1.1. Guernsey is not actively seeking any change in its relationship with either the United Kingdom (“UK”) or the European Union (“EU”) and, if possible, will seek to preserve the current relationship with the EU as set out under Protocol 3 to the UK’s Act of Accession to the European Economic Community in 1972.
1.2. Guernsey will be seeking continued and enhanced access to UK and EU markets. The UK Government will need to ensure Guernsey is able to protect and promote its interests in international trade.
1.3. The Ministry of Justice should encourage the UK Government to consider carefully how they engage with, not merely consult, the Crown Dependencies when making new policies and legislation in order to ensure that there is no unintentional negative impact for individuals and businesses in the islands.
1.4. There should be no detriment to Guernsey’s interests nor to the constitutional and operational relationship with the UK.
2.1. Guernsey is part of the Bailiwick of Guernsey and one of the Channel Islands, it is not part of the UK. Guernsey, Alderney and Sark are self-governing dependencies of the Crown with their own directly elected legislative assemblies, own administrative, fiscal and legal systems, and own courts of law. Guernsey is administered by the “States of Guernsey”; it is not represented in the UK Parliament. Guernsey raises its own taxes and pays for its public services. There is a constitutional relationship between Guernsey and Alderney that places them in fiscal union and relates to some public services.
2.2. Guernsey is not part of the EU. There is a formal relationship between the Channel Islands and the EU which is governed by Protocol 3 to the UK’s Act of Accession to the European Economic Community in 1972 (“Protocol 3”). Under Protocol 3, Guernsey is part of the EU Customs Union and broadly speaking the free movement of goods provisions of the EU Treaties apply. Protocol 3 also requires the Channel Islands to treat all natural and legal persons of the EU in the same way. Protocol 3 excludes “Channel Islanders”[1] from the benefit of certain of the EU Treaty provisions on freedom of establishment and free to provide services.
2.3. Outside the formal Protocol 3 relationship, the Bailiwick is treated as a jurisdiction outside the EU and one that is not a European Economic Area (“EEA”) country. This means it is treated as a “third country”. As a third country, and due to Guernsey’s location and close trading relationships with both the UK and other EU Member States, Guernsey voluntarily implements appropriate EU legislation.
2.4. The Channel Islands’ relationship with the institutions of the EU is managed with the assistance of the Channel Islands Brussels Office[2] (“CIBO”).
3.1. Guernsey is part of the sterling zone and so its monetary policy is set by the Bank of England. While inflation figures in Guernsey usually follow a similar path to the UK, this is not always the case. Guernsey’s finance sector is also affected by global markets and has strong links with the City of London, meaning that it is susceptible to changes in foreign exchange rates and, potentially, any negative impact on the UK’s own financial markets.
3.2. As both an influential and active EU Member State, the UK has been a member of a number of bodies and this has been to the advantage of Guernsey, both in terms of information gathering and of providing the opportunity to represent Guernsey’s interests where appropriate. The UK’s ability to influence the development of EU dossiers, such as on taxation, EU anti-money laundering standards and the capital markets union, as a Member State with strong free market principles should not be underestimated. Once the UK withdraws from the EU, this influence is likely to be significantly curtailed, and if a protectionist approach in the EU was to become more predominant then this may impact on Guernsey’s economy because of a reduced ability to access EU markets.
4.1. The following areas are priorities for Guernsey when the UK leaves the EU. Maintaining access to the UK and EU markets will be critical for Guernsey’s economic development when the UK leaves the EU.
4.2. Protocol 3 places Guernsey in the EU customs area which allows free movement of goods between the UK and the EU and is administered by Guernsey. The imposition of tariffs on goods imported from and exported to the EU, either directly or, more commonly, via the UK, would be of concern across a number of economic sectors, including manufacturing, retail, hospitality, construction, and fisheries (with direct exports to France accounting for 80% of catch by Guernsey fishers). The large food retailers in Guernsey import nearly all fresh food on a just-in-time basis making Guernsey heavily reliant on food imports. Although Guernsey does not expect any changes to the free trade in goods with the UK[3], any tariffs imposed on trade between the EU and the UK could similarly affect Guernsey.
