How will a 'Brexit' effect the British Overseas Territories?

Discussion surrounding the upcoming referendum on a ‘Brexit’ from the European Union has been missing one vital component. The British Overseas Territories (BOTs) represent valuable parts of the United Kingdom, contributing to both an extended culture and diaspora of British life as well as serving as hotspots for tourism, financial services and environmental conservation that ultimately benefit the government of the UK and its population. What effects a British exit on the BOTs may have are yet to be considered within the political mainstream because, ultimately, people are probably unsure of how a ‘Brexit’ would affect Britain itself. This article attempts to unpack the current relationship between the EU and the BOTs and question whether the territories could still access benefits conferred by EU bodies if Britain chose to leave the Union.

How are BOTs a part of the EU?

BOTs are ultimately connected to the EU via their ‘links’ to member states, and their subsequent membership of the Association of Overseas Countries and Territories of the European Union (OCTA). On its website, the OCTA states:

“OCT’s are not part of the territory of the European Union, but given their special relationship to member states…they have been associated with the EU since the founding Treaty of Rome in 1957.“

So in effect, whilst the BOTs are not geographically part of the EU bloc they are ‘associated’ through the political, legal and constitutional ties they maintain with a member state. In this case, the overseas territories are linked to the EU through their connections to the United Kingdom. In its most recent manifestation, the Overseas Association Council Decision (OACD), adopted in 2013 which governs EU-OCT relations, states that the Treaty of the Functioning of the European Union (TFEU) and its offshoots do not ‘automatically apply’ to OCT’s unless specified otherwise, and thus the OCT’s must act as ‘third countries’ in their dealings with the organisation. Another EU site asserts: “OCT nationals are in principle EU citizens, but these countries are neither part of the EU or subject to EU law”. We can perhaps discern from rather ambiguous language that although OCT’s are associated to EU member states to varying degrees, EU law does not directly apply to them unless explicitly targeted through provisions in those laws or through voluntarily joining into one of its internal organisations, like the Customs Union. This is true of all BOT’s bar Gibraltar, which became part of the EU in 1973 via the UK’s membership. It is not part of the Schengen Agreement or the Customs Union, but since 2004 has been allowed the right to vote in European Elections.

Benefits

There are numerous ways that the BOTs benefit from EU association; the most significant being the external funding that the EU provides through its various banks, investments funds and through OCTA. The status of that funding post Brexit is difficult to predict, as it is doubtful that the Union would be willing to support its endowments to British Overseas Territories after the loss of their rather Eurosceptic ‘host’ member state. The Schengen dilemma, however, may be fixed through simple negotiation. Although the BOTs came to be connected to the EU through the British state, it is possible that in the event of an exit the BOTs could seek to continue their own charitable relations with the EU independent of British non- membership. Iceland, Lichtenstein, Norway and Switzerland all are party to the Schengen Agreement despite not being members, so a precedent clearly exists for the BOTs to ask for continued participation in the scheme on the basis of the 90 day allowance that was given in 2014.

When considering trade relationships the question becomes more challenging. The latest OACD concentrates on a regulatory framework for trade in services, goods and wider co-operation. Through this mechanism, the EU and OCTA are favoured ‘trading partners’ and the OT’s enjoy ‘duty and quota’-free access to EU markets. The BOTs also benefit from funding through the European Development Fund, the European Investment Bank and the EDF Investment Facility. Through the European Development fund, the, OT’s will receive ‘£258,060,999 in funding from 2014-2020’ whilst also drawing capital from other EU run programs regarding things like education, culture and research. Post-Brexit, BOT’s could find that being cut off from the EU and its patronage may put pressure on them to find other sources of cash for their economies and infrastructures. Whether the EU would be amenable to continuing the cash flow to the BOTs and the OCTA relationship sans the core member state is something again that hasn’t been addressed by either the UK government or the EU itself. It is imperative that it is considered, as it appears the EU is keen on developing the OCTA alliance in the future and it could be a positive move if the BOTs were able to continue with the partnership.

Another uncertainty concerns the status of the crown dependencies, a group of self-governing territories that have a relationship with the UK through the monarchy but are not actually a part of the UK. They are involved in the EU through Protocol 3 of the UK’s Accession Treaty, meaning they are part of the customs union, and any taxes, prices and levies, restrictions and legal requirements related to it must applied to them. They are however, not eligible for funding or other forms of assistance through the EU. The dependencies have, in the past, asked to be included in certain legal provisions of EU law, and thus appear to be moving towards strengthening their relationship.

