around Europe trivially, and equipment and all that sort of stuff, but obviously bringing stuff in from outside Europe presents us with significant challenges and just an admin burden. It is not necessarily, as I say, quite a lot of this stuff is tariff-free for us, but there are very real, you know, non-tariff barriers. Particularly one in medical devices is regulatory compliance. It is a very tightly regulated industry. There is a European directive for medical devices. There are other medical device regulations that we have to comply with as well, like the FDA regulations in the US, for example. We are seeing some consolidation now between certification for Europe and certification through what has been agreed between the US and Canada, Brazil, Australia and Japan under a single audit programme for medical devices, MDSAP. Those are quite encouraging. Under a Brexit scenario, the last thing we want is a unique set of certifications for the UK as a market that is independent of both Europe and all the other markets into which we operate. Obviously, what we are going to do is build products that are suitable for the global market, if at all possible. The way in which we can do that sensibly is to have some streamlined process for regulatory that is as common as possible addressing the global requirements. I am here representing the shipping sector. Our sector shares the concerns that have already been expressed about access to skilled workforce to enable our businesses to compete in Europe and across the world. In the context of today's discussions, however, our primary interest is that of the carriers of the goods that are being traded between the UK and its neighbouring countries. Our ships are the things that carry goods from the UK overseas. Our members are familiar with the arrangements for carrying them beyond the EU and indeed for carrying them within the EU, and we see the difference clearly that exists between those two different trading scenarios. As we have looked at the matters arising out of the referendum vote back in the early summer, our concerns have focused very clearly not so much on the tariffs that may apply to the importation and exportation of goods, but to the procedures and formalities, non-tariff barriers that apply to that traffic at ports when it is coming in and going out. Our real concerns focus on the driver-accompanied ro-ro freight traffic that is carried on our ferries between the UK and its neighbours, a traffic that has seen phenomenal growth since it was freed from border controls at the end of 1992. The UK's main artery with the continent, the channel tunnel and the ferries through Dover, have seen traffic grow from 1 million HGVs a year in 1992, the last year of customs controls to 4 million trucks on that same route last year. The main corridor to the Republic of Ireland through Holyhead has grown 627% in volume over that same period. Those ports have not got any bigger over that time. The reason they've been able to carry that extra volume of traffic is that where everything used to have to stop in the port and await clearance it now passes straight through. One can see a real choke threatening that traffic if every unit is required to stop and await approval from somebody in order to be able to either leave the country and get on the ship or drive out through the dock gate on arrival. One final preliminary point, while the discussion up to now has focused on customs and tariffs, customs are of course a reserved matter under the UK's constitutional settlement with tariff rates being set centrally across the UK. We are of course equally interested in the other formalities and controls that apply at our ports, primarily health controls. If we're looking at agricultural traffic, which was mentioned earlier this morning, then that may be subject variously to plant health controls, animal health controls, and all those matters are devolved matters. It would be potentially for Scottish ministers to decide what health controls were to be applied to imports or indeed to exports of agricultural product from Scotland, and those need not follow the same arrangements for imports, exports from England or indeed from Wales. At the moment, there is a standard set of procedures that is prescribed in Brussels. Traffic coming between the UK and the rest of the European Union is to be free from all controls. Traffic coming into the UK from outside the European Union is to be subject to a standard set of European controls. All that standardisation falls away potentially if we step out of the single market, so we're facing tremendous uncertainty and it's not a comfortable position to be in. Okay, thank you very much. Tavish Scott. Thank you. First of all, I wonder if I could ask Mr Sutherland a couple of questions, given that you represent obviously a global business. Your parent company is obviously on the other side of the world. Is your company already considering where to locate in Europe some parts of the operations that may currently be in the UK? I've heard other businesses say that, of course, we're going to take commercial views about where best we can be so as to access the post-Brexit. At the moment, no, not particularly. Mainly because we are a global business and we already operate in something like 140 countries. Our view is that politics change, conditions change, the market doesn't really change. We still want to be able to sell our product everywhere into healthcare systems wherever we can. From a sales perspective, we'll continue to do business here. In truth, Scotland's a tiny market to a company like Toshiba. We could stop doing business in Scotland tomorrow. It really wouldn't make that much difference. Clearly, if we stopped doing business in the UK, it would make a significant difference and certainly across Europe. There's no intention at the moment to relocate anybody. I think there is a concern. I'm quite glad I'm not looking for additional investment from my colleagues in Japan at the moment