4.3. The imposition of non-tariff barriers on the export of goods from Guernsey to the EU, either directly or via the UK, will have an effect on a number of businesses on island. It is likely that exports will need to continue to meet EU rules and standards but potentially without the benefit of tariff-free access or the ability, via the UK’s membership of the EU, to have any say over these rules and standards.
4.4. Prior to the establishment of Protocol 3, trade in goods was underpinned by successive historical Royal Charters and the General Agreement on Tariff and Trade 1947 (“GATT 1947”). As outlined below, the UK’s membership of the WTO has not yet been extended to Guernsey and, as a result, Guernsey would be unable to rely on WTO rules which could result in barriers to trade in goods.
4.5. Guernsey is a third country for the purposes of free movement in services. In the area of financial services this relationship has been an important factor in the development of the sector to date. Guernsey will need to work with the UK to ensure continuity of access to EU markets for service industries and to minimise the political impact the UK exit may have on third country access. For example, Guernsey is currently waiting for the EU Commission decision based on the European Securities and Markets Authority’s advice in relation to the granting of third country ‘passport’ rights under the Alternative Investment Fund Managers Directive. Depending on the type and scope of any future UK-EU agreement reached, it may be of benefit to Guernsey to be part of a UK agreement regarding access to certain services, for example the Digital Single Market.
4.6. It is also important that Guernsey maintains access to the UK market, including for financial services, as well as removing any barriers that may exist. It will be important to Guernsey’s economy to ensure that the UK does not discriminate against services provided from Guernsey compared to other jurisdictions, including other British territories.
4.7. Guernsey is part of the Common Travel Area and subject to key pieces of UK immigration and nationality law (as an example, the British Nationality Act 1981 defines 'the UK' as including the Channel Islands and Isle of Man). The status of Guernsey residents in nationality terms is therefore governed principally by UK law, however, given that the Lisbon treaty created the concept of EU citizenship and nationals of a Member State are EU citizens, most Guernsey residents are also EU citizens as a matter of EU law. Therefore Guernsey residents’ interests regarding free movement of persons should not be treated differently to those of other British nationals (leaving aside the specific provisions of Protocol 3). Further, Protocol 3 provides that the authorities in Guernsey must treat all EU natural and legal persons in a non-discriminatory manner. If Protocol 3 falls away the approach taken by the UK to such EU persons will be an important consideration for Guernsey as it develops future policies and legislation and reviews existing regimes.
4.8. Approximately 10% of Guernsey’s working population are from the European Economic Area (“EEA”), excluding the UK. Restrictions on the ability of businesses to employ labour from within the EEA would be of particular concern to the hospitality, retail and services sectors, which source labour from within the EEA. It would also be of significant concern to businesses which source labour from within the EEA to fill highly skilled roles, including those within the financial services sector.
4.9. There are a number of businesses in Guernsey with offices in the EU, or with strong trade links with businesses in the EU, and their staff and clients travel regularly between Guernsey and EU Member States. In 2015, there were 320,000 visitors to Guernsey and the tourist industry contributed to 4% of GDP.
4.10. Although the islands are not part of the UK, they are part of the British Isles and there are very strong economic, cultural and social links between the islands and the UK. In practical terms for example, Guernsey residents regularly travel to and from Guernsey to the UK for a number of reasons including access to further education, specialist health care (including for mental health) family and business reasons. Guernsey welcomes the initial discussions that have taken place and the recognition that the Crown Dependencies will need to be regularly briefed on the process of negotiations with regard to the free movement of people and the Common Travel Area.
4.11. Guernsey is part of the EU customs areas and so applies World Trade Organisation (“WTO”) standards by default in respect of trade in goods. The trade in goods and services by the UK with the EU and the rest of the world may need to be increasingly reliant on other trading agreements such as the WTO and Free Trade Agreements. Guernsey is potentially interested in extending the UK membership of these agreements or, where possible, relevant chapters. Where new agreements are negotiated it will be important that these agreements are drafted in such a way that they are capable of extension, where appropriate. This will ensure that Guernsey can benefit from the terms of these agreements in the same way as the UK.
4.12. Guernsey will also wish to reserve the right to negotiate its own agreements under entrustment to facilitate overseas trade and investment, such as bilateral investment agreements.
