Posted: 17/04/2012
Address to Institute of Directors
“Jersey's place in the international community”
Tuesday 17th April 2012
Mr Chairman, Ladies and Gentlemen,
It is an honour to have been asked to talk to the Institute of Directors, and
the subject seems to me to be particularly topical in the aftermath of
LVCR and so on. Where are we, and where are we heading so far as our
relations with the international community and the outside world are
concerned?
The legal framework is probably well understood, but it is important to
appreciate that this is the starting point. We are not an independent state.
We are a Crown Dependency with substantial autonomy, but we are not
responsible in international law for our relations with foreign countries.
The UK is the sovereign state with responsibility for our external
relations.
We cannot be a party to multilateral treaties or agreements like the
European Convention on Human Rights or the UN Convention on the
Rights of the Child because we are not a state. The obligations of these
conventions can be extended to us, if we so request, but the way in which
that is done is by the UK ratifying the convention on behalf of Jersey.
The ECHR was ratified on our behalf in the 1950s and ever since we have
had the obligation to comply with the terms of the Convention. Nor can
we enjoy the benefits of international agreements like those under the
umbrella of the World Trade Organisation unless the UK agrees to ratify
the agreement on our behalf.
That is the strict legal position so far as treaties and conventions are
concerned, although there is nothing in law to prevent a non-sovereign
state like Jersey from entering agreements with other sovereign states and
engaging with international organisations if they are willing to treat with
us. We first began this kind of engagement in about 1998 when the
OECD issued a report on harmful tax competition. The UK accepted that
its own interests on this issue were different from those of the Channel
Islands, and the Islands began to negotiate on their own behalf with the
OECD. In due course that led to a commitment by Jersey to comply with the OECD's “harmful” tax initiative – a commitment in effect to effective
exchange of information, transparency and non-discrimination, and of
course to compliance with international standards. That was really the
first time that we entered on to the world stage without the oversight or
protection of the UK.
In the last 15 years things have moved on apace, with the support, to an
extent, of our sovereign state. If I qualify the statement in that way I am
not suggesting that there has been any opposition from the UK to this
assertion of international identity, but the requirement to represent our
own interests internationally has been driven in part by the UK's
withdrawal from its constitutional responsibilities to protect those
interests. Budget cuts in the UK have resulted in a significant reduction in
the number of officials who were, a few years ago, charged with
responsibility for the interests of the Crown Dependencies. The UK
recognized the difficulties and agreed that it was appropriate for the
Channel Islands to represent their own interests to a much greater extent.
In 2007 the then Lord Chancellor and Secretary of State for
Constitutional Affairs, Lord Falconer, who signed a Framework
Document with the Chief Minister of Jersey in 2007. That Framework
Agreement acknowledged, inter alia, that -
1. the UK would not act internationally on behalf of Jersey without
prior consultation;
2. Jersey had an international identity which was different from that
of the UK;
3. the UK supported the development of that separate international
identity and had a role to play in that respect: its role was one of
support and not interference;
4. Jersey and the UK would work jointly to promote the legitimate
status of Jersey as a responsible, stable and mature democracy with
its own broad policy interests and which was willing to engage
positively with the international community across a wide range of
issues.
Recognition of that separate international identity is very important
from a business perspective because the international community,
through the G20 and other global groupings, is increasingly setting
standards for the conduct of business. When one considers the
widespread prejudice against so-called tax havens, it is vital that
Jersey should not only conform to those international standards, but
also be able to persuade the world that she is conforming.
The 2007 Framework Agreement underlined the importance of such
compliance. It stated at para 6 “International identity is developed effectively through meeting international standards and obligations
which are important components of Jersey's international identity.” I
think that Jersey had in fact been aware of the importance of meeting
these standards long before 2007; our commitment to the OECD's
initiative at the turn of the century is evidence of that.
In June 2008 the Chief Minister presented to the States the 2nd Interim
Report of the Constitution Review Group which had been established
to examine the constitutional relationship between the UK and Jersey.
The report can be found on the website of the States Assembly. It
concludes that, if it were necessary or desirable for Jersey to become a
sovereign state, the Island would be able to cope. The 2nd Interim
Report recommended, inter alia, that Jersey should develop a capacity
to conduct international affairs. If we were to become independent,
such a capacity would be a necessity. But even if we remained a
Crown Dependency, the acquisition of diplomatic and administrative
skills relevant to the conduct of foreign affairs was important for
protecting our international interests. Last year a small department
with responsibility for international affairs was set up within the Chief
Minister's Department and an Assistant Minister, the then Senator
Cohen, with accountability for that department was appointed. After
the elections I was appointed by the Chief Minister to fulfil that role.
