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Public Law analysis: What impact will the vote to leave the EU have on the Crown dependencies? Guy Coltman, partner, and Paul Tominey, associate, in Carey Olsen’s Jersey office, consider the key concerns of Jersey’s Government regarding the Brexit negotiations, and explain why any resulting downturn in the UK economy could have implications for Jersey.
Jersey has close economic ties to the UK and the EU. It benefits from free movement of goods based on its special relationship with the EU (detailed below), and also from inward migration from EU Member States by virtue of the UK’s current EU law compliant immigration and nationality laws (which apply to Jersey in generally the same manner as the UK).
While disruption to the free movement of goods and migration of workers from the EU would have an effect on Jersey’s economy, it is expected to be reasonably limited, at least in the short term. The majority of both workers and goods that enter Jersey come from the Common Travel Area (encompassing the UK, the Republic of Ireland and the Crown dependencies), which is separate from and pre-dates the EU.
Jersey is, however, exposed to levels of activity in the UK economy, particularly in the context of financial services. Jersey has a well-developed financial services sector with close links to the UK, and to the City of London in particular, and as a result of this any slow-down in economic activity in the UK is likely to have an impact on Jersey. The major concern in Jersey resulting from Brexit therefore stems from the potential negative implications Brexit may have for the UK economy.
That being said, Jersey has a strong, knowledge-based service economy which gains substantial amounts of global business that is not derived from the UK or EU, and it is anticipated that any negative impact of Brexit in the UK could be managed effectively.
The UK’s relationship with the EU is derived from the Treaty of Accession to the European Communities (Treaty of Accession) between the UK and the other EU Member States. The formal relationship between Jersey and the EU is enshrined in Protocol 3 of the Treaty of Accession, and is confirmed in what is now Article 355(5)(c) of the Treaty on the Functioning of the European Union.
Jersey’s relationship with the EU means that Jersey is not a Member State or an associate member of the EU but is effectively in a customs union with the EU. There is therefore free movement of industrial and agricultural goods in trade between Jersey and the EU. By way of the established relationship between Jersey and the UK (Jersey is not a part of the UK, but is a self-governing dependency of the UK Crown), Jersey is bound to apply the UK’s immigration and nationality laws, meaning that there is free movement of workers from the EU to Jersey, subject to Jersey’s labour and housing licensing rules.
Jersey does not contribute to, or receive any payments out of, the budget of the EU. Other than a requirement in Article 4 of Protocol 3 of the Treaty of Accession that the authorities in Jersey do not discriminate as between natural and legal persons from different parts of the EU, the rules of the EU do not apply to Jersey (although the Government in Jersey is free to enact laws and regulations that are based on or similar to EU legislation, and this has often been the case).
One example of such parallel legislation is the Alternative Investment Fund Managers Directive (2011/61/EU). As Jersey is outside the EU and regarded as a ‘third country’ for AIFMD purposes, its status for AIFMD purposes is not expected to be affected by the withdrawal of the UK from the EU. Jersey has implemented AIFMD requirements only to the extent necessary to allow its funds and managers to access investors in the EU and wider EEA.
Jersey funds are eligible to be marketed into the EEA in accordance with the AIFMD through national private placement regimes and (once available) through the EU passporting regime. On 18 July 2016, the European Securities and Markets Authority reiterated its positive advice to the European Parliament, European Council and European Commission on the extension of the AIFMD passport to Jersey.
The Prime Minister of the UK has made it clear that the Crown dependencies, including Jersey, will be consulted throughout the course of the UK’s negotiations with the EU on Brexit. Jersey’s ministers and officials have been meeting regularly with their counterparts in the UK Foreign Office and Ministry of Justice (the government department tasked with administering the UK Crown’s relationship with the Crown dependencies) since the 2015 general election to discuss developments in this regard.
Jersey’s government expects the UK government to establish a framework within the division of the Civil Service assigned to manage the Brexit negotiations which will keep the Crown dependencies informed of the progress of those negotiations, and seek the views of the Crown dependencies’ governments when appropriate.
Jersey’s Minister for External Relations has made it clear that in the view of Jersey’s Government, Jersey’s interests will be best served by replicating the current arrangements under Jersey’s Protocol 3 relationship with the EU, and tariff-free trade in goods with the EU in particular.
Jersey’s Government has also expressed a desire to ensure that any alterations to the UK’s immigration and nationality laws and policies do not have an adverse effect in Jersey, such as the finance, agriculture and hospitality sectors of the Jersey economy, which benefit from the inward flow of workers from EU Member States.
Jersey’s Government is also keen to ensure that the Common Travel Area, which allows free movement of people between the UK, the Crown dependencies and the Republic of Ireland, is not affected by Brexit.
In the short-term, certainly from a strict legal perspective, not much should change for legal advisers who regularly deal with Jersey. Given the febrile political atmosphere in the UK and the EU as a whole, the medium-term outlook is more uncertain, although Jersey should be reasonably well placed to deal with the sorts of issues that are most likely to arise in the foreseeable future.
The most important questions at this stage are the status of the UK economy and the position of the City of London going forward. Both issues will hopefully become clearer in the coming months.
Interviewed by Jenny Rayner.
The views expressed by our Legal Analysis interviewees are not necessarily those of the proprietor.
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