4.13. The removal of the UK, and therefore Guernsey, from the EU Customs Union is a concern as Guernsey is not part of the WTO and therefore cannot rely on WTO rules. In terms of trade, therefore, membership of the WTO will need to be extended to Guernsey as a priority. This will help ensure its economy can develop alongside the UK and to prevent unintended consequences in respect of trade with the UK. The UK Government will need to ensure that Guernsey has access by way of its own agreements under entrustment and access via UK agreements by agreed extension.
4.14. Additional restrictions will negatively impact Guernsey’s transport links which are served by commercial air and sea links to destinations in the UK and continental Europe. The Bailiwick of Guernsey is technically enclaved in, but for practical purposes treated as part of, EU airspace (in particular, in the French Functional Airspace Block – FAB EC). It is also enclaved in French territorial seas/Exclusive Economic Zone. Guernsey’s airports are officially assessed by the EU Commission as meeting EU security standards (as third countries), operating as part of the Channel Islands Control Zone, in conjunction with Jersey’s airport, the latter of which has overall responsibility.
Fishing
4.15. In addition to the issues about free movement of goods in terms of landing fishing in France, the UK-EU relationship in relation to the management of fisheries is also critical. In particular, this may impact on how the Bailiwick fleet (which is part of the British fleet) can prosecute the territorial waters and British fisheries limits appertaining to Guernsey (which are not EU waters). There are also historical rights to consider whereby the French vessels have access rights into Bailiwick waters.
5.1. The constitutional position of Guernsey with respect to the other islands of the Bailiwick should not be directly affected by the UK’s departure from the EU. In order that the three jurisdictions within the Bailiwick can discuss and maintain a cohesive position the States of Guernsey is liaising with the States of Alderney and Chief Pleas of Sark bilaterally and through a tripartite forum known as the “Bailiwick Council”.
5.2. Guernsey is not seeking any change in its constitutional position in respect of the Crown or the UK. There are a number of complex relationships with the UK that also exist through the extension of UK Acts of Parliament, such as in nationality, immigration and wireless telegraphy. There are also a number of professional and operational links with regulatory authorities, such as in the field of healthcare regulation, on which the Bailiwick’s own regulatory regimes are reliant. Some of these authorities have relationships with EU regulatory bodies, such as the Medicine and Healthcare products Regulatory Authority (“MHRA”) the relevant UK ‘competent authority’ for regulating medicines which has a relationship with the European Medicines Agency (“EMA”). This means that there could be a resulting impact on the various relationships between the Guernsey and UK authorities and practical effects on Guernsey residents. These impacts will need to be assessed on a case by case basis.
5.3. With change comes an opportunity to rebalance the relationship between Guernsey and the UK. Invariably the UK Government or institutions set policy and enact legislation with regard to their EU obligations and with reference to the ‘EEA status’ of individuals or businesses as a definition or description by which it will treat them. Whilst Channel Islanders are British nationals however, their EU status was limited by Protocol 3. The complex relationship Guernsey has with the UK and EU means that it is not accurate to describe all Guernsey residents as not being EEA nationals. Examples of where this occurs include:
(i) Under the National Health Service (Charges to Overseas Visitors) Regulations 2015 residents of the Bailiwick are treated as non-EEA nationals and charged 150% of tariff rate for secondary healthcare treatment required when visiting the UK (there has been little consultation on these issues).
(ii) Guernsey based subsidiaries and branches of UK banks are excluded from the UK banking ring-fence, following the Independent Banking Commission (“ICB”) inquiry, because they are treated as being outside the EEA.
When the UK exits the EU, the definitions used when making new policies and legislation will be important in order to ensure there is not the same discrimination against individuals and businesses in the islands, particularly given the important economic contribution Guernsey-based businesses and individuals make to the UK.
5.4. The Protocol 3 relationship that the Crown Dependencies share with the EU is dependent upon the UK’s accession treaty to the EU. When the UK leaves the EU and the accession treaty ceases to have effect, it will formally bring an end to this relationship. Guernsey has not been seeking to change its relationship with the EU and has resolved that it would like to replace Protocol 3 in some way which allows access to the single market in respect of goods. It is not yet clear how that might be achieved because it is likely to be dependent on the UK exit agreement and any new relationship that is negotiated.
