This Week in Europe, 17 March 2000
Executive Director of the Caribbean Council for Europe
Imagine you are the Government of an island in the Eastern Caribbean. You recognise that try as you might, there is very little you can do to obtain a satisfactory solution in the banana war or perhaps in some sugar war yet to come. The transatlantic trade disputes at the World Trade Organisation (WTO) do not involve you directly; domestic politics and industry and union-based strife complicate rational solutions. The lack of sympathy in major capitals for your plight leaves you wondering whether anyone is really interested in the reality of trying to run a small economy.
Despite this you decide, since you have been elected with a large mandate, you will try to create a new economic environment. You will find ways to modernise your economy, improve education, create new skills and diversify into newer industries suited to your nation’s small economic base. You recognise that tourism must be a significant part of the future and is the most logical way to build on the natural assets that your nation enjoys. However, you know also you can not rely on a single industry especially when you are subject annually to the vagaries of tropical weather patterns.
You decide, therefore, that in a world in which financial services, capital flows and asset protection are expanding rapidly there is a growing, quite legal and legitimate market to be served. You enact carefully framed laws, you institute consultations with the financial services authorities in major capitals and overcome domestic hostility. You even risk political criticism by making special arrangements with agencies in powerful nations to ensure that your new well-framed offshore banking laws are well policed and are not a facility for money launderers, organised crime or terrorists.
The business grows. The industry prospers. Blue chip companies and professionals around the world and most especially in the United States recognise the legitimate value of the service being provided. Jobs and income begin to accrue. Your Treasury benefits and so too does your ability to improve social services. You have broken out of the traditional mould of being a small mono-crop economy and have found a way to begin to develop a new knowledge-based economy, able to absorb the skilled labour force your schools are turning out. You have a good reputation and can now begin to develop valuable high tech industries. In short you have begun to create a real future for your nation.
Then, from out of the blue, comes news that a club of most powerful nations in the world are saying that your successful new offshore business is no longer fair and that your nation is about to be named as a haven for illegal money.
This is the reality that is now facing many islands throughout the Eastern Caribbean and to differing degrees elsewhere in the region. After deliberating for over the two years, officials and Governments that are members of the Organisation for Economic Co-operation and Development (the OECD), the Paris-based organisation which consists of the world's 29 most powerful economies, have concluded unilaterally that there needs to be a global review of offshore tax regimes.
In particular the OECD is concerned about those offshore centres which in their view offer an unfair advantage and which might be open to international financial or other crime. It is also concerned about nations not keen on exchanging information on taxpayers benefiting from low tax or no tax. The consequence is that the OECD is planning to list at the end of June, offshore financial jurisdictions considered to be inadequately supervised. Although no formal announcement has yet been made, it is understood that of the 47 jurisdictions to be named by far the majority are in the Caribbean. Well-founded speculation has it that their number will include not just those with genuinely doubtful reputations but others with the best-policed and regulated jurisdictions.
OECD thinking is hypocritical. The reality is that offshore financial services in the Caribbean are largely used legally by nationals from OECD nations for a wide variety of reasons. Offshore tax centres have developed because of the burdensome fiscal regimes in OECD nations; or to protect the assets of professionals against litigation; and in recent years, for foreign sales corporations as a permissible way in which major companies can obtain trade advantage over commercial competitors in other nations. Moreover, the tax and banking regulations in certain OECD nations, in their offshore territories or adjacent principalities are just as much subject to criminality and tax evasion.
Worse still is the idea that these most powerful of nations have some automatic right to name and shame or to seek to amend the laws of nations over which they have no sovereignty. In many respects the principles involved are little different than those relating to sovereignty and narcotics interdiction. Powerful nations now appear to feel at ease legislating or taking action to penalise those involved in supply side activity in smaller nations but pay scant attention to the domestic demand that that has created the criminal activity involved.
None of this is any way to be taken as condoning criminality, but it is to question where equity comes into the process of global interdependence.
The reality is that the world's principal institutions are skewed heavily in favour of the most powerful nations. Although democratic in constitution, these bodies are far from this in practice. As a result nations with vested interests, large resources and intellectual muscle continue to set and seek to control the global agenda.
Jamaica's Minister of Foreign Trade, Anthony Hylton, addressed this issue recently at the University of the West Indies, but in different context. There he suggested developments pointed the need for a new mechanism to be put in place which is conscious of a country's sovereign right to defend its interests, and which makes possible the participation of small developing countries. Although he was principally referring to the need to make the WTO more responsive and open in the light of events in Seattle late last year, his comments have a wider resonance and hold true for OECD as well.
Small and vulnerable nations should not be forced to conform with global trade rules and be moved out of primary agriculture into services at a pace set by others if they are then to be told that the new industry they have selected is no longer acceptable to the nations who established the first set of rules.
Unreasonable requests, challenges to sovereignty and the desire for advantage at almost any cost will lead in small economies to disillusion, political incoherence, economic decline and the breakdown of order. It is a recipe for endemic corruption and criminality.