because, as a couple of the other speakers have suggested, uncertainty is a real problem. In the situation particularly, I don't know what it is about whether it's our particular company or the style of management from Japan, but at the moment certainly there's a concern about uncertainty and risk. The concern would be, again, we're essentially a software company calling software scientists and some clinical people. The future of our business—we employ about 100 people in Edinburgh—is entirely dependent on our ability to recruit and retain talented people. We are a talent business. I've got about 12 people on staff at the moment who are non-UK European nationals. We're trying to look after them. We're working with them. We've offered some additional support in terms of the ones who do want to apply for citizenship and stuff like that. Those are people who have chosen to come to Edinburgh, primarily to go to university, and they've just stayed because there are nice companies to go and work for and it's a lovely city to stay and live in. That's my biggest concern. I think that my payment company would look at it and say, if you are wanting to build your business here in Scotland and increase it, can you guarantee that future pipeline? It's a tricky one because the skills thing is a challenge. It's not just skills. Certainly, in my industry, which is mainly software, we value the diversity of the talent pool. It's not just the core skills. We can get skills. We can train more Scottish people to be software engineers if we need to, in theory, I guess. However, we can't replicate that diversity. Certainly, as I mentioned, we're making products for a global market. The only way we can make a product that's going to be acceptable to global customers is to try and involve some of those people in that design and development process. Having a diverse skillset and a diverse team of people is an asset. I think you make that point very strongly and very well. Presumably, the uncertainty is not helped by the president-elect of the United States ripping up every trade agreement going. You're a global business. You're a prime minister. Sorry, you're a prime minister. The Japanese prime ministers in Trump Tars earlier this week and that kind of thing. Presumably making this argument. That's uncertainty writ large, isn't it? Yes, absolutely. I think we're in a very complex situation. We're a very old company. We're 140 years old as a business. We intend to be in business in another 140 years. We'll do whatever it takes to some extent to continue to drive forward. As I say, we will continue to operate anywhere under whatever regime as long as we can make it work. As I say, I am concerned. I'm concerned for other companies within my sector, particularly in life sciences, because of all the other things that we've talked about in terms of the fact that, particularly with talent, I think that it's critical for me. It's not a surprise to hear companies like Skyscanner being acquired at the moment. At the moment, because of our currency rates, we're very cheap to buy companies in the UK. I'm not a great surprise. Also, I'm not a great surprise for a company like Skyscanner that, again, is a global software company. It's just a website, essentially, with a whole bunch of really smart stuff and smart people behind it. That's a website that could be, in theory, anywhere, the fact that it's in Scotland and it's acquired by a Chinese company. It's not a great surprise. Indeed. Can I ask one broader question of the wider panel? You may all have been having nice meetings with David Davis, but it's not the Nissan Experience Gentleman that you've got to go and say exactly what you need here, because we saw the Prime Minister on Monday saying there'd be no cliff edge, and, therefore, by definition, there would be some transitional arrangements, which was then, that view was then altered within about three hours of her saying it when number 10 then briefed while actually, no, no, she wasn't saying that. So isn't your job actually to make absolutely crystal clear on behalf of your members and behalf of your individual companies what you actually need? Because otherwise, frankly, this is all going to happen and there won't be any point in throwing your hands up then, will there? I would agree with you, and that bit is being done. I can assure you of that. I think, actually, just listening to the overall discussion around the panel, there's a lot of common issues here. We've talked particularly about shipment and customs controls and so on and so forth. Whatever arrangement we come up with, if we fall into a free trade type agreement, we will inevitably have some form of additional controls at ports. So there are all sorts of additional things that you can do to resolve this. You can have electronic pre-certification so that things move more quickly and so on, but those systems aren't in place. So there's an awful lot of work to be done in that area, and I can't emphasise that enough. I mean, we perhaps sound a little negative and I perhaps want to put a positive spin on that, this, and that is certainly in the agriculture sector. We work very hard at developing non-EU trade as well, and that's growing extremely quickly. But even that is based on an EU regulatory framework, which we're about to step away from. So what we need to ensure, and all of those agreements, even if I take China as a good example, we don't have a trade agreement with China, we have technical agreements for each product we ship to China, and those technical agreements, particularly in the agriculture sector, are all underpinned by EU regulation. The Chinese are very particular about detail, so if certification wording just changes and you say, well, it's no longer European regulatory framework, it's a UK one, they will say, well, what's that then? We need to come and check, and you do run the risk of a hiatus. So I'm really keen, and I have emphasised this to ministers, we mustn't lose the momentum that we've