‘Perhaps A Review Of Relations Is Appropriate’

October 23, 2018

For years there was consensus between the major UK political parties about the Overseas Territories, but that has now changed and the OTs now face a “more hostile and less supportive UK political class,” Dr Peter Clegg said, adding that perhaps a review of relations is appropriate, one which would “offer the Territories more autonomy, address the UN’s decolonisation agenda, and give the Territories a stronger foreign policy voice.”

Dr Clegg is an Associate Professor of Politics University at the West of England who has studied and written extensively on the OTs, and was providing a submission for the British Parliament’s Foreign Affairs Committee inquiry in to the ‘Future of the UK Overseas Territories’.

The inquiry is into “How the Foreign Office manages its responsibility to ensure the security and stability of the UK’s 14 Overseas Territories,” and the Committee began hearing oral evidence this week, with Dr Clegg appearing before the Committee, as did the former Governor of Bermuda George Fergusson.

Dr. Clegg said, “For many years there has been a high degree of consensus between the major political parties in terms of how the Overseas Territories should be managed and supported. But that has now changed, which has made their position more vulnerable.

“On the Left, the Labour Party under Jeremy Corbyn, has been more forthright in its criticisms of some of the Territories, arguing that if they do not make radical changes to their financial services industries, then direct rule from London should be considered. Corbyn has drawn parallels with the decision of the last Labour government to impose direct rule on the Turks and Caicos Islands.

“Meanwhile on the Right, the longstanding support of many Conservative MPs has been compromised as a result of their position on Brexit. When it came to getting the UK out of the EU, these MPs conveniently ignored the Territories strong preference for remaining. Thus, the Territories are now facing a much more hostile and less supportive UK political class.

Dr Clegg added, “The UK’s existing constitutional, political and economic approach to the Territories that has been in place for almost twenty years is sustainable. There has been relative stability for most of that period, but it clear from recent events that the governing framework is brittle, and does not necessarily serve the Territories particularly well.

“Thus perhaps a more radical review of relations is now appropriate, which would offer the Territories more autonomy; address the UN’s decolonisation agenda; give the Territories a stronger foreign policy voice; make good any loss in EU financial support post-Brexit; and provide extra financing to establish the foundations of more sustainable and diversified economies.

“By enacting such reforms, the UK’s international reputation would be enhanced, and the Territories’ confidence in promoting their own and the UK’s interests would be boosted.”

The full written evidence from Dr Peter Clegg is below:

Associate Professor of Politics
University of the West of England, Bristol
[Evidence provided in a personal capacity]

Introduction

1.1. In recent decades, with one or two notable exceptions, there has been relative social, economic, environmental and political stability in the territories. All the territories [bar Anguilla and the Turks and Caicos Islands] have implemented more sophisticated and devolved constitutions, and most have seen their economies grow significantly.

1.2. However, since the last inquiry undertaken by the Foreign Affairs Committee in 2008 the Territories have been buffeted by several significant challenges, which perhaps call into question the approach taken by both Conservative and Labour Governments over the last two decades, certainly since the White Paper, Partnership for Progress and Prosperity: Britain and the Overseas Territories, in 1999. The key challenges, which will be the focus of this submission are: [a] the fracturing of the political consensus in the UK, which has long supported the Territories; [b] the economic vulnerability of the Territories seen most clearly with the global economic downturn of 2007/2008, and the impact of Hurricane Irma in 2017; [c] the fallout from Brexit; and [d] the rising political tensions between the Territories and the UK.

1.3. These in turn have raised real questions about the UK’s benevolence and the Territories’ security and economic well-being going forward, and therefore it might be time to more fundamentally review the constitutional, political and economic relationships that exist at present, with a particular consideration of free association.

The challenges

2.1. For many years there has been a high degree of consensus between the major political parties in terms of how the Overseas Territories should be managed and supported. But that has now changed, which has made their position more vulnerable. On the Left, the Labour Party under Jeremy Corbyn, has been more forthright in its criticisms of some of the Territories, arguing that if they do not make radical changes to their financial services industries, then direct rule from London should be considered. Corbyn has drawn parallels with the decision of the last Labour government to impose direct rule on the Turks and Caicos Islands. Meanwhile on the Right, the longstanding support of many Conservative MPs has been compromised as a result of their position on Brexit. When it came to getting the UK out of the EU, these MPs conveniently ignored the Territories strong preference for remaining. Thus, the Territories are now facing a much more hostile and less supportive UK political class.

