We have been reviewing the nature of the UK's relationship with the Overseas Territories (OTs) in the light of developments since the 1999 White Paper "Partnership for Progress and Prosperity: Britain and the Overseas Territories" (CM 4264) and intend to discuss this with OT Chief Ministers (and equivalents) at the next Overseas Territories Consultative Council (OTCC) to be held in London on 8-10 December. To stimulate discussion, I have sent them the attached paper (Annex A). My purpose in writing to you is to alert you and interested parliamentarians to the key issues involved.

  There has been significant progress since the White Paper. All OT citizens. except in the Sovereign Base Areas in Cyprus, have now been given British citizenship with the right to settle in the UK (on a non-reciprocal basis). Progress has been made in improving financial regulation in the territories and bringing human rights legislation more into line with applicable international obligations. Environment Charters have been signed in a number of OTs and a new FCO/DfID) programme is being launched to support their implementation—and constitutional reviews are underway in most territories.

  This constitutional review process, which for the first time is locally owned and driven rather than directed from London, has, however, generated pressure in some territories for a reduction in Governors' powers and local political control over the public service and judicial appointments. One argument runs that the concept of free association espoused by the UN Committee on Decolonisation (the C24 Committee) should allow territories to determine the nature of their constitutional relationship with the UK without reference to UK interests or responsibilities.

  This does not sit easily with our over-riding responsibility to ensure the good governance of the territories and compliance with applicable international obligations. The complexity of Government business, particularly following the terrorist attacks of 11 September, is in fact tending increasingly to blur the distinction between domestic and foreign policy, requiring greater UK involvement in some areas which hitherto territory governments may have considered to be their own preserve. Moreover, whilst standards in governance in some territories are high, in others there is room for improvement—and some of the smaller territories lack the institutional capacity and experience to cope well with the increasing demands on Government. Equally, the lack of a developed civil society, strong legislature, and vibrant media in some territories also means that many of the usual checks on the Executive can be weaker than normal.

  This has convinced me that, whilst OTs retain their link with the UK (and whether they do so or not is entirely up to them, except when HMG's international legal obligations dictate otherwise, as in Gibraltar), we shall have to strike a better balance between their natural desire for greater autonomy and our need to be sufficiently involved to safeguard our responsibility for the good governance of the territories and their compliance with international obligations, not least to minimise our contingent liabilities. I intend therefore to use the December OTCC meeting to underline the role that we expect Governors to play, in partnership with territory Governments, to achieve this.

  This does not signal a major change in the relationship or an attempt to assume new powers for the UK Government or Governors. But I shall want to emphasise that we expect Governors to exercise a broad overview of what is going on in the Territories In most, this will mean just that; in others, Governors may have to be more proactive in working with OT governments to improve standards. And, in the context of the constitutional reviews, I shall have to make it clear that we shall look very cautiously at any proposal to reduce our reserved powers or that might undermine the political neutrality of the public service or independence of the judiciary in the OTs.

  I should be happy to brief you and your colleagues further if you wish. I also hope that you will be prepared to meet Chief Ministers at some stage during their OTCC programme, if possible on Tuesday 9 December. You will certainly be invited to the Lancaster House reception on the evening of Monday 8 December.

  I am copying this letter and enclosure to John Austin as Chair of the All Party Parliamentary Group on the Overseas Territories, to Baroness Amos as Leader of the House of Lords, Colin Pickthall MP, Roger Casale MP, Eric Joyce MP and to Phyllis Starkey MP.

Bill Rammell MP

Parliamentary Under-Secretary of State

Foreign and Commonwealth Office

October 2003

INTRODUCTION

  1.  This document which was drawn up following a study visit to Bermuda and the Caribbean Overseas Territories, is intended to inform discussion at the December Overseas Territories Consultative Council. It reviews developments since the March 1999 White Paper "Partnership for Progress and Prosperity" was published, looks ahead to the coming decade, and considers whether there is a need to build on the principles and mechanisms established in the White Paper. The document primarily addresses the specific circumstances of the territories which were visited, though some of the underlying principles may apply to the populated OTs more generally.

DEVELOPMENTS SINCE THE 1999 WHITE PAPER

  2.  Most of the recommendations in the White Paper have now been implemented:

—  Successive Ministers for the Overseas Territories in the FCO have worked closely with DfID and other ministers to take forward the UK's links with, and responsibilities for, the Overseas Territories.

—  The Overseas Territories Consultative Council, which provides a political forum for UK Ministers and OT Chief Ministers to discuss issues of topical interest, is now well established: the fifth meeting is being held this December.

—  OT citizens have been granted British Citizenship, with the right freely to settle in the UK (on a non-reciprocal basis).

—  Constitutional Reviews are underway in most of the territories.

—  DfID has continued to provide substantial development and emergency assistance, particularly to Montserrat where the volcano has remained active, and to St Helena.

