EDITORIAL

Who Will Blink First?

Friday, December 5, 2003

In diplomatic terms, the word “ultimatum” is just about the strongest one around, short of an outright declaration of war, because implicit in the meaning of the word is the sense of “or else…”

It was therefore somewhat surprising to read in the British press that the UK government has delivered an official ultimatum to the Cayman Islands government once again to implement the European Union’s Savings Tax Directive.

It is not clear, however, what the “or else” part of that ultimatum might be, and it remains uncertain how far the British government is prepared to go in the event that the Cayman Islands does not comply voluntarily with the terms of their surrender on the issue.

For a year or so, there have been threats made from time to time by the British Chancellor of the Exchequer, Mr Gordon Brown, that the UK will legislate directly for the Cayman Islands in some unspecified manner, although a “Treasury Order” was mentioned on the last occasion.

Since then, Ms Dawn Primarolo, the UK’s Paymaster General, has reiterated these threats with warnings that the UK government will not hesitate to enforce compliance if co-operation is not forthcoming.

It is all very well for Britain to pass direct legislation, as they did with the homosexuality issue, however the Cayman Islands government might simply tell UK that it refuses to accept the EU Savings Tax Directive. Only then would we really find out just how far Britain is prepared to press the matter, and whether they have contingency plans in the face of the Caymans’ disobedience.

One option for them, the suspension of constitutional government, is not without recent precedent. This happened in the Turks and Caicos Islands in 1986 when direct rule was imposed by the UK. Constitutional government was not restored there until two years later in 1988.

It remains to be seen if the UK is really prepared to go this far in order to enforce a tax directive that is already foundering as a result of resistance by some of the EU’s own member states.

Granted, there seems to be an element of face-saving involved here on the part of the British Chancellor, who has promised on several occasions to his EU colleagues that the British dependent territories will comply either voluntarily or otherwise.

By subsequent use of what seems to be his weapon of choice, the ultimatum, Mr. Brown has indeed forced other dependencies to cave in to his demands.

There seem to be few options for the Cayman Islands other than letting the UK deal a severe blow to our financial industry and hoping we can gain some allowances in return, like the recognition of the Cayman Islands Stock Exchange in London, that will offset the damage.

In the end, independence might become the best, and perhaps the only reasonable escape route from this predicament, which makes one wonder if that is what the UK would ultimately prefer anyway.

Unfortunately, the choices are harder in many ways for the Cayman Islands than for the UK. Britain is unlikely to notice the loss of the Cayman Islands, whereas any change in our status would have all sorts of short, medium and long-term effects for us.

Clearly, the implications are complex for both sides and it remains to be seen who will blink first. One characteristic of an ultimatum is that there is usually a winner and a loser. The situation rarely ends in a tie.

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