Brexit: the Crown Dependencies Contents

Chapter 4: The Brexit negotiations and future relations with the UK

The Crown Dependencies and the Brexit negotiations

86.The significant implications of Brexit for the Crown Dependencies, and the potential knock-on consequences for their relationship with the UK, highlight the importance of ensuring that the Crown Dependencies are able to contribute to and engage in the Brexit negotiations.

87.The Isle of Man Government noted that, immediately after the referendum, the Chief Ministers of the Crown Dependencies wrote to the then Prime Minister, David Cameron, stressing the Islands’ interest in the withdrawal process. The new Prime Minister, Theresa May, replied in July 2016: “I can confirm that as we prepare for a new negotiation with the EU we will engage your Governments. It is right that the Crown Dependencies are kept informed and offered the opportunity to contribute where it is relevant and appropriate to do so.”105

88.The Minister, Robin Walker MP, acknowledged the UK Government’s constitutional responsibility for representing the Crown Dependencies in the Brexit negotiations.106 The UK Government was seeking to engage with the Crown Dependencies on all issues of concern, to “make sure that they have an understanding of the UK Government’s position and also make sure that we are ready to lend them official support where they might need it to work through some of the solutions on some of these points”.107 He added:

“Our efforts need to be focused on getting the best possible deal for the UK and Crown Dependencies as a whole in negotiations with the EU … A single UK position in relation to the future relationship with the EU is vital in protecting the interests of both the UK and the Crown Dependencies in the long run. So I think the best focus is on market access and the comprehensive trade agreement which the Prime Minister has talked about and on making sure that the Crown Dependencies have as much access to that and benefits of it as possible.”108

89.Mr Walker outlined the structure of engagement. He and the Chief Ministers held quarterly formal “forum” meetings, with other UK ministers and departmental officials in attendance as necessary. This was not a Joint Ministerial Committee (JMC), because “the Crown Dependencies are under the Crown but not under the rule of Parliament, so the rules are slightly different”. Less formal meetings had taken place on the fringes of the British-Irish Council, and officials from across the Government had been involved in technical meetings, “so they could pick up some of the views and feed them into the working of their own departments”.109

90.The Chief Ministers were broadly satisfied with the level of consultation and engagement. Mr Quayle said that engagement had “improved considerably”, compared to the process of UK accession in the 1970s. The Crown Dependencies had been invited to take part in the Balance of Competences Review in 2014, and were now engaged in discussions with a number of Government departments to develop the UK’s negotiating position. They had also engaged with the devolved administrations in the British-Irish Council. He was also heartened by the engagement of parliamentary committees, including this Committee and the House of Commons Justice Committee.110 He concluded that the Crown Dependencies felt “exceedingly well looked after at the moment: long may it continue”.111

91.Mr Quayle added:

“We know that we are not part of the EU and so are not actually leaving. This means that the impact will be less than was felt in the United Kingdom. We also know that we must accept, in large part, the new relationship which the UK wishes to negotiate. When that becomes clear, we will consider how best to make the most of the opportunities and minimise the risks for the Island.”112

92.Senator Gorst welcomed the UK Government’s recognition of the importance of engaging the Crown Dependencies, and the Prime Minister’s acknowledgement of the “valued, historical and special relationship” between the Crown Dependencies and the UK.113 Engagement with the UK Government had been strengthened at ministerial level, and was also working “incredibly well” at official level, where Crown Dependency officials had been involved in working groups with their UK counterparts on free movement, the Common Travel Area, financial services, the customs union, market access, agriculture and fisheries. In his view, it had been “a model of engagement and consultation”, with “excellent relationships” with the Ministry of Justice. Nevertheless, this model needed to be sustained in a meaningful way throughout the process, and it was therefore “vital” that it be properly resourced. For Jersey’s part, £4 million had been set aside to create a Brexit unit at the heart of government.114

93.Deputy St Pier observed that the real test would come when Article 50 was triggered, “when there will be a huge level of activity. Our challenge … is to ensure that we and our interests are not forgotten in the process.”115 At the same time, the UK needed to understand the risks around some of the positions it might adopt, and their impact, even if inadvertent, on the Crown Dependencies.116