5.5. In order to give effect to the UK membership of the EU, the UK Parliament passed the European Communities Act 1972 (“the 1972 Act”). In order to give effect to the EU treaties in Guernsey, insofar as they apply by virtue of Protocol 3, the three legislatures of the Bailiwick of Guernsey passed the European Communities (Bailiwick of Guernsey) Law 1973 (“the 1973 Law”). The 1973 Law is similar to the 1972 Act and has been amended from time to time to reflect the changes to the EU treaties in the same way. Given these similarities, Guernsey will be considering the impact of the Supreme Court judgment in respect of Article 50 and the ability of the exercise Royal Prerogative to interfere in domestic UK law as, by analogy, similar issues arise in Guernsey, in which no referendum on the EU has been held. Guernsey is therefore considering further the constitutional impact this judgment has on the Bailiwick.
6.1. The Balance of Competences Review undertaken by the previous UK Coalition Government provided an opportunity for the States of Guernsey to review how the various EU competences impact on the island directly or indirectly. The resulting reports act as a set of reference documents and provide a good platform for engagement with the UK Government in the negotiations on EU matters[4].
6.2. The UK Prime Minister made a commitment to consult the Crown Dependencies during the process of negotiation and the Lord Chancellor & Secretary of State for Justice reiterated that commitment shortly after the result of the UK’s referendum.[5]
6.3. Preliminary meetings were held shortly after the UK’s referendum at the British-Irish Council, as well as the UK Governance Group at Cabinet Office and the Ministry of Justice Crown Dependency Team. Following those meetings there was formal recognition from the UK Prime Minister that there was a need, not only to consult, but to engage closely with the Crown Dependencies to ensure that all interests were taken into account[6]. As a result, Parliamentary under Secretary of State at the Department for Exiting the European Union (“DExEU”), Robin Walker MP, was given responsibility within the department for ensuring the Crown Dependencies’ interests were understood and taken into account. Liaison points at DExEU and the Cabinet Office have also been created – the office holder of the latter visited the Crown Dependencies earlier this year. Guernsey has also a hosted visit from a senior official at HM Treasury. A range of policy meeting have also taken place with a number of UK Government Departments. The States of Guernsey welcomes these visits and discussions.
6.4. The UK exit will be a regular part of the agenda for the British-Irish Council in the coming months and years. Guernsey also notes the establishment of a Joint Ministerial Committee on EU Negotiations and, whilst it would not be appropriate to be part of that Committee, hopes that the engagement with the Crown Dependencies can dovetail with the work of that Committee.
6.5. One of the potential implications of the UK’s decision to leave the EU is the impact on staff resources in UK government departments, and in particular the potential reduction in capacity for the UK Government to undertake its constitutional duties on behalf of Guernsey, in line with the Justice Select Committee’s own recommendations[7]. There is a wide range of ongoing work on international agreements and legislative matters and it will be important to ensure that these areas are not neglected or delayed, such as the extension of the Paris Convention for the Protection of Industrial Property. It will be important to ensure there is no detriment to Guernsey’s interests or the constitutional and operational relationship with the UK.
6.6. A significant challenge will be maintaining the UK’s capacity to work closely with the Crown Dependencies as the UK Exit process progresses and increases in complexity.
18 November 2016
[1] Defined in Protocol 3 as any British Citizen who holds that citizenship by virtue of birth link to the Channel Islands and who does not have parent or grandparent born, adopted, naturalised or registered in the UK, but excludes any person who has been ordinarily resident in UK for 5 years.
[2] http://www.channelislands.eu/
[3] Trade in goods between Guernsey and the UK has been set out in successive historical Royal Charters
[4] Foreign & Commonwealth Office, Review of the balance of competences, https://www.gov.uk/guidance/review-of-the-balance-of-competences
[5] PM Commons statement on the result of the EU referendum: 27 June 2016 https://www.gov.uk/government/speeches/pm-commons-statement-on-the-result-of-the-eu-referendum-27-june-2016
[6] Letter from the Prime Minister to Deputy Gavin St Pier, 26 July 2016: https://www.gov.gg/CHttpHandler.ashx?id=103529&p=0
[7] House of Commons, Justice Committee, Crown Dependencies: developments since 2010: http://www.publications.parliament.uk/pa/cm201314/cmselect/cmjust/726/726.pdf