Chapter One: Introduction
About this paper
1. In the referendum of 23 June, while the UK as a whole voted to leave the European Union ( EU), a large majority in Scotland voted to remain part of it. The way governments across these islands respond to the result will have significant consequences for our prosperity, our rights and freedoms as EU citizens, and our constitutional arrangements. We must recognise and respond to the concerns of those who voted to leave as well as those who voted to remain. We must also understand the profound issues of peace and stability this raises for our near neighbours. Our choices will also affect our European partners - their citizens living and studying here, as well as businesses and investors - and our collective ability to tackle complex, interdependent domestic and international challenges.
2. Our response must also acknowledge that leaving the EU, and in particular any proposal to leave the European Single Market and the Customs Union, will result in significant disruption. It will be directly against the democratic wishes of the people of Scotland and will damage our economy, our social fabric and our future prospects. While the referendum resulted in a mandate for England and Wales to leave the EU, that was not the case for Scotland and Northern Ireland, nor did it provide a mandate for the terms of exit.
3. The challenges posed by the EU referendum result are unprecedented. The Scottish Government believes that, short of full EU membership, the least worst outcome for the UK as a whole would be to retain full membership of the European Single Market through the European Economic Area, and to remain in the Customs Union. However, the UK Government currently appears to be on a course that will take the UK out of the European Single Market and the EU Customs Union, a decision which could cost the Scottish economy up to around £11 billion per year  . Therefore, this paper also offers options for a differentiated solution for Scotland, to safeguard our economic and social prospects. Our mandate for this approach comes from the manifesto on which this Government was elected, from the majority vote in Scotland to remain in the EU, and from the Scottish Parliament's resolutions on the matter.
4. The paper goes on to argue that whatever the outcome for the UK and/or Scotland in terms of the European Single Market, Scotland's interests within the UK demand a fundamental review of the devolution settlement - this arises as a result of the removal of the protections provided by EU law for the devolved institutions and the rights of citizens. As part of this, the Scottish Parliament must retain responsibility in already devolved areas like farming and fisheries - there must be no question of re-reserving or qualifying powers already devolved. The powers of the Scottish Parliament should also be increased so that it takes responsibility for "repatriated" comptencies in reserved areas, such as employment law, in order to protect fundamental rights. However, the need to consider further devolution goes beyond repatriated powers. New powers to support Scotland's interests, and any differentiated relationship with Europe, will also be required.
5. We will engage in good faith with the UK Government to seek to secure Scottish interests through its negotiations with the EU. However, we were elected with a mandate that the Scottish Parliament should have the right to hold an independence referendum if there was clear and sustained evidence that independence had become the preferred option of a majority of the people of Scotland; or if there was a significant and material change in the circumstances that prevailed in 2014, such as Scotland being taken out of the EU against its will. We have published a Draft Referendum Bill for consultation so that the option of a referendum on independence will be available if we conclude that Scotland's interests cannot be protected by other means.
6. Scotland's relationship with the EU is mutually beneficial. Scotland is a nation with a strong European heritage, outlook and values. We bring assets and opportunities, our people, our natural resources and our universities with their innovation and research capabilities. And we are committed to contributing to the common good in the pursuit of cohesion, social justice and solidarity. The Third Sector in Scotland is active in helping to create and sustain an open Europe, committed to an ongoing civic dialogue, and the Scottish Government will continue to encourage that endeavour.
7. We recognise that the options we propose will be technically and politically challenging and will require flexibility, pragmatism and support on the part of the UK Government and, in due course, our European partners - the same spirit of flexibility demonstrated in our proposals. The challenges also reflect a position which is technically and politically unique - everything about Brexit will be complicated and there are no simple solutions for the UK. Therefore, we hope it will be recognised that these proposals have been developed in unprecedented circumstances - circumstances in which the majority of Scottish citizens face being forced out of the EU against their will, and where Scotland, as an EU Nation, is fully compliant with the EU Acquis.
Defining Scotland's interests
8. Our future relationship with the EU should be guided by the pursuit of opportunity for our people, solidarity between our citizens and co-operation among nations. With those principles in mind, Scotland's interests can best be summarised in these terms:
a) Economic interests - in particular, retaining membership of the European Single Market and its market of 500 million people in addition to free trade across the UK; protecting the thousands of jobs that are directly linked to our place in that market; ensuring our firms have access to the EU workforce they need; and pursuing the collaboration and funding that is so essential to our future prosperity.
b) Solidarity - supporting the ability of nations to come together for the common good of all of our citizens to tackle crime and terrorism and deal with important global challenges like climate change; protecting the rights of EU citizens to settle in Scotland and continue to contribute to the development of our economic prosperity and diverse communities with reciprocal arrangements for our citizens living, working and studying in other EU countries.
c) Social protection - ensuring the continued protection of workers' rights and maintaining social, environmental and human rights advances.
d) Democratic interests - respecting Scotland's overwhelming vote to remain in the EU and ensuring that Scotland's distinctive voice is heard, particularly in our future relationship with the EU and European Single Market, and that our wishes are respected.
e) Influence - safeguarding our ability to shape the laws and policies that define our future economic and social development.