94.Deputy St Pier flagged up a broader concern, over “the process of education that is constantly required, at all sorts of levels, for officials and others to understand that our jurisdictions are not part of the United Kingdom and that, as Crown Dependencies, they have a unique status”. He also emphasised “the United Kingdom’s responsibility to represent our interests, even where they may not be the same as the United Kingdom’s”.117

95.Susie Alegre expressed doubt that, in an international negotiation as wide-ranging as Brexit, the Crown Dependencies would be able to make their voices heard. She also noted that “the way this is managed will set a precedent for future decisions on the international stage that could have even more serious consequences for the Crown Dependencies and their people”.118

96.Professor Bates said that the UK accession experience had been symptomatic of Whitehall’s tendency “to lose the Dependencies in the heat of wider issues, and also, rather less understandably, to be rather cavalier in their attitude to the Dependencies on some occasions”. Although the situation had improved, he advised the Crown Dependencies to be “slightly less benign than they have appeared to be in public and to just remember that default position”. In support of this view, he cited the absence of references to the Crown Dependencies in the Prime Minister’s Lancaster House speech, and the lack of direct Crown Dependency access to the Joint Ministerial Committee (EU Negotiations).119

97.Professor Bates was confident, though, that the Crown Dependencies had become more sophisticated and professional, and acknowledged that good lines of communication with Whitehall had been built up. Nevertheless, he warned that such relationships “work very smoothly when there is no serious action going on, but … tend to unravel in the heat of hot negotiations”.120

98.Professor Le Sueur focused on Alderney and Sark. It was not clear that “in the current Brexit process the constitutional formal arrangements for ensuring that the two smallest islands have a voice are in place.” He noted that the Ministry of Justice had acknowledged the importance of this issue. Nevertheless, he stressed that “the smallest Islands should not be overlooked”.121 Deputy St Pier told us that Guernsey was working closely with Alderney and Sark to ensure that they were fully briefed on and involved in the process.122

UK free trade agreement negotiations and the Crown Dependencies

99.There was recognition that the impact of Brexit on the Crown Dependencies would go beyond the scope of the negotiations with the EU. Deputy St Pier stressed that the UK needed to ensure that any future worldwide free trade agreements were capable of extension to the Crown Dependencies.123 Professor Bates expressed concern at the number and complexity of such agreements:

“As the plethora of those negotiations start, it will be quite difficult for the Crown Dependencies to keep track of what is going on and they will be stretched to put their position. We all recognise that New Zealand seems to be heading the race to get there. From the perspective of the Isle of Man, if there is a free trade agreement between the UK and New Zealand, what impact will that have on the Manx lamb industry? … Just keeping track of all those trade agreements will be a major task for the Administrations of the Crown Dependencies.”124

100.Professor Sutton said that the Crown Dependencies would need to think carefully about whether to “piggy-back on the UK” in such arrangements, or to do their own thing. His view, in the broader context of the Brexit negotiations, was that:

“The position of the UK in leaving is not what it was in joining. The leverage of the UK in negotiating for the Crown Dependencies and Overseas Territories is less than it would be. Therefore it behoves them to take matters into their own hands as much as they reasonably can, and to enlist the help of the UK as much as they reasonably can.”125

The evolving relationship between the Crown Dependencies and the UK

101.The Crown Dependencies’ relationship with the UK has been evolving in recent years, in particular in relation to the development of their international identities. In 2008 an agreement between the UK and the Crown Dependencies was signed, stating that the UK would not act internationally on the Crown Dependencies’ behalf without prior consultation and recognising that in international matters, particularly in relation to the EU, UK and Crown Dependency interests may differ. The agreement also set out a framework for the further development of the international identities of the Crown Dependencies.126

102.Deputy St Pier noted that, compared with the 1970s, there was now much greater recognition of the Crown Dependencies’ international identity. This was “hugely encouraging”, and he welcomed the time and effort that the UK had devoted to addressing the issue.127

103.Deputy St Pier noted that, while the Channel Islands’ access to the Commission and to Permanent Representatives in Brussels remained as good as in the past, there had since the referendum been “a change in tone which recognised that an event of significance had happened for the United Kingdom and would inevitably have consequences for us”. That made it all the more important for the Crown Dependencies to maintain, and enhance, their presence in Brussels, including through “direct dialogue to the extent that is possible, recognising the United Kingdom’s responsibility for us in international affairs, to ensure that our voice and interests are heard directly where that is appropriate”. Senator Gorst agreed: “Our relationship with Europe is about building relationships with other Member States. We will need more and deeper relationships with Member States because they will replace the United Kingdom around the table of the EU when the UK finds itself a third country.”128

