My Colleague, Althea Crick, and I are here as representatives of the Government of Antigua and Barbuda in response to an invitation from the OECD Secretariat. We understand that the OECD is engaged in an exercise to explore ‘harmful tax competition’. We are here in a spirit of international co-operation to contribute to some of the issues that arise from the idea that competition in taxation could be harmful.

We regard co-operation as a process of proportionate contribution to an end mutually satisfactory to all parties. In this connection, I am reminded of the suggestion by the hen that she and the pig should cooperate in giving the farmer bacon and eggs for breakfast as a reward for his kindness. The pig liked the idea of rewarding the farmer but was concerned about the process of cooperation. As he pointed out, for the hen it was a matter of laying an egg, for him it was a matter of laying down his life.

It was in the spirit of finding an end mutually satisfactory to all parties that we cooperate actively with the team who compiled the report on Antigua and Barbuda. We believe the report is a factual account, and we compliment its authors in overcoming the difficult task of digesting reams of information and distilling them into an easily readable form.

But, it will be important to know and understand what form of cooperation the OECD expects of us, and to what end.

Mr. Chairman, Antigua and Barbuda is an open economy. It has always been so. We import from abroad – mostly from OECD countries – much of what we consume including the vehicles we drive, the food we eat, the clothing we wear, and the materials with which we build. In that sense, we were ‘globalised’, before ‘globalisation’ became fashionable. We also practice a very liberal trade regime with no restrictions on imports and no non-tariff barriers. Liberalisation and open competition, therefore, are not new to us. For some time, we have had to meet their challenges in order to survive.

For almost 300 years, until 1972, while it was British colony, the only economic activity in Antigua and Barbuda was the production of sugar cane. The country was essentially a one-crop economy. When sugar prices on the world market dropped in 1972, sugar production on Antigua collapsed and unemployment surged to over 40%. The land was unsuitable for any other kind of agriculture production and, in any event, the government could not afford to subsidise agricultural production as other countries were doing. In such an uneven playing field, Antigua and Barbuda recognised it could not compete. We chose instead to develop tourism.

For almost two decades, unemployment remained high while the working population was trained for the service industry. By the early 1990’s we had moved from being entirely dependent on sugar, to being entirely dependent on tourism. Despite the considerable competition we encountered in the tourism market, we carved a share for ourselves.

Further, attempts were made to diversify the economy by providing incentives for manufacturing, particularly garments. However, the market in the United States on which such manufacturing was predicted disappeared with the creation of the North American Free Trade Area. We simply could not compete with Mexico which had completely duty free access to the US market and lower costs. The playing field was not level.

Since we have no goods to sell, Antigua and Barbuda is not a trade beneficiary of the arrangements under the Lome agreement the countries of the African, Caribbean and Pacific Group and the European Union.

The result of all this is that Antigua and Barbuda is a small island developing country with extremely high costs as a result of its remoteness and added costs of transportation of everything it imports. And, as I have already said, we import almost everything we consume. It is almost entirely dependent on tourism which accounts for more than 70% of its GDP. All this makes it extremely vulnerable to external economic shocks and to conditions in the countries from which it buys its goods and from which its tourists come.

To add to these conditions, which already make Antigua and Barbuda very vulnerable, the country is also prone to natural disasters. In the four years 1995 through to 1998, we experienced four hurricanes – two of them in one year. Hurricane Luis and Marilyn caused US$500 million in damage in 1995. In 36 hours, almost five years of GDP was lost. We had no sooner finished rebuilding infrastructure at great cost in 1998 when the country was struck by another Hurricane – this time Georges. In three years, we were forced to pay twice to rebuild the same infrastructure in the South of Antigua.

Despite all this, Antigua and Barbuda is ranked 38^th of the 160 nations in the United Nations Human Development Index. This did not happen miraculously, nor is it sustainable easily. Ours is a democratic country where the press is free, where general elections are constitutionally held at least every five years, and where trade unions flourish. The high price of robust democracy and strong trade unions is a per capital income that ranks us as a middle-income country by World Bank measurements. We get no concessionary financing from the World Bank and all our borrowing for development has to be done on commercial terms. This requires us to earn more revenue from a very limited base to meet the costs of debt while still providing the goods and services that people require from the State. We cannot do this on tourism earnings alone, nor can we do it without attracting directly from foreigners.

