Memorandum submitted by the Isle of Man
Government
EXECUTIVE SUMMARY
1. The Isle of Man is a Dependency of the
British Crown. Its formal constitutional/legal relationship with
the United Kingdom is administered, on behalf of the Crown, by
the Ministry of Justice (MoJ).
2. Relations between the Isle of Man and
the UK are generally good, and a practical and positive working
relationship is maintained with the MoJ on a wide range of issues,
which can differ significantly in their complexity and importance.
3. The main points of this submission are:
— The Isle of Man favours the retention
of the MoJ as the point of contact in the UK Government because
it is involved with the constitutional development of the UK,
has an effective overview of all other UK Government Departments
and is responsible for many of the functions that are relevant
to the Isle of Man
— The Isle of Man would welcome a closer
working relationship with the UK, based on the existing constitutional
relationship, and building on the framework for developing the
international identity of the Isle of Man, and makes a number
of recommendations as to how this might be achieved.
— The Isle of Man wishes to enhance its
international profile, to develop further opportunities for it
to represent itself, or alternatively, to provide expert support
for the UK when it is representing the Island internationally.
INTRODUCTION
Political and Legal Background
4. The Isle of Man (IOM) is a self-governing
British Crown Dependency with the Queen as Head of State. It has
its own government and laws, and its ancient parliament, Tynwald,
is recognised as the oldest continuous parliament in the world.
The UK Government, on behalf of the Crown, is ultimately responsible
for the Island's defence and international relations. In recent
years, reflecting significant differences in UK and Manx law and
policies, the Isle of Man has—in agreement with the UK and
its international partners[16]—represented
its own interests internationally, notably by concluding a significant
number of bilateral tax agreements. The Isle of Man is financially
autonomous and receives no financial assistance from either the
UK or the EU. The Isle of Man is not represented in the UK or
European Parliaments.
5. The Island's relationship with the EU
is set out in Protocol 3 to the UK's Act of Accession (1972),
and allows for free trade in agricultural and manufactured products
between the IOM and EU. In essence, the Isle of Man is outside
the EU except for EC law and policy on customs matters and the
free movement of goods. In all other matters, including tax and
financial services, the Isle of Man is in the position of a "third
country" or non-Member State.
Economy
6. With only a limited range of economic
levers at its disposal, the IOM has fought against the natural
economic disadvantages associated with its small size, geographical
location and lack of natural resources. Using its legislative
and fiscal autonomy the IOM has built a strong, stable economy
and political system for the benefit of the Manx people. Traditional
industries of farming, fishing and tourism have been joined by
dynamic new sectors such as financial services, e-commerce, film,
shipping, aviation, high-tech manufacturing (especially in aerospace)
and space commerce to create a diverse economy with an international
base.
7. Key factors in the IOM's economic development
include the Island's political stability combined with a commitment
to growth, its physical ability to accommodate more people, the
availability of a wide range of professional skills, a legal system
based on English common law, cost advantages, extensive transport
links and first class telecommunications systems—all set
within a community which provides an excellent quality of life
in terms of education, social care, short commuting distances,
housing and recreation facilities.
8. Given their geographical and historical
proximity, a strong business culture is shared between the Island
and UK businesses. As a result, the Island has succeeded over
recent years in becoming a gateway to the City of London in ways
which are highly beneficial both to the Island and the UK. There
is a high degree of economic inter-dependence between the Isle
of Man and the United Kingdom. For example:
— The majority of goods purchased in the
Isle of Man are manufactured and supplied by off-Island (usually
UK-based) companies.
— As with individuals and companies, Isle
of Man Government purchases goods and services from the UK.
— Many businesses in the Isle of Man—including
major retailers, construction companies and providers of financial
services—are (profitable parts) of larger UK companies.
International standards
9. The Isle of Man is committed to delivering
effective regulation and it complies fully with international
standards. The Island has established a reputation for being internationally
responsible and economically competitive. That the Isle of Man
holds AAA accreditation from Moody's and Standard & Poor's
is testimony to this fact. Under the auspices of the Organisation
for Economic Co-operation and Development ("OECD"),
it is at the forefront of the development by small jurisdictions
of a network of Tax Information Exchange Agreements ("TIEAs").
It has a transparent tax code, and does not have banking secrecy
laws. It has consistently shown itself to be a co-operative jurisdiction
in terms of the international fight against criminal activity.
Constitutional development
10. Tynwald has stated that it would not
wish to alter the constitutional status of the Island; rather
that it would wish to develop the Island's autonomy within this
framework.
11. The signing of an international identity
framework between the UK and Isle of Man Governments in May 2007 was
an important step forward in pursuit of this aim. This recognised
that "the Isle of Man has an international identity which
is different from that of the UK", and that "the
UK recognises that the Isle of Man is a long-standing, small democracy
and supports the principle of the Isle of Man further developing
its international identity". This framework, reinforcing
the Isle of Man's separate status within the context of its constitutional
relationship with the UK, is a cornerstone of the Island's strategy
to continue to develop its national identity.