got at the moment on exports, and there is a risk of that, certainly. On all I can say from, certainly from the HDB's point of view, and my counterparts here in Scotland, Quality Meets Scotland, who I went to see yesterday to talk about this meeting, we're certainly getting those messages across to government of what the risks are and what we need to address them. I can only say that from our sector, certainly. Professor Masters, if I could ask you to be brief, just because of the size of the panel and the fact that we're keen to get all members asking questions. It was really just to follow up the question and one of the earlier comments about risk, and engineers particularly have a habit and a practice of modelling risk and assessing risk before changes are made. Unfortunately, we're now in the position where we're trying to model and assess the new situation after the decision has already been made without perhaps fully appreciating all the consequences. It's not an ideal situation, but to be positive, to turn that into a positive, perhaps it is an opportunity to have a reassessed industrial strategy that takes full account of the new landscape that we're in. Perhaps there will be a wake-up call that we ought to be joining up industry and government, the professions, academia and in Scotland. I think that we're concise enough to be able to do that in a joined-up way to have an industrial strategy for Scotland that fully recognises the new situation that we're in, because it is very different from the one that we're in before. Supporting the industrial performance, there's also infrastructure in my one area, where there is a need also for a joined-up industry and infrastructure strategic plan that allows those new situations to be studied and analysed and risk assessed and joined up decisions taken on the way forward. To members, if they could direct their questions to particular members of the panel just so that we can make the time, because we don't have a lot of time, I'm going to go to Lewis MacDonald and Richard Lochhead. Thank you very much. If I'm directing my question, it would be to Mr Hardwick and Mr Reardon. I have a couple of questions that are related and I suspect that I can more easily predict what others might say from the answer so far. First of all, the convener's initial question was what's the importance of the single market and what are the alternatives now? I think—and we will have a paper from the Scottish Government next month, which will lay out the Scottish Government's perspectives on this. I think it will say, although I can't speak for them, that it will focus on the single market as the best option. In terms of agriculture and food, in particular, the single market, I think that Mr Hardwick said at the beginning that it does not address any of the issues that are important from an exporting point of view, because there's no—for example, if we joined the European Economic Area as Norway and Iceland are members of, it would have no benefit directly for agricultural exports and therefore wouldn't impact on your sector. Mr Reardon's point about health controls for animal and plant health controls and how those responsibilities are devolved in the UK, I presume that the implication of that was not that it would be good to have different animal and plant health controls, because we're set to lose the European common standard, but I'd be interested in a view on that from an agricultural export point of view, and also any clarification from Mr Reardon. Yes. I think what I said was that the current agreements don't include agriculture. Of course, it doesn't mean an agreement that the UK may strike would exclude agriculture, but certainly the current agreements don't. Perhaps one of the concerning things for our sector is that traditionally—and we go right back to the Eurogrime round, which was discussed in the previous meeting and all of the other trade agreements—agriculture is always concluded at the end because it's the most difficult bit, and everybody recognises that. I think that that is perhaps a concern for our sector. As a consequence of which, we can't see a solution that delivers what the sector needs, which includes tariffs. In other words, whatever solution we come to, it has to exclude tariffs. The regulatory side of it, which you mentioned as well, is also extremely important, because that allows for that relatively free trade. In terms of the model, we've struggled with this a great deal, and we do have to say that what we see emerging from the discussions is the favouring of some form of Canada-style free trade agreement, which can and does, in fact, in the case of Canada, include, to some degree, agricultural products. A trade agreement, which allows relatively free movement, works well from that point of view, but it doesn't address the regulatory differences and the non-tariff barriers that we've also discussed. Thank you. The key value of the single market in our sector is that it enables supply chains to operate with complete predictability between the UK and its neighbours, because there are no regulatory differences controlling the production of items, the consumption of items and the carriage of items, the movement of items between the two. It's that which enables Scottish seafood producers to lift their stuff straight out of the sea, pop it in the back of a truck and dispatch that truck south to France in the certainty that it will be acceptable when it gets there and that it will not have to queue to get through a checkpoint and have somebody pour over paperwork. In the other way round, it's that arrangement that enables UK salad producers to buy up land in France, Spain and elsewhere, grow their stuff and dispatch it to the UK market so that you can order it directly from UK supermarkets to a farm in the continent and know that it will be on the shelf midday the next day because there is absolutely no unpredictability about that. The arrangement in terms of the devolution of plant and animal