So Jersey now has a small department of 7 officials, including a
number of young graduates, to look after Jersey's international
interests. We supervise the joint Channel Islands office in Brussels,
and I hope that we shall shortly establish an office in London. Our
relationship with the UK is the most important of our international
relationships, and a London office would help us to develop better
contacts with officials in Whitehall, with politicians at Westminster,
and of course with the City.
International relations are not very different in essence from personal
relations. In our private lives, if we pay no attention to our friends,
those friendships will wither. If we cultivate friendships and contacts
at all relevant levels across national boundaries, we are more likely to
achieve the objectives of diplomacy, which are essentially to get our
own way as often as possible, and to avoid collisions. The collision
that resulted in the cancellation of our health agreement with the UK a
few years ago was entirely avoidable. It represented, at root, a failure
on our part to have in place the necessary relationships to prevent a
collision of opposing interests from occurring.
What can one say about our current place in the international
community? I think that we are recognized in many quarters as a country that is not only committed to international standards not only
in theory but also in practice. Our regulation and enforcement of
standards are as good as anywhere. Perhaps I might interpose in
passing that I make no apology for describing Jersey as a “country”.
Some people mock the idea that Jersey is a small nation or country. I
think they are wrong. If you look the words up in the dictionary you
will find that they are entirely appropriate. If we are going to continue
to succeed economically and socially, if we are to absorb all the
different cultures in the Island, we need to get more people to think of
themselves as Jerseymen and Jersey women. It does not matter where
they were born. If they have a commitment to Jersey, they are, so far
as I am concerned, fellow countrymen or women.
But back to international standards. The key milestones in the last four
years can be summarized as follows.
1. In 2008 the IMF assessed the Island for its compliance, and the
results were published in September 2009. The conclusion was that
Jersey's financial sector supervision and regulation were of a high
standard and compared favourably with the performance of other
countries, including all the EU member states.
2. In November 2009 the Foot Review, commissioned by HM
Treasury, not only strongly endorsed Jersey's high standards of
regulation but also highlighted the significant contribution made to
the liquidity of the UK financial markets.
3. Earlier in 2009 Jersey was included in the OECD's list of “white”
jurisdictions that had substantially implemented the internationally
agreed standards on tax transparency and information exchange.
4. In October 2011 the assessment of Jersey by the Global Forum on
Transparency and Exchange of Information for tax purposes
recorded “ ... a legal and regulatory framework for the exchange of
information which generally functions effectively to ensure that the
required information will be available and accessible. … “
5. In November 2011 the Financial Stability Board – one of the
entities set up by the G20 – included Jersey in Group 1, that is one
of a group of jurisdictions “demonstrating sufficiently strong
adherence” to the relevant international standards.
In short, in all areas upon which the G20 are focussing in relation to
international standards – AML/CFT, financial regulation and tax
information exchange – Jersey scores very highly and bears comparison
with all EU member states and all G20 countries.
So what, one might think, is the problem? If Jersey is this model of
probity in so many ways, why do we not attract praise and plaudits? Why do we continue to be described as a “tax haven” and so often find
ourselves to be the subject of negative publicity? The short answer, I am
afraid, is that life is not fair. Prejudices, particularly political prejudices,
die hard. My discussions with officials in the European Commission, and
with ambassadors and high commissioners representing many EU
countries, suggest that at the level of officialdom there is a fairly
widespread recognition that Jersey is a transparent and cooperative
jurisdiction. In the media and amongst the political class, there is
however much work to be done. Sometimes it is just not politically
expedient to destroy ancient myths. And sometimes politicians abroad
will seek to draw attention away from their own policy shortcomings by
suggesting that problems faced by their electorates are the result of
actions by wicked tax havens of which Jersey is one. And sometimes
critics and pressure groups like the Tax Justice Network will distort
research in order to arrive at the desired conclusion.
These political prejudices cause the Island real problems. When we seek
to gain acceptance by EU member states that our AML and financial
regulation are at least equivalent to provisions in force in those member
states, there ought, objectively speaking, to be instant agreement. But
some member states find it difficult to overcome the hard-wired political
prejudice that Jersey is a tax haven. As a result, breaking down barriers
and gaining access to European markets is not simply a case of meeting
objective criteria. There are strong political preconceptions and
prejudices to overcome.
What can we do about it? Well, the work of the International Affairs Dept
is geared to travelling as much distance on a litre of petrol as is possible,
and I mean that metaphorically as well as practically. There is a London
engagement programme designed to build up relationships not only with
the UK but also with many other countries with representatives in the
capital. Jersey Finance Ltd and the JFSC in its international activities
need support. Inviting ambassadors and high commissioners of relevant
countries to Jersey to explain how the Island works is another important
way of gaining influence. The more that we can put the correct facts into
the public domain and into the minds of policy makers, the more difficult
will be the task of our detractors.