2.2. Although many of the Territories, e.g. Bermuda, Cayman Islands, Falkland Islands, and Gibraltar have high GDPs per capita, the economic vulnerability of some have been starkly illustrated by recent developments. The global economic downturn hit Bermuda and the Caribbean Territories particularly hard as a result of their major industries – financial services and tourism – being impacted. E.g. Anguilla’s economy shrank by almost one-third in 2009 and 2010, while the economy of the Cayman Islands declined by close to 10%. The recovery was slow and halting, and some Territories also faced sizeable budget deficits. A similar shock was felt with Hurricane Irma in 2017, chiefly for Anguilla and the British Virgin Islands. In the latter about 80% of all buildings were damaged or destroyed; the total economic loss was close to US$3 billion, equivalent to 300% of GDP; and the economy contracted by as much as 30-40% in 2017/2018. Regarding both shocks the Territories have been critical of the UK’s response, arguing that the focus on fiscal retrenchment and limited financial assistance has held back their recovery. The position of the UK Government is captured in the following quote from William Hague, then Foreign Secretary, on launching the 2012 White Paper on the Overseas Territories: “We expect these territories to do all that is necessary to reduce … their reliance on subsidies from the British taxpayer”.1 This includes in the aftermath of recessions and natural disasters.

2.3. Brexit and its potential impact on the Overseas Territories has been well documented, but it is clear – and perhaps understandable – that their interests have not been prioritised in the negotiations so far, and the consequences of Brexit – whether hard or soft – will be significant. The losses likely to be incurred by the Territories will not be uniform. If there is a reduction of access to the EU market, then the Falkland Islands, Gibraltar, and Tristan da Cunha will lose out. As the Falklands Government has recently argued:

… retaining current tariff and quota free access to EU markets is critically important. Anything other than this would have a detrimental impact on the income of the Falkland Islands Government and the wider economy.2

2.4. The loss of EU funding, particularly via the European Development Fund, will be felt, both for relatively poor Territories such as Pitcairn and Anguilla, but also for those that are not in receipt of UK development assistance, for instance the British Virgin Islands, the Cayman Islands, and the Falkland Islands. Anguilla’s Representative to the UK and EU, Blondel Cluff, has argued that “our main source of sustainable and significant developmental aid comes from the EU”.3 The UK Government has given no assurances about funding beyond 2020, and at the present time most territories do not qualify for receipt of UK overseas aid.

2.5. Brexit is likely to have other negative impacts on the Territories, including the cutting of important institutional links with the EU, particularly the European Commission, via its Directorate-General for International Cooperation and Development [DEVCO], and the Overseas Countries and Territories Association [OCTA]. Consequently, the voice of the Territories on the international stage will be diminished.

2.6. The challenges highlighted above have, perhaps unsurprisingly, fed into a greater level of collective political discordancy between the Territories and the UK. There is a sense that the voices of the Territories are not being properly heard; that they are not being fully supported to further their development and mitigate vulnerability; and that the UK has been overly intrusive in regard to certain areas of policy that have historically been the sole responsibility of the Territories, e.g. the Frameworks for Fiscal Responsibility; placing a UK Chief Financial Adviser in Anguilla’s Ministry of Finance with powers to oversee government finances; and the establishment of an agency to monitor the British Virgin Islands’ spending of the loan for hurricane reconstruction, and the plan for the UK to conduct an audit of the Territory’s public finances.

Possible reforms

3.1. The UK’s existing constitutional, political and economic approach to the Territories that has been in place for almost twenty years is sustainable. There has been relative stability for most of that period, but it clear from recent events that the governing framework is brittle, and does not necessarily serve the Territories particularly well. Thus perhaps a more radical review of relations is now appropriate, which would offer the Territories more autonomy; address the UN’s decolonisation agenda; give the Territories a stronger foreign policy voice; make good any loss in EU financial support post-Brexit; and provide extra financing to establish the foundations of more sustainable and diversified economies. By enacting such reforms, the UK’s international reputation would be enhanced, and the Territories’ confidence in promoting their own and the UK’s interests would be boosted.

3.2. There are of course important differences in the constitutional and day-to-day relations between the UK and the Territories, but overall there is a well-established approach of dividing policy responsibilities between them. Further, there has been some awarding of greater autonomy in recent years, but also – in some areas – a more pro-active UK role. Where there has been that re-assertion of UK oversight there is dissatisfaction on the part of many of the Territories, and perhaps a reset of relations is required.