Our strategy and options in summary
9. We believe that the best option for the UK as a whole, and for Scotland, would be the one Scotland voted for - to remain in the EU. We believe that membership of the EU, for all its imperfections, would provide the best possible future for the UK and would best protect Scotland's interests. However, we acknowledge that England and Wales voted to leave the EU and that the UK Government's current position is to take the UK out of the EU. In that context, our strategy - short of independence - is to mitigate the risks that Brexit poses to Scotland's interests and involves the following options:
a) Influencing the overall UK position so that the UK remains in the European Single Market, through the European Economic Area ( EEA) Agreement and also in the EU Customs Union. We believe that Scotland's interests would be best, though not comprehensively, secured by the continuation of the rights and freedoms we enjoy as members of the European Single Market, along with the broader economic and social benefits which adhering to the free movement for persons, goods and capital provides for us. Remaining in the EEA would mean being part of an existing structure for engagement, which would provide greater certainty for businesses and citizens. Given the many years, perhaps decades, of uncertainty involved in the pursuit of bespoke deals with the EU and other world trade partners, we believe Scotland's interests would be best served if the UK retained its membership of the EEA. A clear and early signal to that effect would provide influential leadership, offer comparatively simpler options and greater stability. We also believe that it is in the UK's and Scotland's interests to stay within the EU Customs Union.
b) Exploring differentiated options for Scotland within the UK that provide the closest possible relationship with the EU and the European Single Market in the event that the UK Government chooses to leave the EU Customs Union and Single Market. In particular, this paper argues that the UK should support Scotland remaining within the European Single Market, even if the outcome for the rest of the UK is to leave the EEA. In addition, the Scottish Parliament should have the powers necessary to seek to maintain pan-European links in important areas of devolved competence, for example Horizon 2020, Erasmus and Europol.
c) Safeguarding and significantly expanding the powers of the Scottish Parliament . Leaving the EU must not result in greater concentration of powers at Westminster. Powers to be "repatriated" from Brussels that are already within the current responsibilities of the Scottish Parliament, such as agriculture and fisheries, must remain fully devolved, with decisions on any UK-wide frameworks being for agreement between the UK Government and the Devolved Administrations. In addition, and whatever the outcome of our efforts to keep Scotland in the European Single Market, "repatriated" powers not currently within areas of devolved competence, for example employment and health and safety laws, should be devolved to enable the Scottish Parliament to protect key rights. More generally, the current division of responsibilities between the Scottish Parliament and Westminster must be reconsidered to ensure that the Parliament is able to protect Scotland's interests and to reflect the change that will be effected to the UK's constitutional settlement by leaving the EU. This should include consideration of significant new powers to secure any differentiated relationship with Europe.
10. In exploring all options for Scotland, we will make certain assumptions - and this paper will make those assumptions clear. However, we are operating in a fluid situation. If those assumptions shift and change, so too may the detail of our proposals and how we will achieve Scotland's interests. So while we have set out our current preference to protect our interests, we remain open to other options which may emerge as the wider debate develops.
11. We know that leaving the EU will be extremely complex with a huge range of significant issues to be addressed across all the main policy areas of government. It will have significant implications for businesses and citizens throughout the UK (for example, food safety regulations, market access, cyber security, defence, medicine approvals, energy market regulation and interconnectedness to name but a few).
12. We do not believe these will all be addressed through the Article 50 process, but will require a much longer timeframe if they are to be tackled properly.
13. We need clear and detailed assurances from the UK Government that sensible transitional arrangements will form part of the negotiations with the EU, covering the period between the UK leaving the EU and any future agreement coming into effect. Clarity on such transitional measures will be essential to maintain business and consumer confidence and sustain the health of our economy. This is increasingly recognised by the UK Government - for example, the Chancellor has recently outlined that Brexit may take four years or more  . The House of Lords also highlighted the importance of establishing transitional arrangements to mitigate the shock that would follow were the UK to leave the EU without securing agreement on future trading relations with the EU  .
Standing Council on Europe
14. The First Minister's Standing Council on Europe has been important in helping us consider options to protect and promote Scotland's interests in the context of Brexit. The First Minister is indebted to members of the Standing Council for their time and energy in supporting our work.
15. The Standing Council is an independent group of advisers who have expertise in various aspects of European integration and the European Union, as well as in business, diplomacy, human rights, social protections and education. The Standing Council recognises the significant economic and social challenges we will face as a country if, in the future, Scotland is no longer a member of the European Single Market. Like the Scottish Government, our advisers recognise that some of the proposals in this paper are legally and technically challenging and would require significant political will to implement. The views of Standing Council members naturally differ on some aspects of the analysis and options in this paper, but all members share a common concern to limit the damage that Brexit will do to Scotland.
16. While this paper has benefited considerably from the work of the Standing Council, it is published by the Scottish Government and represents the views of Scottish Ministers.