health controls generally, no, I wasn't advocating that something new and fundamentally different is done here. I was merely illustrating the fact that this is a very complex issue that is potentially being awoken and unraveled here, that there is much more to this than simply setting of potentially the setting of tariffs for bringing any particular item into the UK or taking it out of it. For both those answers, there is an additional dimension as the knot of the customs union which the single market does not deliver the advantages that we have from the customs union. I think that from both of your comments that is actually quite a significant deficiency if we were to apply for membership of the single market without being members of the European Union and customs union. The single market is sort of a slightly unspecific phrase. We have a single market for various different sectors and sometimes the collective is referred to all together when it doesn't actually include everything. Customs union relates to things that are subject to customs control clearly and that's things basically, not so much services. The customs union is a part of the single market. The single market is broader than that because it includes a single market in services as well as those subject to customs controls. A customs union as we've sort of picked up in the context of agricultural production isn't terribly useful on its own if it doesn't tie in standardized agricultural rules because it's all very well for something to be free of customs control but if it's still subject to a health control it's stuck at the port. I absolutely concur with that and that perhaps in lies the rub. I think that whatever arrangements we come to maintaining regulatory harmony with the European Union is extremely important but, as we heard in the previous session, possibly politically difficult. Richard Lochhead and then Rachel Hamilton. Just a very quick question in the interest of time perhaps to Ken Sutherland in light of your previous contribution. Given the Scottish Government's looking at the options for maintaining membership of the single market, if the rest of the UK goes for a hard Brexit but Scotland managed to negotiate membership of the single market or the four freedoms, in your view that would be good news for your company and would that give Scotland a competitive advantage over the rest of the UK? That's a really tricky question. I know I've got 12 non-UK European nationals on staff. I don't know how many English people I've got on staff and I don't know how many of them might feel that, well, this is something different, my opportunities are different because we've got different arrangements here in Scotland. I don't know. I think it's very difficult to see that. In practical terms, looking at the sector that I'm in, which is the crossover between IT and life sciences, the deficit, the challenge for companies in our sector, is to scale up. I've already said that it's a global market. You've got to be big to be successful and getting to be big is a challenge for us company in Scotland if it's only thinking about a Scottish market or even a UK market. To be big to grow, you've got to be thinking about a much bigger market and you've got to be able to attract investment. The question is, under that scenario, would small companies that can currently attract half a million to two million pounds worth of investment, would they be able to attract the much bigger sums that are required to take them through to scale, like 20, 30, 40, 50 million or hundreds of millions in pharmaceutical sector? If they would be able to attract that in that scenario, then yes. Is that likely? I truly don't know. Mr Elder. I just take that question that you addressed to my colleague Ken Sutherland and maybe turn it around a bit. We have several companies in Scotland located in Scotland, whether they're actually Scottish or not, that are ultimately owned by EU companies as opposed to Japanese ones. Your question about soft bricks is interesting and it's one that I hadn't thought about until you posed it. It is possible, I guess, that a company located in Scotland but owned by an EU company might be more easily able to attract reinvestment from that EU owner than if it were elsewhere in the UK. I won't name the company, but there's a defence avionics company based in Scotland that trades globally and it makes very specialised high-tech equipment. It's based in Scotland but it recruits people from whatever it can get them to go back to a previous point. It may just be that because it has EU ownership, the scenario that you paint might make it easier to get the future investment that Ken Sutherland is talking about. That's only a personal view and it's not rehearsed, but as I say, I hadn't thought about it until you posed the question. Thank you very much, convener. Mr Brans, did you want to come in there? Sorry, could I just comment on that as well? As I say, 35 to 40 per cent of what we do, we export outside the EU predominantly, but most of our market is England, really, although we're based in Scotland. Whatever arrangements Scotland has for us, ignoring the politics, they need to be the same, the UK-wide, except that the UK is not going to be part of the European Union any more, but having ended up with possibly different regulatory customs and tariffs and non-tariff barriers from Scotland and England would be a challenge, I would like to suggest. Can I ask Mr Brans in terms of what you were talking about by exporting all over the world? You're doing that under trade agreements negotiated at EU level, so if we come out with the EU and we go to WTO rules, if we revert to WTO rules, for example, as something that's being said, how will that affect your trading relationships with all those other countries around the world that the EU already has agreements with? To be honest, I can't answer that. It's beyond my knowledge. We export to, say, China, Russia, Middle East, Indian subcontinent, and it's