The State has to provide education and health services, maintain employment, build and expand infrastructure and provide the framework for civil society including policing, a judiciary and so on. We cannot afford a social welfare system that provides benefits for the unemployed. Consequently, the Government is a large employer. If Government does not employ our relatively young population, we run the risk of increased crime, including drug trafficking, lawlessness and the breakdown of civil society which that entails. Should that happen, we would lose the stability that is the very basis for our main industry – tourism. We would be reduced to poverty and least developed status in very quick time.

As an independent nation, we must also fulfil our international responsibilities in global and regional institutions and in relations with other states at some considerable expense.

This Committee should be aware that 27% of our legitimate work force comes from neighbouring Caribbean countries. The remittances of those workers to their families in their families in their homelands help to sustain the viability of those countries.

In an international atmosphere that does not recognize our smallness and vulnerability as criteria for special and differential; economic treatment, Antigua and Barbuda turned to the development of financial services because we needed to diversify our economy away from dependence on tourism in order to meet the demands of our development.

It should be emphasized that our offshore sector is small in comparison with other countries in Europe and the Caribbean. We have only 11, 109 IBC’s of which 29 are banks, 5 are trust companies and 2 are insurance companies. Nonetheless, altogether the Government earns approximately US$8 million a year in fees, it would not otherwise have. We also believe that the sector offers the potential to triple those earnings to US$24 million a year. If we are to shut down the sector, we have no means of replacing the earnings or the jobs they created. Who will compensate us for the losses? Tourism alone cannot continue to sustain us. Without economic diversification we are likely to face severe social dislocation that would threaten our democratic system, encourage illegality, and rupture our political stability.

It should also be recognized that many countries in the Caribbean were encouraged by the international community to go into the offshore financial services sector as a means of enhancing their earning power, and reducing their dependence on support from other countries. Indeed, up to two weeks ago, a Caribbean territory was being actively encouraged by a Minister if an OECD country to develop the offshore sector. In another Caribbean territory, it was a study paid for by a Development Ministry of an OECD country that led to a system of establishing offshore companies via the Internet.

This is all perfectly understandable. These territories have to diversify and expand their means of revenue to survive. The alternative is that they live on the margins of existence on subsidies paid by the taxpayers in the OECD country with which they are associated. The Caribbean territories don’t want that, and I am sure that the taxpayers in the OECD country wouldn’t like to have to pay higher taxes to sustain the remnants of a bygone empire.

It should also be noted that the Lome Convention – a treaty signed between African, Caribbean and Pacific countries and the countries of the European Union – refer specifically to encouraging the development of the means of trade in services including financial services.

This Committee of the OECD, I am sure, has taken account of the role its member states have played in the encouragement and development of the offshore sector in some jurisdictions. I am confident that his Committee is conscious of the fact that relations between its member countries and offshore jurisdiction can not be reduced only to perceptions of ‘harmful’ taxation. Other very critical factors have to be considered.

To return to the offshore sector in Antigua and Barbuda specifically, we admit that, in its evolution, mistakes were made. There was no intention to facilitate money launderers or any other financial crime. The mistakes were genuine; they were not malevolent in intent or action. They were born of inexperience and inadequate attention to the importance of establishing the necessary institutional infrastructure to regulate the sector efficiently.

We have corrected many of our mistakes already, and we are in the process of rectifying other through consultation with international partners, particularly the United States and the United Kingdom. Our objective is to continuously review our financial services sector so that it combines viability with a responsible legal, regulatory and institutional structure that will sustain the business while combating financial crimes including money laundering and tax evasion. In this regard, we are committed to the fullest cooperation with other jurisdictions.

