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Statement by Minister for External Affairs, Deputy Jonathan Le Tocq - Brexit update

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Wednesday 30 November 2016

Sir,

I would like to take this opportunity to give an update on our activity since our policy letter was put before this Assembly regarding the management of the implications for Guernsey following the UK's historic referendum vote to leave the EU. 

We published and agreed to the proposals in that policy letter some five months ago.  It is perhaps hard to believe that since then, this Assembly has debated the Island Development Plan, phase 1 of the Policy & Resource Plan and our budget for 2017. 

We acted fast on BREXIT because we were well prepared in advance of the referendum, but it is very clear that the process of understanding what leaving the EU means has only just begun for the UK.   

Guernsey had to move deftly in order to cope with the challenges that the UK joining the EU presented.  The process of the UK's leaving is far more complex and will require nimble positioning in order to achieve the objectives set out in that policy letter.

Since we agreed the Policy Letter in June we have been working with third parties, including businesses and other bodies such as the Guernsey Financial Services Commission and the Institute of Directors in order to gather more information.

Importantly, we have been actively engaging with the UK at every level on BREXIT.  We have now had two British-Irish Council summits which have both focused on the UK's exit of the EU, the latest taking place just last week. The British-Irish Council has become a business critical tool for the UK managing its exit from the EU.  The value, focus and tone of the organisation has therefore been changing.  It provides opportunities for us to express our interests and concerns at the highest level and in turn, allows us to understand what is happening across the devolved administrations and Ireland.

During July and August, officers from across the Crown Dependencies were busy holding meetings with the UK's Department for Exiting the European Union, the Cabinet Office, HM Treasury and the Ministry of Justice to stress the importance of communication throughout the process of the UK's exit from the EU and to develop the UK's understanding of our top-level policy issues surrounding our existing unique relationship through Protocol 3 and as a third country in other areas. 

Together with the other Crown Dependencies, we established four initial priorities with the UK Government at those meetings:  

Firstly, fisheries and agriculture.  Protocol 3 allows us to freely trade in these products and we want to preserve that right.  Although the economic impact of these sectors is perhaps small in simple GDP terms, fisheries and agriculture are part of our unique historic and cultural identity and we are determined to preserve that.

Secondly, financial services.  Over the years Guernsey has successfully negotiated its own access to EU financial markets as a non-EU jurisdiction. These relationships are not going to change directly.  However, the geopolitical landscape and politics of the EU will change when the UK leaves the EU.  We need to make sure we know what terms the UK negotiates with the EU in terms of its market access and how we mitigate any political and economic impact we may experience because of the UK's exit.

Thirdly, free movement of people.  This is a highly complex area due to our ancient rights and links to British Nationality, the Common Travel Area and the particular status of Channel Islanders in Protocol 3.  Needless to say we are engaged with the UK at a technical level so they understand our needs, including the rights of our residents, as well as those on the island for seasonal labour.

Finally, customs and goods.   We want to maintain our trade links with the UK and the EU, provide stability and protection for our businesses in order to safeguard and build on our trading relationships.  No doors for new trading opportunities should be closed to the islands and with that in mind, the extension of the UK's Membership of the World Trade Organisation is increasingly important.

These four priorities are in accordance with those outlined in the June policy letter, but we will be keeping a watching brief to identify other concerns.

The detailed discussions in early July and the extraordinary British-Irish Council summit resulted in a letter from the UK's Prime Minister formally committing, not only to consult, but to actively engage with Guernsey to ensure that all our interests are taken into account. This commitment to engage is different to an agreement to consult.  Engagement means participation - it means that we are not merely a passenger on this journey.

Robin Walker, Parliamentary under Secretary of State at the UK Department for Exiting the EU, has now been given formal responsibility for ensuring the Crown Dependencies' interests are well understood and reflected throughout the process.  He has already held meetings with Deputy St Pier and has committed to meet with Guernsey and the other Crown Dependencies on a quarterly basis.  Following the first of these meetings held on 2 November, Robin Walker said that "As we approach our negotiations with the European Union we will go on working closely with our friends in the Crown Dependencies, helping to ensure that we get a deal that works for everyone." He recognised that these meetings are an important and productive step in our continued discussions, allowing the UK Government to understand the challenges and opportunities that will arise for the Crown Dependencies and to ensure the islands are given timely and relevant updates as the UK reaches the various milestones in the long process that lies ahead.