—  Progress has been made in bringing financial regulation in the territories up to internationally accepted standards.

—  Human rights legislation in the OTs has been brought more into line with the international obligations to which the UK is subject.

—  Environmental Charters have been signed with most of the territories, and a new FCO/DfID) programme is being launched to support their implementation.

  3.  In the wider world there have been a number of significant developments. The events of 11 September, the Bali bombing and subsequent attacks, and the war in Iraq have highlighted the importance of security issues and the fight against international terrorism. Work has proceeded in the OECD on tax issues, and the UK has committed Gibraltar and the Caribbean Overseas Territories to the implementation of the EU Savings Tax Directive.

CHALLENGES FACING THE OVERSEAS TERRITORIES IN THE COMING DECADE

  4.  Although each is different, the Overseas Territories face a range of challenges arising from their size and, in some cases, geographical isolation:

—  Some challenges are common to all small island economies; globalisation is tending to spread its impact unevenly, with smaller countries in danger of being marginalised;

—  Many OTs are vulnerable to natural disasters, especially hurricanes;

—  The economies of some OTs are fragile because of dependence on one or two sectors (often tourism and offshore finance) and with the downturn in these sectors some now have budget deficits;

—  There are issues about the extent of OT engagement in regional organisations, where there are likely to be pressures for further regional integration over the next decade;

—  A range of problems are posed by the small populations in the OTs, particularly in recruiting people to hold key positions in OT administrations, resolving conflicts of interest, and managing immigration and residence status;

—  In certain territories there are governance issues which need to be addressed—including corruption, poor financial management and inadequate regulation of financial services;

—  In some cases, the lack of developed civil society, strong legislature and/or vibrant press mean there are few checks on the executive;

—  The geographical location and size of some of the OTs make them vulnerable to drug-trafficking and associated crime.

  5.  More generally we are moving into a world which is becoming ever-more interconnected, in which the distinction between domestic and foreign policy will become less and less clear. This is true in areas such as contingency planning, aviation and maritime safety/security, financial regulation, management of the economy, the environment and human rights. International obligations applying to the OTs are likely, over the next decade, to become more demanding in many of these areas, in some of which the OTs themselves lack technical expertise and institutional capacity. In essence the UK is acting as the transmission mechanism by which an ever growing corpus of global regulation is applied to the territories. Were some of the OTs to choose independence (where this is an option), the implementation of international rules would be a matter between them and the organisation concerned. But while the OTs choose to remain British, the UK has the obligation to ensure that they implement such measures.

PRINCIPLES AND MECHANISMS

  6.  Many of the Overseas Territories have made great strides in their own development. In some, standards of governance and implementation of international standards are equal to, or in some cases exceed, the standards in the UK. In others governance and implementation issues have given rise to concern. If not addressed, as well as having serious implications for the well-being of OT citizens, they could give rise to significant contingent liabilities for the UK.

  7.  The White Paper made clear that Britain has a right to expect the highest standards of probity, law and order, good government and observance of Britain's international commitments. For as long as those territories in a position to do so choose not to go independent, the responsibility to ensure that these standards—which should be met by all countries, whether independent or not—are in fact achieved lies with OT Governors working in partnership with the Governments of the territories concerned. In day to day terms this means that UK Ministers expect Governors to keep a close watch on areas of importance to the UK with a view for example to ensuring:

—  reflection as necessary in local legislation of applicable international obligations (including in the areas of human rights, the environment and counter-terrorism);

—  adherence to established international standards (eg over aviation regulation, maritime security and regulation of financial services);

—  good governance (including the conduct of free and fair elections, transparency eg in the sale of Crown Lands and awarding of large government contracts, and the unimpeded use of the police and criminal justice system in the face of corruption);

—  sound financial management (including adherence to responsible borrowing limits and prudence in entering into public private partnership agreements); and

—  appropriate and prompt response to audit criticism.

  8.  Some of these issues are in areas which OT Governments might consider to fall outside the specific responsibility of Governors. But for as long as the UK bears ultimate responsibility for the territories, and has a contingent liability if things go seriously wrong, UK. Ministers see an important role for Governors in monitoring developments, and reporting to them areas of concern. In territories which are well managed, this may mean that Governors may simply need to sustain full and productive dialogue. In territories giving rise to greater concern, Governors may need to play a more proactive role in these areas than hitherto. The aim throughout will be to deliver high standards of governance to the benefit of all OT citizens.

  9.  We are not proposing that Governors should be given new powers: these issues are better handled in a collaborative way wherever possible. Governors need to work together with OT Governments to ensure the highest standards of governance and the full and speedy observance of international commitments. But, given the position described above, OT Governments should not expect that in the Constitutional Reviews currently underway the UK will agree to changes in the UK Government's reserved powers, or which would have implications for the independence of the judiciary and the impartiality of the civil service.

Foreign and Commonwealth Office

September 2003