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The risks of Guernsey being a distant observer in the EU referendum

The key to a better understanding of how Guernsey might fare if the UK leaves the EU is to look back at when Britain first became a member state. As part of the UK’s entry into the EU, a specific set of circumstances were negotiated for the Channel Islands and the Isle of Man under what is known as Protocol 3.

Although these rules - allowing the same free trade position as member states without the freedom of movement - are important, what is more crucial to highlight here is that it was the UK who controlled negotiations for these terms. It follows that if Britain opts to leave the EU it may also fall to the UK to renegotiate if and how the existing relationship between Guernsey and the EU should change as a result.

This is where concern creeps in. While the UK has not been in any way intolerant of Guernsey’s position I think most would also agree that it has not always been particularly favourably disposed towards it either. It is difficult then to imagine a situation where we could truly rely on the UK’s ability to fully consider Guernsey’s own position with the EU as part of any exit plans. I am careful to say imagine here because the exact stance the UK will take on the Channel Islands can only be known once this process gets underway, if it ever does. But there has been so little mention of the real logistics of leaving the EU put forward by both the pro and anti-EU camps to date, that we are left facing a fairly uncertain future as matters relate to the EU.

The unknown element of Brexit carries an inherent risk for almost any Guernsey-based exporting business, as well as more specific issues for our prominent financial sector. Guernsey’s integrity is well-recognised amongst EU financial regulators and some continuation of the status quo will be important to maintain this. However it is not yet fully clear if and how Guernsey’s existing relationship with EU regulators would be impacted if the UK were to leave the EU. As Guernsey diversifies its economy into other export-led industries the potential changes to our trading position with the EU will also pose challenges for Guernsey businesses looking at the cost of manufacturing and shipping.

Assessing the full implications of these changes ahead of an EU referendum is understandably far from straightforward and putting these into practice would not happen overnight. In the meantime, however, Guernsey could find itself orphaned by uncertainty. Unable to look to the remaining EU for support we will ultimately be left as a distant observer to the referendum who has a significant interest in the outcome, but no vote.

Turning the situation completely on its head, Guernsey is also an example of how the UK could actually prosper outside the EU. If no longer a member state, Britain would be somewhat forced to look beyond the EU and trade more diversely than it currently does, something which our own finance sector is already doing successfully as it moves away from a focus on Europe to find fresh opportunities in both Asia and America – a small reminder to both Guernsey and the UK that every change can also bring new prospects.

 

Article by Mark Huntley, Managing Director, Heritage International Fund Managers originally published in the Guernsey Evening Press on 25 February 2016

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