Small states and the challenge of sovereignty : Commonwealth Caribbean offshore financial centers and tax competition
The dynamics of inter-state relations and state sovereignty have been disturbed by late-20th century globalisation. Yet the literature on the international system, globalisation and international political economy gives scant attention to the most vulnerable sovereign entities, the small and micro states. One significant exception has been the Commonwealth, with its many small state members. Another is the area of financial crime, and the role of the offshore financial centre (OFC) within global finance. This thesis analyses the efforts of several small Commonwealth states from the Caribbean to maintain their OFCs in the face of an OECD-directed campaign against tax competition. It demonstrates both the contribution made to economic development by an OFC and the successful assertion of sovereignty achieved by these small states. The case study focuses on Caribbean OFCs and the OECD campaign against harmful tax competition during 1998 - 2003. First, the argument that tax competition is a global problem is deconstructed. Three main points from the small states’ response to the OECD position are explored, along with the OECD’s rebuttal. Because the small states are individually at a disadvantage, the thesis provides an exposition of the collective response facilitated by the Commonwealth. The OFC is justified by its material contribution to the small state economy. Specific contributions made to the economies of the Bahamas, Dominica, St. Vincent and the Grenadines and the Cayman Islands are demonstrated. The pivotal impact of U.S. policy on the OECD project and on Caribbean OFCs is explored. Yet while one effect was a decline in the number of registered offshore firms, the quantity of capital transiting the Caribbean increased. This study of small states and offshore finance re-affirms the continued relevance of the sovereign state as an actor in international society, but also illustrates the importance of issue-area and geographical context.