By November 1998, we had already enacted legislation that put us ahead of most jurisdictions in the fight against money laundering, and in the requirements for disclosure. For instance, since 1982, we have required the publication of annual profit and loss statements and balance sheets of licensed financial institutions. Amendments to the Act in November 1998 prohibited bearer shares or otherwise anonymously owned financial institutions, and our Money Laundering (Prevention) Act prohibited offshore banks from accepting cash or bearer negotiable instruments. In reality, much of the progressive legislation we already had in place in 1998 is still not implemented in several jurisdictions in Europe and elsewhere.

Over the last two years, the Government of Antigua and Barbuda has spent a great deal of time, money and effort listening to our international partners and either introducing or amending legislation that curbs money laundering and allows our competent authority to cooperate with foreign jurisdictions in accessing information.

As an example, in August this year, we amended our Money Laundering (Prevention) Act to provide that every person in a company who acted in an official capacity when an offence was committed is deemed to have committed that offence and shall be tried for it. Such legislation does not exist in many jurisdiction in the world including OECD countries.

The Act was further amended to permit the provision of information on request from a foreign jurisdiction on matters related to tax of any kind where a bilateral or multilateral treaty exists. To emphasize the point, countries with which Antigua and Barbuda has a Mutual Legal Assistance Treaty can obtain information within the terms of that Treaty on tax matters of any kind at the investigative, prosecution or any other stage if proceedings related to the impositio0n, assessment or collection of taxes. (Section 23 (5) (b) of the Money Laundering (Prevention) (Amendment) Act 1999).

At the moment the countries that can obtain such information are the United States and the United Kingdom with which Mutual Legal Assistance Treaties exist. Others are Australia, Canada, New Zealand and 50 other Commonwealth countries that fall under our Mutual Legal Assistance Act. We are now in the process of completing a Treaty with Canada and negotiations are due to begin this month with France and the countries of the Organization of Eastern Caribbean States of which Antigua and Barbuda is a member.

Beyond tax matters, our legislation also provides for the exchange of information with foreign jurisdictions directly by our competent authorities through our Proceeds of Crime Act and enabling provisions in the IBC and Money Laundering Provision Acts. In other words, Mr. Chairman, there is ample scope under the law for confidentiality to be penetrated.

Further, the Government has implemented regulations to the Money Laundering (Prevention) Act requiring all banks, on shore and offshore, to impose strict ‘know your customer’, requirements in addition to record keeping and training requirements on a broad range of domestic institutions which are involved in financial activities. These significantly strengthen the country’s money laundering prevention efforts.

A Money Laundering (Prevention) Act Order is shortly to be issued designating off shore insurance companies and dealers in art, jewelry and precious metals as ‘financial institutions’ subject to the provision of the Act. While there has never been an allegation of such activities being used for Money Laundering, their inclusion in the Order is to confirm to Standards in the United States.

The IBC Act is to also to be further amended shortly to rectify shortenings identified in the existing statute by the Governments of the United States and the United Kingdom.

Amendments to the Act will include a provision that information shall be shared under the terms of a Mutual Legal Assistance Treaty to give assistance in any kind of tax investigation, prosecution and collection consistent with the Money Laundering (Prevention) Act. Further, no inhibitions will be placed on an employee if he reports a criminal offence in his work place.

To ensure that there is no conflict of interest, the responsibilities of the International Financial Sector Authority will be limited to the licensing and regulation of the sector. Promotion will be separate.

We expect that the new amendments to our laws will be in place very shortly.

With regards to the IBC’s that operate Internet gambling in the Free Trade and Processing Zone, note should be taken that while our laws do not require these IBC’s to have directors who are natural persons and while they may be owned by bearer shares, in practice the owners and directors are required to be known by the commissioners of the Zone. The Commissioners have established their own procedures for permitting IBC’s to operate in the Zone, and part of those procedures is knowledge of the beneficial owners and directors of the companies.

If I may turn now tot he OECD report on Harmful tax, Mr. Chairman, I have to say that it has several aspects that cause us alarm. These can be summarized briefly as follows:-

• the objectives of the report seem to give the OECD an international authority that it does not possess;
• there is a suggestion of extraterritorial jurisdiction by the OECD that is not sustainable in international law;
• there appears to be an attempt by the OECD to dictate to national revenue authorities of sovereign states how they should determine their tax policies.