12. The IOM's determination to promote its
identity and protect its reputation has led it to adopt policies
and priorities which do not always mirror those of the UK. Improving
the management of this position is the basis of this submission.
RESPONSES TO
THE COMMITTEE'S
QUESTIONS
(i) How, in practice, the UK Government represents
the Crown Dependencies internationally
13. The UK's international representation
of the Isle of Man is not, generally, differentiated from its
own. Indeed it is only when there is a divergence of interests,
or there is a specific requirement of the Island, that the nature
of that representation is brought into focus. It is at this point—when
it is most needed—that in practice support from the UK might
not be as robust as it should be, and the Isle of Man finds itself
in the intractable position of not being able to represent itself,
but also not being able to gain the full support of its "representative".
The key elements of the UK's international representation
on behalf of the IOM are—
Diplomatic/Political relations with other countries
14. As a non-sovereign dependency of the
Crown, the Isle of Man is without an international legal personality
and so must rely on the UK to represent and defend its interests
and reputation internationally. It is crucial to the Island that
this representation is meaningful and that the issues being presented
on its behalf, and frequently without the IOM's presence, are
fully understood, so that the IOM's position can be fairly and
accurately conveyed to key policy makers, such as those on the
G20, OECD or EU Member States.
15. Under the international identity framework,
the Isle of Man is being increasingly entrusted to represent and
defend its own laws and policies internationally, in full consultation
and cooperation with the UK.[17]
16. In the absence of a formal diplomatic
status, it is extremely uncommon for disputes or problems to arise
between the Isle of Man and third countries. However, one recent
and high-profile example involves the collapse of the Icelandic
bank, Kaupthing hf, and the subsequent failures of its subsidiaries
in the UK and Isle of Man. At the time, the Isle of Man wished
to make representations to the Icelandic Government on behalf
of its own depositors, but also had concerns about the manner
in which the issue had been handled in the UK. The Isle of Man
expressed those concerns about HM Treasury's representation of
the Island's interests in respect of Kaupthing to the House of
Commons' Treasury Committee.
17. Whilst the MoJ arranged for HM Treasury
to keep the Isle of Man informed it was clear that the Isle of
Man was not a priority to HM Treasury.
18. The issue became highly politicised
and the Chancellor of the Exchequer (whilst under attack himself)
openly, and most unfairly, attacked the Isle of Man as "a
tax haven in the middle of the Irish Sea."
19. The MoJ was supportive of the Isle of
Man, and meetings were quickly arranged with the Lord Chancellor
and Lord Bach. Whilst the MoJ is well aware of the Isle of Man's
constitutional position, it is clear to the Isle of Man authorities
that other UK Government Departments, which must act internationally
on behalf of the Isle of Man, neither fully understand nor value
this position.
20. The Isle of Man frequently undertakes
diplomatic, political or cultural missions in order to further
commercial or economic ties with other countries. However, it
is often the case that the nature and level of advice and assistance
that the Isle of Man receives in support of these missions, varies
substantially between British embassies.
21. With regard to relations with the EU,
it can sometimes be difficult to impress upon UK officials that
whilst the UK, as a member of the EU, has ceded responsibility
for certain areas of policy, the Isle of Man (and by extension,
the UK, in respect of the Isle of Man) as a non-member, has not.
This would include such areas as World Trade Organisation membership
and trade in matters not covered by Protocol 3.
International bodies/international law
22. The constitution of the majority of
international bodies including the European Union and United Nations
will only permit independent sovereign states to become full members.
Furthermore, the Island cannot become a party to multilateral
conventions or agreements, as it is not an independent state.
23. The UK is required, therefore, to represent
the interests of the Isle of Man in international forums, and
to sign, ratify, and report on international obligations e.g conventions
and treaties, on behalf of the Isle of Man. In practice, no international
agreement entered into by the UK ("Bevin Memorandum"[18])
should apply to the Isle of Man unless the agreement explicitly
states that to be the case. The UK, via the MoJ, should consult
the Isle of Man whenever ratification of an international treaty,
convention or agreement is being considered. Although this process
generally works well, on occasion the Island has not been consulted
adequately and has been given insufficient time to give appropriate
consideration to such matters.
Consular services and defence
24. Manx people are British Citizens under
the British Nationality Act 1981 and British/EU style passports
are issued in the Isle of Man under the authority of the Lieutenant
Governor. Manx people are therefore entitled to consular support
when abroad, in the same way as other British citizens.
25. The UK is also responsible for the defence
of the Isle of Man, which makes an annual voluntary contribution
towards the cost of its defence and international representation
by the UK ("Contribution Agreement 1994). In 2008-09 this
figure was £2,559,278.55.
(ii) The role of the Ministry of Justice
in managing the United Kingdom's relationship with the Crown Dependencies
including inter-departmental liaison and coordination
26. Whilst its interaction with international
bodies is becoming more frequent, it is still the case that the
Isle of Man's most important external relationship is with the
United Kingdom itself.