We've also had a senior Crown Dependency Liaison Officer from the UK Government's Cabinet Office take the time to visit us in Guernsey on fact-finding visits to gain a better sense and understanding of our interests and concerns and to meet me and with our officers on the ground.

We have submitted written evidence to the House of Commons Justice Committee and Foreign Affairs Committee and also expect to be giving evidence to the House of Lords European Union Committee this December.

We have ensured that the Chairman of Alderney's Policy and Finance Committee met with HM Treasury in Guernsey, and have sought regularly to share information with Alderney and also Sark as and when we have been able to.

Across Whitehall, Westminster, Scotland, Wales and Northern Ireland - we are engaging with the UK at every level.

At the British-Irish Council last week the administrations agreed four principles for their collective work on the UK's exit: the importance of trading arrangements for all the British-Irish Council members; for the free trade in goods within the UK and to Ireland; and the ability to trade more widely with the EU.  This goes to the heart of the customs union we have within the British Isles and to the EU customs area and to our desire to be a part of the World Trade Organisation.

Recognising the increasing value of the British-Irish Council in this regard the Summit noted that it supplements bilateral discussions and those of the UK devolution Joint Ministerial Committee.  The devolved administrations agreed that they benefit from the views and experiences of the Crown Dependencies.

It was also agreed that the governments of the British-Irish Council should look for solutions that provide minimum disruption as the UK transitions from being an EU Member State to being outside the EU but still in Europe.

Lastly, that there should be no hard border with Ireland.  Whilst Ireland seems a long way from Guernsey the free border is a key part of the Common Travel Area that we all enjoy.

To achieve this, given the diverse range of views around that summit table it may take a range asymmetric solutions. We've all heard the mantra "BREXIT means BREXIT", but the UK is far from united its view of what this BREXIT looks like.

However it's not just the UK and Ireland we need to be speaking to.  It is crucial that we continue to develop our relationships with current EU Member States.  We need allies during BREXIT and we need these allies after BREXIT.  Our relationship with France, developed especially now with the help of BIAN, our joint French office, and our relationship with countries such as Ireland through the British-Irish Council are now more important than ever. We are therefore conscious of the need to increase our efforts in both.

This autumn the UK Ambassadors of two of the most influential EU Member States have visited Guernsey - the Ambassadors of France and of the Netherlands. These have been useful opportunities for us to explain our position in relation to the UK, the EU and to BREXIT.

Similarly, this autumn we also welcomed the Swiss Ambassador to the Court of St James. Switzerland is a third country and a member of the European Economic Area, the EEA, so discussions with the Ambassador were useful as he was able to provide a different perspective of the future of trade and security in Europe.

As I speak the President of Policy & Resources is now travelling back to Guernsey following a series of meetings in Brussels.  These meetings, managed by the Channel Islands Brussels Office, raise our profile and build on our direct relationships with the EU. We can only anticipate that our presence in Brussels through CIBO will become even more significant and strategic in the months and years ahead. 

On this visit, which Deputy St Pier undertook alongside  Jersey's Chief Minister Senator Ian Gorst, he met with some of our most important partners, not least the UK's Permanent Representation, which has given Guernsey and the Crown Dependencies a good deal of support and counsel in Brussels in the past, and continues to do so.

Deputy St Pier also met with the Permanent Representations of France, of Ireland, and of Estonia - each of them influential in different ways, and each of them increasingly more aware of who we are, what we are not, and thus certainly friends of Guernsey in different respects. 

The meeting with Estonia was particularly timely as it will hold the rotating Presidency of the EU for the first time in the second half of 2017, taking over from Malta and preceding Bulgaria. Their Presidency had been due to take place in the first half of 2018 but it was brought forward by six months because of the BREXIT outcome, as the UK had been due to hold the Presidency in the second half of 2017.

In addition meetings were held with two of the important EU Commission cabinets for Guernsey - the tax cabinet headed by Commissioner Moscovici, who I have met in the past and most recently met in Brussels earlier this year; and the cabinet for financial services, financial stability and the Capital Markets Union. This last meeting is certainly important. Guernsey makes a significant contribution to the European Union's capital markets. Guernsey and Jersey's specialism is to channel investment from around the globe into funds which are then invested into Europe.  