primarily non-tariff barriers, really. They always usually become the bigger issues rather than tariffs, to be frank. What are they for your industry? Codes and standards. We manufacture already to the European standard. Our chief engineer sits on the European standard committee. We will carry on manufacturing to the European standard. If we're not in the EU and he's not on that committee, it will become a German standard, if I can be so frank without our influence. We're leaving anyway, so we're going to have to cross that bridge. But there are only two UK manufacturers. We're not going to come up with our own standard for our own little market. We've got to live with the bigger global standards that exist. Thank you very much, Rachel Hamilton. Withstanding the uncertainties that you've mentioned and the need to have harmonious regulations and non-tariff barriers, we need to also look at our productivity yesterday for the main announcement to invest into infrastructure and innovation. We need to be match fit for Brexit as a nation. We also need to make sure that we are globally competitive. He made an example yesterday of a German car being and the equivalent being made in four days compared to here being made in five days. I just wondered how, as resilient businesses, how you were planning ahead to improve productivity and make yourselves match fit to anyone. But not particularly about my business, because I've retired now in the university. I think that it is a fair point. There are plenty of countries out there right now quietly hoping that we lose market share because we become less than match fit for a significant period of time. That's a reality. We are in a competitive world. Some countries will be seeing Brexit as an opportunity, not a threat. To deal with that, it just means that our industrial strategy needs to be not just match fit, but better than match fit. It needs to be smarter and better than anybody else's. If the situation is any crum of comfort that can be taken from it for the engineering profession and community and our industrial strategy, it is a wake-up call that we now need to be smarter and better than others and have a better industrial strategy, more joined up, have a skills flow that is managed in the world class, invest in higher education, further education, attract young people into industry and make it an attractive career for them. I'll say that engineering particularly has issues there. Attract young women into engineering, which is something that we have not done very well as a community or a profession. We still have a very, very low representation. All of those things need to be addressed to be best in class and risk-manager way through the situation, which could therefore be an opportunity if we have to put that level of support and the intellect into the challenge that we are facing. Mr Elder. Just to follow up what Gordon said in answer to your question, I think that there are two components to that match fit comment that was made by the chancellor yesterday. Productivity is a product of both skills and investment in the equipment and software and all the rest of it that those skills are applied to. It is possible that there would be more uncertainty about reinvestment or initial investment even if we invest in the skills, but the skills are very important. I know that I mentioned it on a couple of occasions, but I do not think that we can overstress the need for UK and Scottish competitiveness to realise that technical skills and STEM skills, as they are called, are extremely important. I will just re-emphasise what Gordon said, but it is skills plus the investment in what those skills are applied to. Did anyone else want to come in relation to the autumn statement in Brexit, particularly? That is the question of match fit. The AHDB certainly spends its overwhelming income on research and development and productivity improvement. That is its core resondettra. I think that, certainly from an agricultural sector in the UK, Scotland sees itself as a leader in animal welfare, food safety, sustainability and environmental protection. We sell that product very successfully on that platform, but I do need to emphasise that you need to become an awful lot more than match fit if we face tariffs of 25, 30, 40 or 50 per cent. I agree with that view, and I believe that it is something that, as an organisation, we believe that we need to address anyway if we want to do business in the wider world outside the European Union where we are not protected by the tariff barriers of import and no tariffs to those markets. We also need to be realistic about the speed with which we will need to transition from being highly dependent on a tariff-free market within the European Union to trading globally with potentially higher transactional costs and higher tariffs. I am really pleased that we are talking about agriculture, because it is really important and we have not heard a lot about it in the five months since the June 23 vote. I represent South of Scotland, so dairy, beef and sheep as well. I wonder if you can clarify how we can mitigate supply chain challenges for our agricultural industries. The major challenge is to do, in my view, at least with trade, because the way that we balance our markets is to have accessibility to those external markets. If you look at the wider food industry—and it has been commented already—we are highly dependent on imports as well in terms of the supply of products into manufacturing businesses. We need to ensure that we have the continued level of trade, because without that level of trade, we lose market balance, particularly in highly seasonal businesses such as the sheep sector, for example, where there are periods of the year when we produce a great deal of product and we need to export it. If you look at the numbers simplistically, you would say that we appear to import as much as we export. It is not that simple. We just stop importing it and supply our own domestic