27. Having the key role in managing the
UK's relationship with the IOM, the Ministry of Justice:
— manages relations between the UK and
IOM when differences arise on policies or legislation, and facilitates
solutions
— co-ordinates all formal communication
between UK Government Departments and the Isle of Man Government
on such issues as notification of compliance with international
standards and UN/ILO periodic reports for onward transmission
to international bodies via UK Departments; consultation on UK
and IOM legislation and policy on such issues as terrorism, shipping,
immigration, space, derogations, financial services and fisheries
which have trans-boundary implications
— processes legislative matters including
granting of Royal Assent, Orders in Council and other issues.
This includes both Isle of Man primary legislation and also UK
legislation which may impact upon the Isle of Man. The Crown acts
on the advice of the Lord Chancellor (in his capacity as Privy
Counsellor) in respect of Isle of Man issues. This advice is provided
by the MoJ.
— is responsible for Crown appointments
and liaison with the Lieutenant Governor in the Isle of Man
28. There are also numerous informal contacts
made between Isle of Man and UK Government Departments on a daily
basis, on matters of mutual interest which fall outside the scope
of this enquiry.
(iii) What, if any, changes are required
in terms of either policy or practice in order to improve the
Ministry of Justice's management of the relationship between the
United Kingdom and the Crown Dependencies?
29. Relations between the UK and the Isle
of Man are generally good, and the management of that relationship
is reasonably sound but very much dependent on the resources and
competing demands within the MoJ. On a practical level, it is
undoubtedly beneficial to have a single point of contact on both
sides, and it is difficult to identify a UK Government Department
which would be a more suitable point of contact. Whilst the Foreign
and Commonwealth Office (FCO), is largely externally focused,
the Overseas Territories (OTs), for which it is responsible have
a very different relationship with the UK than that of the CDs
and so the IOM considers that its link to the Crown should not
be through the FCO, in recognition of this difference.
30. The IOM would offer the following recommendations
to improve current management of the relationship between the
Isle of Man and UK:
— A strategic understanding of international
policies and aims would assist the IOM in positioning itself in
terms of global economic and regulatory environment. This broader
strategic insight, which would include UK international policy
and aims, possibly in dialogue with the FCO, would enhance the
IOM's relationship with the UK and provide more focussed consideration
at strategic rather than operational level.
— It is recognised that the allocation
of resources within the MoJ is a matter for the UK to determine.
However, the complexity and diversity of IOM issues and the impact
of these issues on the UK, along with the contribution the IOM
makes to the UK economy, underlines the importance of making full
and effective use of available resources and the benefit of the
IOM representing itself whenever possible.
— Experience shows that where key officers
in UK Departments understand the constitutional relationship and
the IOM perspective on policy issues there is less friction as
a result. MoJ has a role to play in facilitating this understanding
and driving forward the relationship in key areas. While this
has been achieved in some areas, certain key relationships (particularly
with HMT) require further development.
— Consideration should be given to developing
further the provisions of the international identity framework,
and monitoring and reviewing progress to ensure the Island's international
identity is supported in its development as set out in the terms
of the framework.
— The MoJ should continue to raise awareness
of the IOM across the UK Government, and in particular the need
for the IOM to be consulted, through the MoJ, on any issue that
may affect or be of interest to the Island. Increased awareness
and meaningful understanding of the terms of the International
Identity Framework Agreement should be promoted widely and clearly
across UK Government Departments. This would be helpful in averting
unexpected difficulties that arise from of a lack of understanding
about the impact of policies or legislative proposals on the IOM.
— Inter-Governmental relations could be
facilitated through (bi) annual meetings or conferences for officials
in the Isle of Man and the MoJ, which might focus on a particular
theme or issue and include briefings from officers from other
UK Government Departments.
— The ability for the Isle of Man to attend
meetings/assemblies as part of a UK delegation, in an advisory
capacity, where issues impacting the Island are on the agenda,
would allow the IOM to ensure a much earlier and fuller understanding
of high level policy proposals. This is particularly relevant
to financial services initiatives.
— The ability to gain the support of the
UK for associate membership of certain bodies, where their constitution
would allow for that, would be useful, eg Shipping and Associate
membership of the International Maritime Organisation.
— When a difference in policy/opinion arises
between the Isle of Man and the UK in instances where relations
need to be entered into with other countries, every effort should
be made to include an Isle of Man and MoJ representative in those
talks.
— Key administrative processes and procedures,
such as the granting of Royal Assent, could be formalised in writing
between the IOM and UK and include defined timescales and completion
targets to our mutual agreement.
October 2009
16 The Isle of Man has, for example, signed agreements
giving effect to the EC's Taxation of Savings Interests Directive
with all 27 Member States. Likewise, it has-so far-negotiated
and signed 15 TIEAs with partner countries inside and outside
the EU. Back
17
http://www.gov.im/lib/docs/cso/iominternationalidentityframework.pdf Back
18
Foreign Office Circular No 0118, 16th October 1950. Back
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