3.3. Within this context the idea of free association, which for example underpins relations between New Zealand and the self-governing States of the Cook Islands [pop. 19,400] and Niue [pop. 1400] can be considered. The UN’s definition of free association, which it considers to be an appropriate form of full decolonisation, is that it:

… should be the result of a free and voluntary choice by the peoples of the territory concerned expressed through informed and democratic processes

… The associated territory should have the right to determine its internal constitution without outside interference …4

3.4. Such an opportunity would allow relations between the Territories and the UK to mature and to better fit the needs of the Territories, albeit potentially in different ways. In due course, with further capacity building, the move towards free association would grant the Territories the power to make and execute their own laws, although the UK could retain residual law-making powers, but these would only be used with the Territories’ consent. To help maintain a unity of purpose between the UK and the Territories, the New Zealand model is useful to consider. As Quintin Baxter [2008, 613] noted, “There is an expectation that the laws and policies of [the Cook Islands and Niue] will reflect the shared values stemming from the common citizenship [with New Zealand]”.5

3.5. Free Association would also give the Territories greater freedom in the area of foreign policy and to enter into international treaties and agreements. As Quintin Baxter [2008, 618] argued further, “… it was gradually established that the [Cook Islands and Niue] are States in international law with the same attributes as States that are constitutionally independent”.6 This greater freedom would be welcomed by many Territories as they look for new paths of influence and opportunities to best secure their own interests and development. One pre-existing example is that of Bermuda’s third country equivalency under Solvency II, the EU’s prudential regulatory regime which sets out rules to develop a single market for the insurance sector. It allows third country insurers to operate in the EU without complying with all EU rules. Europe considers Bermuda to be a jurisdiction in its own right, and all treaties, rights, policies, and equivalency agreements have been negotiated on a third country basis with the EU.

3.6. Already Territories are looking to deepen their international footprint, including within the context of Brexit. E.g. the Territories are lobbying for continued relations with the OCTA. Anguilla is investigating the option of being part of the European Grouping of Territorial Cooperation. This might also be open to Gibraltar; as well as to Pitcairn, keen to maintain and cultivate strong links with French Polynesia. Some of the Caribbean Territories would like to deepen their links with the Organisation of Eastern Caribbean States [OECS] and the Caribbean Community [CARICOM]. Moreover, there is a desire to join two other groups: CARIFORUM [CARICOM and the Dominican Republic] and the African, Caribbean and Pacific [ACP] group of states. By aligning with these bodies, the Territories would be able to extend their diplomatic links, and possibly benefit from their agreements with the EU. Free Association would enhance the Territories’ ability to establish these relationships, and others. As Ackrén [2006, 231] argued in regard to the Cook Islands and Niue:

“[They] are not members of the United Nations, though they are members of its agencies and other inter-governmental bodies. They do sign treaties with other states on their own and they have independent powers of legation as they send [or accredit] and receive representatives on their own with sovereign states and other players with international legal personality like the EU”.7

3.7. Free Association, or at the very least greater autonomy, would not prevent maintaining or indeed increasing UK aid to the Territories. There is a sense in several Territories, even those such as Montserrat that do presently receive budgetary assistance, that additional financial support is required to place their economies on a stronger footing. As was stated previously recent events have starkly shown the economic vulnerability of the Territories and their limited capacity to mitigate these risks. As a consequence, the UK should reconsider its well-established position of keeping support to a minimum, and establish a ‘new deal’ for the Territories. As a first step it needs to make good any losses in support presently provided by the EU. But it needs to go further, and put in place financial support that will upgrade key services, such as health care and education, strengthen infrastructure, and offer a real opportunity of economic diversification, especially in the context of the growing pressures on some Territories’ financial services sectors. Funding should also be committed for more than just a single year – perhaps three years – to give the Territories more certainty when putting their plans in place. Free Association [or something close to it] does not mean that the Territories would no longer be held accountable for their economic [mis-] management but it should over the longer-term, strengthen their economies and improve their financial administration with an intensified sense of partnership and mutual trust. Greater autonomy would also allow the Territories to more readily access a broader range of international funding, which at the moment is restricted.

Conclusion

4. The move towards free association or at least greater autonomy would not be immediate, and a properly supported transition period would be required. However, with growing strains in relations between many of the Territories and the UK; clear frailties in the Territories’ political economy; and the challenges posed by Brexit, it is an appropriate time to reassess and consider re-setting the relationship. Greater autonomy in domestic and foreign affairs, together with enhanced financial support from the UK would move the Territories and the UK into a stronger position. Some Territories might find it difficult to move much further in the direction of free association, e.g. Falkland Islands and Pitcairn due to their contested sovereignty and extremely small size respectively, but they too would benefit from a re-consideration of the present political and economic arrangements.

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