Crown Dependencies

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Constitutional status

The Crown Dependencies (Guernsey, Jersey and the Isle of Man) have a unique constitutional status with the UK, and with the EU. They are not part of the EU nor part of the UK.

Gibraltar has a distinct constitutional relationship as the only UK Overseas Territory within the EU.

Relationship with EU

Under Protocol 3 of the UK’s Treaty of Accession of 1973, the Crown Dependencies are part of the EU’s customs territory. Therefore, the following apply:

EU customs matters
EU common external tariff
levies
prohibition against quantitative restrictions and any measures having equivalent effect.

There is free movement of agricultural goods and derived products between the Islands and the EU. Measures relating to trade in agricultural goods and derived products with third countries are also included.

The Crown Dependencies:

do not fall within the jurisdiction of, nor have representation in, the UK Parliament:
- they have their own legislatures to which their governments are accountable;
- the UK Government is responsible for their defence and international relations.
are not recognised internationally as independent sovereign states, but as territories for which the United Kingdom is responsible.
are part of the EU Customs Union
are in the Single Market for the purposes of trade in goods and agricultural products (including fish). They are third countries in all other respects.
voluntarily implement appropriate EU legislation or apply the international standards on which it is based.
together with the UK and Ireland, comprise the Common Travel Area (there is no immigration control within the CTA)
do not contribute to, or receive, EU funds.

For trade in services the EU treats the Crown Dependencies as third countries. Financial services are an important part of the economy for Jersey and Guernsey. In the Isle of Man, e-business and manufacturing are more important.

The Crown Dependencies either choose to adopt relevant EU law and/or seek to achieve regulatory equivalence with the EU. Two recent examples are in relation to Alternative Investment Fund Managers Directive (AIFMD) and General Data Protection Regulation (GDPR).

The terms of each Dependency’s relationship with the UK and the EU differ in some respects.

Isle of Man has a customs and excise agreement with the UK (signed in 1979), which provides for the sharing of VAT and other revenues between IoM and the UK. The IoM is part of the EU customs territory and fiscal territory. While the IoM is part of the UK’s membership of the World Trade Organisation (WTO), Guernsey and Jersey are not.
Guernsey and Jersey do not apply VAT. They apply their own customs regimes (set up in 1973) and the EU Common External Tariff as part of the EU Customs Union. They are also part of the Common Commercial Policy for goods.

Impact of Brexit less severe than for UK

As the Crown Dependencies were already third countries with a close relationship to the EU, the economic impacts of Brexit were unlikely to be severe.

The House of Lords report noted it would be important for the Crown Dependencies to continue to:

trade freely in goods, including fisheries, agriculture and manufacturing, both with the UK and the EU;
attract EU citizens to live and work in the Crown Dependencies, in particular in sectors such as agriculture, health, financial services and tourism, while at the same time retaining the Common Travel Area between the Crown Dependencies and the UK;
maintain existing data protection cooperation, transport and communication links, and energy cooperation between the Crown Dependencies and the EU;
secure regulatory equivalence for financial services where appropriate.

Legislative changes

The Crown Dependencies needed to prepare their own equivalents of the UK Government’s ‘Great Repeal Bill’.

The Jersey Government developed a draft bill.
The Government of Guernsey identified the need for a bill, but believed less legislation would be required than for the UK.
The Isle of Man’s customs and excise agreement with the UK (which provides for VAT and other revenues to be shared) was looked at closely, as were policy areas like agriculture and animal welfare.

The House of Lords heard from Professor Sutton (Professor of economics at LSE):

“It is the same for the Channel Islands and the Isle of Man as it is for the United Kingdom. If we and they want continued access to EU markets, experience shows that you have to pretty much align your legislation on what is in force in the EU. If it is trade in goods under Protocol 3, the legislation that is now in force that allows free trade in goods with the Isle of Man and the Channel Islands will have to stay. If financial services is where we want access, we will have to replicate, for example, the AIFMD directive or the insurance directive. I do not see a great deal of scope for widespread repeals of legislation if the aim is to preserve access.”

He added that legislation would be needed subsequently to ensure that, where necessary, the Crown Dependencies stayed in line with future EU legislative developments.