To illustrate, the Channel Islands, taken together, had £466 billion in funds under management or administration according to Q1 2016 data. Almost half of this comes from investors outside of the EU. These funds are drawn largely into the UK and the rest of Europe, and invested in key infrastructure and businesses in support of jobs and growth across Europe.

In Guernsey and Jersey's joint January 2016 submission to the EU Commission's call for evidence on the regulatory framework for financial services, it was estimated that removal of additional fees and administrative barriers, together with the introduction of the passport for equivalent third countries in due course could result in an additional global capital flows into EU investments of between EUR 12.5 billion and EUR 25 billion. 

Europe has significant requirements in the area of infrastructure investment; the EU Commission has estimated that between EUR 1.5 trillion to EUR 2 trillion is required to meet the policy goals of the Europe 2020 Strategy for smart, sustainable and inclusive growth. Global capital markets have a vital and valuable role to play in making Europe competitive, and the Channel Islands, then, have a significant part to play in that.

Finally on-island we are ensuring that, in partnership with the Committee for Economic Development, businesses on-island are kept informed and can continue to ask questions and give us their views. One of the consistent themes in that engagement is that Guernsey must continue to meet international standards in order to protect its post-BREXIT future. It is well understood that by meeting these standards, we demonstrate that we are part of the mainstream, part of the economic solution, a partner and not a threat to the UK and to the wider world.

In many respects, this is an area of stability and security through the BREXIT process and beyond. Whilst the UK is leaving the EU it is not leaving Europe and like the UK we will continue to play a role in meeting and contributing to multinational and European standards.

Guernsey's recognition as an OECD member is related directly to its relationship to the UK, and the UK's membership of the OECD is direct not via the EU.

The European Council's recent MoneyVal assessment shows that Guernsey remains one of the leading jurisdictions in combatting financial crime in its own right.

BREXIT will have no impact on our FATCA or our Common Reporting Standards status - neither are contingent on the UK being an EU member. Tax Information Exchange Agreements and Double Taxation Agreements are negotiated and signed bilaterally, directly between Guernsey and the relevant countries.

Guernsey has signed up to the OECD's Base Erosion and Profit Shifting agenda, which seeks to put in place new international standards of transparency and co-operation. We are a member of the BEPS Inclusive Framework with many EU and G20 members, and so will be involved in the shaping and measurement of the new standards.

That place in the international mainstream, through meeting international standards, is one of the reasons that we can be confident in meeting the challenge of BREXIT. 

Guernsey must never be complacent. But we do have reasons to be confident.

We now have the platform from which are actively looking for new business opportunities as the UK changes its relationship with the EU.  It is not clear yet whether those opportunities will include brokering new trading deals or exploring new market access agreements in services but regardless, we certainly will seek to embrace any new business opportunities that emerge. 

Every step of the way new issues arise that have may impact us. For example, we will be monitoring the outcomes of the Supreme Court judgment on Article 50 to understand implications for own jurisdiction, constitutional judgments like this can have ramifications and it is important we remain engaged on the raft of issues that arise.

The Policy Letter debated by this Assembly on 29 June acknowledged that we would seek to use in-house expertise and reprioritise resources wherever possible.  Developments mean we are now beginning to understand the additional resources that will be required in order to help manage the process over the next few years while maintaining "business as usual".  We will meet these demands in line with the ongoing Public Service Reform programme agreed by the States last year, and led by the States' Chief Executive. 

Using existing resources, we will be bringing the right people with the right skills into the right place to work on our response to BREXIT.  This type of working is exactly what was envisioned by Public Service Reform - a move away from having all job roles tied to a single service in a specific area, enabling us to make the most of our public sector capability.

On the 14th of December, the President of Policy & Resources will be giving a statement on Public Service Reform to provide an update to this Assembly.

The Policy & Resources Committee will give regular updates to all States Members as the UK negotiates its withdrawal from the EU.  Whilst we are not part of the UK or the EU, and in many ways we will not suffer the same constitutional shock-waves as the UK, we cannot expect to be completely unaffected. Things are going well now but we need remain diligent and to invest to keep pace during 2017 and beyond to make sure we can meet these challenges head-on.

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