market. However, anyone who works in agriculture knows that producing sheep and cattle is not like producing peas in a pod. There are products that are suitable for market products that are not. There are parts of the beast that you cannot sell on the domestic market that you can export, the export of the fifth quarter. The fact that we have now had 10 years since the end of full restrictions for beef exports—for example, post the BSE crisis—has seen a great growth in exports, and that has added a lot of value to the business. I am not sure about the other nature of the supply chain issues. I have not fully understood the question, because my view is that that trading element is the bit that gives us the added value that we need. I met NFUS recently, and they were really concerned about dairy products, powdered milk, challenges of getting the products not only to Europe but also to Russia, because they eat a lot of cheese. It is the whole process back and forth, whether we import or export raw materials or manufacture goods. The whole thing is just so complicated that I worry that it will take years to sort it all out. In that case, I had to understand the question. I agree. That is a challenge, because certainly in the dairy sector, as we know, the export, particularly of butter and cheese, is a market balance activity. Without that, you would see falling prices within the UK. The point about supply chains is that the UK is currently part of a much bigger supply chain than purely a domestic one. The UK and the Irish Republic are completely integrated in the context of the supply chains that our members' ferries provide part of. Between the UK and the continent, there is a high degree of integration as well. That highly integrated supply chain is, frankly, incompatible with the border control in the middle of it, because it introduces unpredictability, it introduces uncertainty. It is not so much the cost, it is the unpredictability that meets the real issue. We hear, for example, that hauliers driving from southern Europe to northern Europe will take a longer route to avoid going through the border control that gets them directly through Switzerland, not incurring extra mileage, incurring extra driving time, because by doing so they avoid the uncertainty of being stuck at a border crossing point where there is a border control. The key point to getting a wider appreciation of it is to have this for the debate to be focused on that overall supply chain and a recognition that this is not actually about a border control, it is about a supply chain of which the border control sits in the middle. For the debate to be had in a proper context and the decisions' consequences to be fully understood, it is important to look at it in the context of that overall supply chain. We are just a part of it, but we can see exactly the threat to the bits on either side that come from the interruption of the bit that we are ourselves responsible for. What we are talking about really is, in terms of supply changes, I will just illustrate it if you are making biscuits, for example, in France and importing Scottish butter to make those biscuits or vice versa. I know that they are biscuits that we made in Scotland that import butter from elsewhere, which possibly is not so popular with our own farmers, but that is the kind of thing that we are talking about. That is exactly the kind of thing that we are talking about. Biscuits, arguably, are an easy one because they are not time sensitive. A tin of biscuits is not going to sit on the key side so long that it is not going to be edible. Quite a lot of fresh product is in exactly that position and it is the fresh product where those concerns really exist. If we think back to the summer when traffic through the port of Dover was choked by action undertaken by the French police who sat there, what was the big segment of traffic that caused greatest concern? It was fresh seafood coming out of Scotland that was stuck in the sun on the roads of Kent. That is the issue that we are looking at. Thank you very much. Stuart McMillan. Thank you. It is a few questions just regarding the free movement. First of all, to Mr Reardon, how important is the free movement of people to the shipping sector? It is absolutely vital to us. Firstly, in the context of access to skills so that we have the right people in our companies to enable those companies to be successful, profitable and competitive. Secondly, of course, the shipping business is not only involved in the carriage of goods, it is also involved in the carriage of people. The ability of those people to come into the country or indeed to get out of it will be a significant determinant of whether they want to travel at all. One of the other things that our sector does, or my organisation does, we represent the cruise sector. Scotland is a tremendous success story at the moment in growing itself, marketing itself as a cruise destination. Approximately half a million passengers came ashore from cruise ships in Scottish ports this year to enjoy the fantastic tourism offering that is here in Scotland. Many of those are European passengers and clearly a question mark exists about whether they will continue to be entitled and free to come to Scotland as tourists, whether they will feel welcome in Scotland as tourists as a consequence of any visa regime or a nasty border control that is put in place and whether they will continue to come if they do feel unwelcome. Scotland, as indeed the rest of the UK in this context, is competing with its neighbours to attract people to come here. Tourism travel is a discretionary activity. People will do it because they want to do it and they'll want to do it because they'll feel welcome and feel they're going somewhere great. The Scottish tourism product is clearly going to be as fantastic next year as it was this year and is fantastic in two or three years' time, but it's absolutely critical to customer confidence that they should be able to plan on the basis