Craig Dalzell – 27th October 2021
Scottish statistical nerds (both of us) rejoiced last week with the long awaited publication of the most celebrated regular statistical release in the Scottish political calendar after GERS. Export Statistics Scotland usually publishes in January but was delayed this year due to Covid.
As with GERS, the story of ESS doesn’t actually seem to change all that much every year – despite the grim wailing and tooth-gnashing in the headlines. This report is useful and can be instructive but it’s also very limited in what it can do and badly misunderstood both by political activists (on both sides of the constitutional divide) and by commentators. So I’m going to take the opportunity of this month’s Politics Long Read to try to clear some of those points up, to dive beneath the headlines and work out what we do and don’t know about Scotland’s trade.
The first thing to understand is that the methods by which this data is gathered means that the report lags substantially even in years when a global pandemic doesn’t delay publication. This 2021 report only covers export data up to 2019. This means that it’s both pre-Covid and covers the period when the UK had left the EU but was still in the limbo of the Transition Period where Single Market and Customs Area rules still applied and we were yet to see the strains on UK and global supply chains that would come. Again, as with GERS this year, this report marks an “end of an era” of sorts as it will be the last report to cover the Before Times. This report doesn’t yet tell us what effect those two monumental changes have had on Scotland’s exports (though other reports are starting to) but we’ll see the first hints start to come through from next year’s report onwards.
The Limits of Data
The ESS report is not based on physically counting goods leaving or entering Scotland – the UK does precious little of that kind of direct data gathering at the best of times and even less so now. It is instead based on surveys sent out to companies marked by the statistics team as being likely exporters and representative of the Scottish economy. Around 6,000 such surveys are sent out each year and they ask what companies export and where they export to. This method has a very important advantage of eliminating an oft-cited issue that I’ve termed the “English Ports Problem”.
There is a widespread suspicion amongst some Scottish Nationalists that Scottish export figures are suppressed because Scotland has very few direct ports through which to export our products. The suspicion goes that goods sent to the world via a port such as, say, Felixstowe, would “count” as an export to England rather than an export to its final destination. This suspicion is not true and has never been true for the Export Statistics Scotland report. By asking companies only what they export and where the final destination is, ESS is agnostic about the route by which the products get to their destination. There were previously issues with this kind of counting as done at UK level by HMRC but these were corrected in 2016.
If a Scottish product is exported to the rest of the UK and then used in ongoing supply chains, things are a little different. The report gives the example of leather sold to an English company to be made into a seat for a car sold to China – only the value of the leather will be counted as a Scottish export to England. There may be some goods bought and then sold on with minimum “added value” (such as a company in London buying a bottle of Scottish whisky then that company re-selling it to Germany) and that would be captured as a Scottish export to rUK rather than to Germany. However, whilst the volume of exports re-sold in this way is not known, it is not expected to be large (certainly not for whisky, for reasons shown below) and whilst statistics could conceivably be skewed in this way for goods, it is difficult to see how a financial service such as a mortgage could be “re-sold” in this way.
This isn’t to say that there aren’t issues with ESS statistics. Common Weal has covered them in detail in two policy papers. In short – the name of the report itself should be instructive. They cover only the exports from Scotland. The do not cover imports to Scotland. We cannot use this document to work out if we have a trade surplus or deficit with the rest of the UK or elsewhere and we cannot use it to work out if the shape of our exports is different from the shape of our imports (e.g. are we exporting just as much sheet metal to England as we import from them? If so, would we care much if that trade was stopped?)
The statistics are also much more robust when they talk about goods than they are when they talk about services. This makes sense. It’s much easier to work out the value of a container of retail goods being sent down south. It’s a bit harder to work out the value of services especially when some sectors either can’t measure things adequately or don’t always recognise that they are providing a service export. One example being that if a non-Scottish tourist stays in a Scottish hotel, that hotel has provided a “tourism service export” despite the actual service being delivered in Scotland.
Finally, the survey itself relies on companies actually filling in the forms and returning them. As stated, around 6,000 companies are contacted each year. In 2017, just 22% of them responded. In 2018, that had dropped to 17%. In this latest 2019 report, the figure has dropped to less than 13%. In some sectors, it’s even lower than that. The entire basis for Scottish real estate service exports is based on the returns of just five companies. I should stress that I place no blame on the team behind ESS for these limits. I’ve spoken to them several times over the years. They are both aware of these data gaps and actively engage in research to try to close them – though I can’t help but wonder how much more they could do if they were given the backing of the Scottish Government via the Scottish Statistics Agency that SNP members voted for several years ago.