104.Although Professor Sutton was confident that the UK took its obligations to represent the interests of the Crown Dependencies (and the Overseas Territories) in international relations seriously, he noted that it was becoming more difficult for it to do so, in particular in the field of financial services, given the pressure being exerted on “low, no or zero tax jurisdictions”:

“When it comes to defending a particular tax regime or a particular piece of asset management legislation, it is not easy to do that for … [the UK Government] if they have to deal with six or seven separate jurisdictions with separate and different legislation. It is not easy for them to go to Brussels in the Code of Conduct Group and put one hat on and say, ‘Mr Chairman, I am speaking on behalf of Jersey’, ‘Oh, now I am speaking on behalf of BVI’129, and ‘Now I am speaking on behalf of Bermuda’.”130

105.As we have seen, in Professor Sutton’s view, “the need for the Islands to be able to better defend their interests internationally is quite urgent. That would require a greater degree of entrustment by the United Kingdom so that they can conduct their own affairs in fora such as the OECD and particularly the EU.” He suggested that Hong Kong’s ability, when under British sovereignty, to negotiate independently in international economic fora offered a model of greater entrustment and autonomy.131 On the other hand, he acknowledged the resource limitations that the Crown Dependencies would face in representing their interests internationally. There would also need to be a willingness on the part of the international community to acknowledge the international identity of the Crown Dependencies.132

106.Professor Bates agreed that the UK’s ability to represent the interests of the Crown Dependencies as low tax jurisdictions would be “seriously weakened post Brexit and it might be exacerbated by what appears to be a move to project the UK itself as a low tax area”.133

107.Professor Bates said that one of the knock-on effects of the pressure on double taxation agreements and exchange of tax arrangements was that “the quite limited constitutional convention of the Crown being responsible for foreign affairs has been softened in that there is delegated competence, for example, for the Isle of Man to enter into these—effectively—treaties”. He suggested that the UK may have tired of representing the Isle of Man in international human rights discussions, which led to the Isle of Man, to its surprise, being invited to represent itself before the UN Committee on Human Rights. He thought that, post-Brexit, if the Crown Dependencies pursued a position at variance from the UK, the UK Government might say “off you go and do it, but you can do it yourselves”.134

108.Professor Le Sueur observed that “everybody accepts” that the Crown Dependencies’ relationship with the UK was changing, and described the 2008 framework on developing international identity as “a big step forward”.135 Furthermore, he believed that “Brexit has a real capacity to be a catalyst for change, and I think that will be driven forward if the Islands feel that they are not being listened to or well represented under current arrangements”.136 He predicted that the most likely catalyst for constitutional change would be in the field of taxation, given the importance of financial services to the Islands.137

109.Professor Le Sueur envisaged a range of possibilities for future development, including closer cooperation between the Crown Dependencies, a confederation of the Channel Islands, a formal federation of Crown Dependencies, or even full independence. He noted that the Joint Channel Islands Office in Brussels and the joint Data Protection Commissioner were embryonic steps in the direction of closer working, and told us that “contingency planning has been taking place in Guernsey and Jersey for a number of years now to work out how independence might be achieved, how much it would cost and what the implications would be”. Nevertheless, Professor Le Sueur conceded that such discussion was not currently a matter of public debate, but was “very much a project driven by political elites”.138

110.We observe that the likelihood of any imminent constitutional change is low, and the readiness to contemplate such change is not uniform between the Islands. Professor Bates, for instance, did not sense “any move in the Isle of Man, even in the fairly distant future, of seeking independence for all sorts of reasons”.139

105 Supplementary written evidence from Isle of Man Government (CDP0003)

109 Q 29; Written evidence from Robin Walker MP (CDP0005); Oral evidence taken on 2 February 2017 (Session 2016–17), 22 (Robin Walker MP)

110 Q 1 and Q 3. See House of Commons Justice Committee Implications of Brexit for the Crown Dependencies inquiry.

118 Written evidence from Susie Alegre (CDP0002)

126 Ministry of Justice, Fact sheet on the UK’s relationship with the Crown Dependencies (12 April 2013): [accessed 8 March 2017]

129 The British Virgin Islands.

131 Ibid.

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