Brexit and the UK’s Overseas Territories

Many Territory Governments have raised concerns that the UK’s decision to leave the EU has impacted negatively on their access to markets, EU development funding, and funding for environmental protection. The UK Government has pledged to work with the Territories to manage the transition and establish new funding and trading opportunities.

What are the UK Overseas Territories (OTs)?

Around 260,000 British nationals live in the ten permanently inhabited OTs. Each inhabited Territory has its own elected government and/or legislature, and UK-appointed Governors retain responsibility for their external affairs. The OTs have no separate international representation or right to negotiate, or agree to, international agreements without the UK’s permission.

Aside from Gibraltar, the Territories were never part of the EU. Instead, like other European territories overseas they were part of an overseas territory association. This gave them access to certain funding and the single market.

UK-EU agreement and the Territories

Despite the request of the UK Government, the EU declined to allow the Territories to be covered by the UK-EU Trade and Cooperation Agreement (TCA). Because some OT exports to the EU now face tariffs, Territory governments have raised concerns for their economies and public finances (PDF). They have also cited potential benefits (PDF) including access to Asian markets under new trade agreements and access to UK funding.

Access to EU funding and UK replacements

OTs access to funding varies, being mainly dependent on their level of income. Many received funding through two EU schemes:

• The European Development Fund (EDF). Eligible Territories are expected to receive funds until 2024. Six Territories, including Pitcairn and Montserrat, will receive around £69 million in total (PDF). The EDF has supported infrastructure development, tourism, and education.
• The Biodiversity and Ecosystem Services inTerritories (BEST) provided around £1 million each year to support the UK OT environments.

Discussions on replacements are on-going. The UK Government has committed to consider long-term funding and to account for shortfalls when planning. The UK provides its own funding streams to the Territories:

• The UK aid budget: Three OTs are eligible for £76 million in 2021/22. Others are ineligible due to their high incomes or being uninhabited.
• Conflict, stability, and security funding (CSSF): All are eligible. Spending reached £62.1 million in 2020/21. Funding helps Territories respond to natural disasters, fund infrastructure, and address Covid-19.
• Darwin Plus: A competitive environmental scheme open to all OTs. The UK has committed £30 million for the next three years.

Trade agreements and UK-OT-EU trade

OTs are not automatically covered by the UK free trade agreements, but they can agree to their inclusion in a trade deal should they choose. Some OT goods face tariffs when imported into the EU because they are not covered by the TCA. However, the OTs’ access to the UK market is tariff- and quota-free.

UK-OT trade is heavily concentrated on a small number of Territories. In 2019, the Cayman Islands, Bermuda and Gibraltar accounted for 91% of UK exports to and 98% of UK imports from the OTs. Data on the Territories’ EU trade is only available for trade in goods. In 2021, they exported US$0.5 billion and imported US$2.0 billion, resulting in a trade deficit.

As the OTs are not covered by the TCA tariffs are in place for key OT exports, such as fish. This is particularly significant to the Falklands, where fisheries constitute around 35-48% of its Gross Domestic Product (PDF). The UK has provided technical support for the Falklands to navigate the tariffs (PDF).

Sovereignty of the Falklands and Gibraltar

Argentina disputes UK sovereignty over the Falklands. The Territory’s Government considered the UK’s EU membership to offer “considerable certainty and support” to it. The Argentinian Government has said that it now “expects more support” from the EU following Brexit. The UK continues to reject the claims and stresses the Falkland’s right to self-determination.

Spanish Governments have sought to reclaim Gibraltar by peaceful means. They have also proposed shared or joint sovereignty with the UK. Successive UK Governments have rejected making any changes against the wishes of the Gibraltarians. Gibraltar was not covered by the TCA, and instead a separate agreement is to be negotiated. As of July 2022, discussions are ongoing.