Peter Jones: Tug of war over independence assets

In the event of independence, dividing the items on the positive side of the balance sheet will not be easy, says Peter Jones

By PETER JONES Monday, 3rd February 2014, 9:00 pm

The IMF and the EU are sure to have a say in any asset distribution debate. Picture: Phil Wilkinson

CAN an independent Scotland rely on getting a due share of the UK’s assets, including reserves of foreign currency, military equipment and embassies? The short answer is that nobody can say anything about that with any certainty. It is reasonable to assume however that Scotland would get a fairly equitable share of the assets for the odd-sounding reason that deciding on the division won’t be entirely in the hands of either the Scottish or rest of UK (rUK) governments.

Debate on the division of assets and liabilities has so far concentrated on the national debt. It is accepted by both sides that the debt will be divided equitably, though the precise percentage is a matter for negotiation. Implicitly, that also means that items on the positive side of the balance sheet, such as Britain’s gold and foreign currency reserves, will be divided using the same percentage. Much more problematic are the non-liquid assets – public buildings, ranging from hospitals to offices, institutions from the Bank of England to the DVLA, military equipment and installations, museums and art galleries, overseas embassies and territories, etc.

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This looks like an issue for the lawyers. One, Adam Tomkins, professor of public law at the University of Glasgow, has entered the fray with an argument that Scotland is entitled only to those immovable assets (buildings, roads, land, etc) that are situated in Scotland. Other such assets located outside Scotland (embassies, military bases, the Bank of England, etc) would belong to the rUK. This, he says, is the position supported by international law, and is also set out by the UK government in its Scotland Analysis series, with the caveat that Scotland might be able to negotiate the use of embassies.

The Scottish Government doesn’t accept this. In general terms, it reckons that if Scotland is to take a population share (8.4 per cent) of the financial debts and assets, Scotland is also entitled to 8.4 per cent of everything else. Anything which can’t be divided that way can be settled by a cash payment by rUK to Scotland. So, instead of getting a few rooms of the £40 million British Embassy in Paris, for example, Scotland would settle for £3.36 million. There is some precedent for this argument. It was how all the state property of Czechoslovakia was shared between the new Czech Republic and Slovakia. The Czechs got two-thirds of everything and the Slovaks one-third, those fractions corresponding to the relative populations of the new states.

However, both arguments are based on debatable assumptions. Prof Tomkins’ case is better founded. Though he doesn’t say so, it seems to be founded on the Vienna Convention of 1983 on the succession of states. This sets out how assets and liabilities of a state which divides into two or more new states should be apportioned between the new states.

This is not necessarily an equal division because it provides that one of the new states can be a successor or continuator of the old state. In the case of the break-up of Britain, it means that rUK would be the continuator state of the UK, particularly so if other states and supranational institutions such as the EU recognise it as such. Though the Convention is difficult to read, it seems to imply that this gives the rUK the whip hand in legal terms.

This is, however, debatable, because the Vienna Convention has never entered force as international law since it has not reached the required threshold of being signed by 15 recognised states.

The Czechoslovakian precedent is even more debatable. This worked, legally, because the federal Czechoslovak parliament voted that all federal assets should be divided on a 2:1 basis and then voted the republic of Czechoslovakia out of existence, making the two new states legally equal successors, but on a 2:1 sharing basis.

For this to work in the case of the UK, Westminster would have to vote for the old UK to go out of existence and for all its assets to be shared, say, 92.6:8.4 between two new states. It seems wholly improbable that Westminster would do this. This leaves us looking at examples of what has happened in practice when states have fallen apart. Beyond that of Czechoslovakia, there are two main examples – the dissolutions of the USSR and the Socialist Federal Republic of Yugoslavia.

Two main lessons emerge. One is that outside organisations became heavily involved in deciding the division of the old states’ assets – the G7 and International Monetary Fund (IMF) in the case of the USSR, and the IMF and EU in Yugoslavia, where the EU set up a commission to arbitrate between the competing claims of the five post-Yugoslavia states.

The second is that while the outside organisations tried to follow the general principles of the Vienna Convention, the eventual divisions of assets and liabilities varied markedly from them.

For example, the IMF brokered a deal aimed at an equitable division of the USSR debt amongst the 15 post-Soviet states. Only Ukraine accepted its share. The three Baltic republics successfully argued that they were not successor states since they had been illegally occupied during the Second World War, and some of the states’ economies collapsed so badly that they had no hope of servicing a debt.

Russia wound up with 83 per cent of the USSR debt but managed to negotiate that it would keep all of the USSR’s foreign embassies and, for at least 20 years, assets outside Russian territory such as naval bases and the Baikonur space facility, which is in Kazakhstan.

Yugoslavia’s debt and its embassies were, however, equitably divided. The clear conclusion from this is that international law sets out some useful principles which Scotland and rUK would be wise to follow, but it is not enforceable, particularly because special circumstances, such as what to do about the Faslane base, would make it unenforceable to the letter of the law.

However, outside bodies, such as the IMF and the EU, because they are interested in securing a stable international order in the wake of unexpected events, such as the possible break-up of the UK, will use their leverage to secure an equitable division of assets and liabilities.