Drawbacks

There are, however, negatives to the EU’s influence over the BOTs, if not the actual association they maintain with each other. Alongside the increasing international attention on tax transparency and offshore centres has come a wave of EU legislation to ‘tackle’ the issue. In 2015 the EU published a list of supposedly ‘non co-operative’ non-EU tax jurisdictions that are designated by member states as not upholding international standards of transparency in their tax affairs. However, BOTs that appeared on the list such as the British Virgin Islands (BVI), Anguilla, Bermuda, and Montserrat found this inclusion unhelpful and unfair, and have protested their inclusion pointing out that many of the territories have repeatedly affirmed their commitment to tax transparency to the Organisation for Economic Co-operation and Development (OECD). The OECD, considered the world’s authority on international tax standards, has tellingly distanced itself from the EU list and affirmed that many of the territories named are in fact in line with tax standards and transparency initiatives. Latvia and Poland have recently rescinded their proscription of Bermuda as non-cooperative, causing the EU to take it off the ‘blacklist’ in a reflection of its rather arbitrary nature.

The decision to give a ‘non co-operative’ designation to a number of BOTs has cast a shadow over the EU-BOT relationship, a shame considering that most have a thriving and popular financial services sector that is routinely subject to intense investigation by the UK government and international media. The EU putting another layer of seemingly undeserved criticism on top of that may prove to be too much for the BOTs, and it may give the Union a reason to dismiss any potential co-operation after a Brexit. The general negativity towards the financial services sector worldwide is, in many peoples opinions, the product of uneducated political discussions that ignore the BOT dependence on the sector and ignore how restrictive regulations will undermine the UK’s most fragile economies.

EU trade laws can also block the export of BOT goods to European markets, an example of which was when lobster from the Turks and Caicos took 7 years to be cleared for sale in the UK markets. The byzantine bureaucracy of EU standards and trading rules may serve as an insurmountable hurdle if the BOTs wish to extend their trading links independent of British membership. The EU Import Conditions for fisheries products even demands that fishing boats have a certain structure if exporters want to meet EU standards. Given the newly developing or single-sector dependent nature of some BOT economies, these restrictions to industries like agriculture or fisheries could prove to be significant obstacles to growth.

Gibraltar, a special case…

It is Gibraltar that could be the most affected by ‘no’ vote and subsequent departure. Dominique Searle, the Gibraltar Chief Ministers Special Representative, recently wrote an opinion piece in the Spectator arguing that a ‘no’ vote in the referendum would give Spain more leverage to ‘question’ Gibraltar’s membership, and that it would in fact be ‘simpler and more beneficial’ if the UK stayed put. In what ways Gibraltar’s relationship with the EU would change after a Brexit is again hard to predict, as it has mostly depended on the influence of the UK’s voice in the EU to back up its increasingly heated conflict with the Spanish over sovereignty. It is unlikely that Britain would stop supporting Gibraltar, but it is also unclear how much support and influence the UK as a non-member state would have with Spain and other EU member states. It is essential that government ministers consider Gibraltar’s special case, and in fact renegotiation of the membership should include agreements with Spain that underline the sovereignty of the ‘Rock’.

So how will the BOTs fare?

What is clear throughout the ambiguity that colours the EU debate is that the BOT’s have a multi-layered and complex relationship with the EU, both through their own channels and via their member state hosts. It is the view of FOTBOT that a continued relationship with the EU independent of British involvement would be a positive one; built on environmental and cultural links sustained by a stable amount of funding. The BOTs at this point should seek to affirm their connections to the union and discuss between themselves and with their EU partners the future of their relationship if Britain leaves the EU. There are many reasons why a continued link could be unsatisfactory; trade restrictions and the EU led pressure on ‘tax havens’ may damage BOT development in the long term. On the other hand, community initiatives for environmental conservation and access to the EU single market may make up for those drawbacks in the future. All of these issues as well as Gibraltar’s singular position must be part of re-negotiations with the EU over British membership, but are unlikely to be due to their perceivably secondary political nature.

It is unfortunate that the UK government has been decidedly silent on the potential effects and outcomes of an exit on the territories and the ‘Plan B’ for their future in case it does happen. This may be a result of political avoidance. The future BOT-EU relationship depends on the general attitude that the EU states would have if the UK left. Would they be amenable to continuing their relationship with the territories? Or would they simply dismiss them along with the presence of the UK? Tensions between the EU and Britain remain high, and it appears that large amounts of goodwill and practical negotiation will be needed to save the BOT-EU relationship post ‘Brexit’.