Consider that last point for a moment. Scotland is constantly threatened by Unionists of an rUK trade embargo if we decide to become independent but consider what that would actually mean for the rest of the UK given how much they buy from Scotland especially in critical areas like energy and retail food (the latter of which is already particularly under strain due to their failure to plan for shocks impacting the border).
At Your Services
We often consider “trade” to just mean “goods in containers” but doing so in this case can blind us to the true state of affairs over Scotland’s exports. Goods only make up about a third of the total value of Scotland’s trade but within that only about 37% goes to the rest of the UK. The rest of the world is a much more important customer than the UK is for all categories of exported goods except basic metals and wood/paper products (both of which are high volume but relatively low value therefore are particularly sensitive to the price of transporting them long distances). For more processed and high tech, high value, low volume goods (like the lasers I used to manufacture and export), even just the EU market can be larger than the UK market. Scotland exports nearly 90% of its pharmaceutical products outwith the UK and more than 90% of our exported distilled spirits go overseas too.
But, as I say, around two thirds of our exports are not goods but services and only in one category here – education exports – is the rest of the world a larger market than the UK (as with the tourism example above, a foreign student studying at a Scottish University counts as an “education export”). The impact of Scottish service exports to rUK is not to be underestimated however. Examples from Brexit to even internal trade within the EU have shown that border effects are particularly acute on services for reasons from strict financial regulations to the simply practicalities of the services involved. If you want to buy a house in France, you’re unlikely to approach a German bank for the mortgage even though both countries are in the EU and, indeed, within the Eurozone.
But there may be other hidden factors within this data in this regard. Again, we lack the other side of the balance sheet – imports – so we don’t know how much of the “retail exports”, for example, is due to pan-UK supermarkets balancing their stock around their distribution network. Again, because we lack the other side of the balance sheet – imports – we can’t see how much of this value would be disrupted rather than simply redirected. How much of this “cross-border trade” would simply become Scotland trading more with itself by consuming domestic services instead of exporting them? At the moment, we simply can’t say.
And how much of this trade would Scotland want to continue exporting post-independence anyway? The demands of the Climate Emergency mean that we must stop exporting oil well before we drill every last drop. Our salmon exporting sector is causing substantial regional environmental damage and it is well known that many kinds of financial services (particularly speculative finance) not only provide no real economy value but can produce negative economic value by sucking capital away from long-term patient investments in the real economy in favour of short-term pump-and-dump schemes. It’s also not clear from this report how much of Scotland’s “export value” is accounted for by the extraction of profits from Scotland by foreign-owned companies in sectors like our renewable energy. Our best estimate of that figure could be something in the region of £9 billion per year.
If Scotland wants to become independent and wants to make that independence mean something then it will mean making different choices than the ones we make (and are made for us) as part of the UK. Trade policy will certainly be a part of that so releases like Export Statistics Scotland will become more, not less, important as we make that transition. But right now, it says much less about the viability of Scottish independence than the writers of scare quote headlines would like it to.
Scottish trade policy must be informed not just by the products we export but we must also be able to see what we import as well. The UK is particularly bad at gathering such import data but many other countries fall short here too to the effect that the number we find when looking for the value of exports to a certain country can often be very different from the value they find when asking what they import from us.
Independence must also be about using our trading power to influence the goods and services that we and others use and why. Boris Johnson’s “Global Britain” strategy is about creating “free trade” regardless of the economic impact done to Britain because of it, but an independent Scotland could well decide that it will use its buying power to help improve the environment. It could follow and expand upon the investigations that the EU is conducting into carbon border taxes, for instance. Or it could follow the Scottish Climate Assembly’s call to actively de-incentivise imports to Scotland in favour of domestically produced goods if doing so can reduce pollution.
But we won’t get to have those detailed and nuanced discussions while people fixate either on headlines that literally tell only half of the trade story nor if others bunker down into myths like the “English Ports Problem” that are easily explained away. The statistics of trade are complex and the research into improving them is ongoing and they can be a useful measure of not just our success (or failure) but also of the story of the type of success (or failure) commentators want to tell. For the useful insights that ESS can bring us, I don’t think it’s quite able to tell that full story yet.
Not that that will prevent the same headlines when we open up our export statistics next year.
Craig Dalzell is Common Weal’s Head of Policy and Research.