We must stand up for our interests internationally because experience has
shown that no one else will do it for us. That does not mean that we
should be aggressive or violent in the defence of our interests. We have
no army or navy, so that would hardly be practical. But the pen can be mightier than the sword, and reasoned argument will eventually prevail
over prejudice and ignorance.
We do of course have a significant disadvantage in Europe in that we are
considered to be, because of our relationship as set out in Protocol 3, a
“third country” so far as the EU is concerned. On the other hand, as a
dependent territory of the UK, we lack the ability of other third countries
like Liechtenstein and Switzerland to have our voice heard and to
negotiate directly with the European Commission. The European Union is
currently discussing its relationship with the sovereign non-EU small
states of Europe, viz. Andorra, Liechtenstein, Monaco and San Marino,
but Jersey does not have that international capacity. Our discussions have
to take place through the UK. The UK agreed in the 2007 document to
which I have referred that Jersey's interests may differ from those of the
UK and that the UK has a duty to represent Jersey's interests
internationally. These may be early days, but so far, I am afraid, the
record has not been encouraging. One of the purposes of the London
engagement is to see whether a more positive approach can be developed.
Sometimes Prime Ministers and Presidents of the United States make fine
speeches about the “special relationship” between the UK and the USA,
as if they were brothers and sisters of one English speaking family. What
these leaders mean is not that either country will always support the
other, but that they will support each other when they can. If the interests
of the USA and the UK clash, you cannot expect the USA to put UK
interests above its own, and vice versa. I believe that the same can be
said, broadly speaking, about the current relationship between the UK and
Jersey. Some people still nurture the comfortable notion that at the end of
the day the UK will always look after us. If that makes you feel better,
then dream on, but I would prefer to have a reality check. The sadness of
this illusion is that people then feel disappointed when the UK
government acts in an entirely reasonable way from its perspective, and
protects the interests of UK citizens. If we want the UK government
always to protect our interests, we would need to be part of the UK. If we
do not want that, then we should understand that UK politicians will
always act to protect the interests of their electorate, and that sometimes
those actions will prejudice Jersey's citizens and businesses. The LVCR
dispute was only an extreme example of this protectionism. Our case
before the English High Court was not a complaint that the UK had no
right to change its own tax rules to protect its own revenues; it was
essentially a complaint about the discriminatory nature of the proposed
tax change. In other words, the Channel Islands were being singled out,
with probable severe social consequences, and this, we said, was unfair.
We lost because the judge held in terms that the UK government was
entitled in law to discriminate against any third country.
What lessons can we learn from all this as to our place in the international
community? The first lesson, as I have said, is that we must defend our
own economic and political interests because if we do not they are likely
not be defended at all. That is not a call to arms, or an encouragement for
belligerent statements. On the contrary, we should be subtle, diplomatic,
and play to our strengths. The professional skills of our finance industry
are a strength. Our compliance with international standards is a strength.
Our lack of debt and financial reserves are strengths. We provide value to
the City of London, and therefore to the UK, in terms of liquidity. We
need to explain ourselves and to persuade opinion formers and leaders
that we are an asset and not a liability. We need to speak our truth clearly
and frequently and resolutely.
In order to defend our interests, we need to be given greater authority by
the UK to conduct our international affairs. We need entrustments to
negotiate and secure international agreements outside the area of tax, in
asset sharing, and social security and so on. We need to be trusted more
generally in the conduct of our affairs, both external and internal. We
cannot expect to be given a licence to act contrary to UK interests, but we
should expect, following our own special relationship, to get UK support
when our political interests coincide, and when our interests and those of
the UK do not clash. To gain that kind of support from the UK would, I
think, overcome at least some of the disadvantages of our current status
as a Crown Dependency.
Such a change in our constitutional competence is entirely consistent with
the recommendations of the House of Commons Justice Committee under
the chairmanship of Sir Alan Beith which reported on the Crown
Dependencies in March 2010.
If we cannot achieve those kinds of changes, then Jersey has a stark
choice. We can reconcile ourselves to being, as I put it recently, a satellite
of the UK, always toeing the line of UK interests, and accepting for our
industries and businesses a strait jacket that would inhibit innovation and
initiative. Or we could take the comparatively small step of taking
responsibility for our destiny as an independent state. For my part, I am
not in favour of being a satellite, but I also think that a sensible and
mutually satisfactory solution could be found if the UK were to place
greater trust in the Channel Islands to conduct their international affairs
properly, diplomatically and with good sense.