that they will be able to come without a visa just as they could this year. Is there a competitive where cruise ships are more likely to stop if they have access without visas, for example? The big success in northern Europe is Norway, fantastic scenery and wonderful open seas, ffioids, beautiful interesting things to go and look at, but Scotland's got all that too. At the moment there's a level playing field in terms of people coming in, absolutely, but every country wants to grow its cruise business because it's a lucrative business to get, it's a lucrative business to win. Scotland's doing fantastically well at the moment and let's not hobble it. Mr Reardon, and certainly you anticipated I was going to go into the cruise area. There's a huge level of investment going on within the cruise sector, certainly for the number of years ahead, over £4 billion worth of ships in order, that's at 73 in new ships, so clearly there's a huge opportunity, an even greater opportunity for Scotland and also the UK, but certainly for Scotland to get even more tourism opportunity and more passengers to come here. But it's not just about the passengers, in terms of the number of people who have to work on the cruise liners, many of them are clearly non-UK and also non-EU, but in terms of the free movement of people, when the UK leaves the EU, how will that actually affect, certainly not just the passengers but also the researchers? What are the ships? There should be no risk at all associated with ships crew for so long as they're on the ship because they are protected by international instrument and the UK Immigration Act at the moment respects that. There are, however, issues concerns around the wider servicing of those ships while they are in port, the ability and ease of making crew changes, for example, large numbers of crew, as you indicated on cruise ships. There is good business as and when crew reliefs occur in making those happen through your airports and your ports because you get all the ancillary expense and spending associated with that. The value of spending assured by crew members on a cruise ship is reckoned to be in the region of £20.22 per head of crew, per call. If you've got a thousand crew on a ship, that's a worthwhile spend. It's not going to be spent if the crew can't come ashore because they're judged to have the wrong passport and need a visa in order to step foot upon this land. So there are wider issues, as you say, associated with the crew on those ships. There is a business that Scotland currently gets, which the rest of the UK currently gets, that it would be a crying shame to forego. Certainly in terms of the future deal or agreement that the UK manages to achieve, we suggest that the free movement of people is something that should be of huge importance to allow certainly your sector to operate with less negative effect as compared to fully gone. That right of free movement underpins our business at the moment, whether it's tourist travel by ferry, whether it's cruise ships coming in from Western Europe and necessarily where Scotland is geographically, it will be part of a North West European itinerary, so it will be predominantly Europeans on board those vessels coming into ports here in Scotland. So their right to do so, their ability to do so without needing a visa in advance is critical to the success of that business, just as it is for families from Scotland and elsewhere in the UK who wish to go to France, to Belgium, to Spain for their holiday in the summer and choose to drive and take a ferry is part of that journey. It's critical to the way businesses set up at the moment. Yes, people will fly to the States for a holiday, or they'll go to the Far East for a holiday, but for the segment of the market that is inward tourism here and a significant part of holiday experiences for UK residents going out, the ability to travel freely is vitally important. Thank you very much. Does anyone else want to comment? No, well come on out to my side. I'm being a part. Clearly, the agriculture sector is highly dependent on migrant labour. O&S figures show that in 2014 38 per cent of the workforce in food manufacturing, the highest of any industry, was in migrant labour, and about 14 per cent of those were recent migrants. So clearly the dependency of that sector and some parts of it are highly dependent, the meat sector for example, would be affected by a lack of access to labour on an ongoing basis. Clearly the industry has a job to do to improve its efficiency. We were talking earlier about being match fit, and there are opportunities to improve automation, robotics and so on, but not all parts of agriculture lend themselves to that, so there certainly will be a challenge in terms of the access to migrant labour for the food manufacturing sector. Just based on the earlier conversation, I think that food prices tend to be a lot higher in Norway, so that might be something a plus in Scotland's favour at the moment, but we'll see how that develops going forward. Confinir, in terms of staffing issues, we're doing a workforce survey at the moment to try and tease out some stats on that. It's not something that we've traditionally collected, but our understanding at this juncture is that about 5 per cent of staff in the retail industry are from the rest of the EU, but in terms of the supply chain, it can be a lot higher, particularly in and around supplying sort of horticulture and grocery sectors as well. I mean the other point just to bear in mind in terms of our industry is that obviously, and this is highlighted to Rachael Hamilton's question earlier on, productivity is right at the heart of what we're about. We're seeing quite a reduction in the number of people that work in Scottish retail over the last few years. We've seen about about 7 per cent reduction, and people work in the industry, so we're constantly looking to innovate and find new sources and new ways of engaging with customers. Obviously, one of the drivers behind that is the fact that people are becoming more expensive to employ, and obviously we've seen public policy sort of in a sense add to that through things like the national living wage, the apprenticeship levy, statutory employer pension contributions are going up as well, so there are various drivers that lie behind that, not just this issue about gaining talent from elsewhere within the EU. Thanks very much. I think we've time for one more question from Lewis MacDonald. Thank you very much, and I think every witness on this panel has talked about the importance of freedom of movement of people. That's where these questions have taken us again. Freedom of movement can mean different things, and we know that the European Union is unlimited freedom of movement for EU citizens. We heard earlier this morning about Switzerland's agreement on free movement of people with European Union, which is restricted. It's people with a valid employment contract, people who are self-employed and people who can prove their financial independence. There are different variations of what freedom of movement might mean. The UK Government seems very unsympathetic to business and to all the other arguments in favour of freedom of movement. If the UK Government does not reflect what you've all said and what many other witnesses have said about freedom of movement being critical, is there a second best? Is there another outcome that UK ministers might show some evidence of being interested in that would protect the vital interests that your sectors have in relation to freedom of movement, or is it simply the case that if the UK Government turns its back on free movement, the game is a bogey as far as the economy is concerned? I don't know if it's second best, but, as things stand at the moment, it's easy to have freedom of movement within the EU for skills. If that changes, there's a possible upside in that the UK would then, I guess, be able to import skills from places where it's more difficult currently, such as the US, Australia and Canada, simply because of EU regulations making that more difficult. I'm not advocating it, I'm simply saying that it's a potential upside of a change. How the balance of skills between the EU population and those other countries would manifest itself in wanting to come to Scotland and the UK, I don't know. In our sector, the UK has been successful in encouraging European countries, shipping companies from other European countries to invest and set up operations here in the UK. As they've done that, naturally enough, they've brought some of their own people with them, as you would if you were setting up an operation overseas. There isn't really a second best to telling those people that they've got to go home again, or that the next generation can't come through. It's a very, very tough sell to say to inward investors, we want your money, but we don't want you. It simply won't wash, I don't think. There has to be a risk that that segment of our business at the moment generating wealth, generating employment, supporting service businesses will feel unwelcome if they're unable to renew their staff. In other contexts, as has been said, what our businesses here need is access to skills, and the skill pool in the context of people who have served at sea and are coming ashore to work in technical and management roles is a global pool. At the moment, it's difficult and it's awkward to attract people to get people into the UK from outside, from beyond Europe. If that gets any easier, then clearly that would mitigate the difficulties that would be created by making it awkward to get people in from Europe, but there are no signs that it is going to get any easier to get people in from beyond Europe. The signs are that it will simply get more difficult in places where it's easy now. In a tourist market, the issue is simply that people should be able to come easily and they should feel that they are welcome to Britain when they get here. As often as not, a visitor's only interaction with the UK state is the border control. That is the point where they're either made to feel welcome or not on arrival, and is there a second best to making someone feel unwelcome when they get here? I don't think so. I concur with that. I've been thinking about the question and it's difficult to think of a second best, given that we're in a competitive market, a competitive world. If it is even slightly more difficult to enter and leave the country to do business, businesses will see that as a risk, they'll assess that risk and they may make choices on the basis of that change regime and go elsewhere. That would be a great pity, of course, because Scotland's got a great internationalist tradition. We've sent people out across the world and we've built businesses, we've built countries in some cases, and so it's in our DNA to trade internationally, so anything that gets in the way of that would be a retrograde step. We should be mindful of whatever arrangements have to be put into place now that we do our best for businesses to allow that continuing flow of people, because people make the businesses. Even data-intensive industries require people to move across borders. Does anyone else want to come in on that particular question? In our own experience, coming back to the second best, we do a lot of trade outside the EU. We have to invite customers to come for training, for inspection, and it's much easier for me to get visas to go there than we make it for them to come here. We're not very welcoming before they get here, never mind when they get to the border control. You're Chinese owners, so you're talking about people from out with the EU, aren't you? If we're talking about second best being outside the EU, potentially, because we're not very welcoming at the first stage, never mind when they get to the border post, it's my experience. That's a very good point to end on. Thank you very much to all our panel, and we will now go into private session. Thank you very much.