Report to the Committee of Mec Vannin on options for future relations with Europe

In November 1994, Illiam Costain, Mec Vannin's International Relations Officer,  went to Brussels and met with various members of the European Commission in order to break through the misinformation propogated by the government in the Isle of Man which traditionally runs scared from the very mention of Europe. The situationa has changed considerably since this document was written, though it is still of great interest. Europe has now essentially abondoned any notion of subsidiarity and gone overtly down the path of centralism with regional administration. The government in the Isle of Man continues to sit back and let the UK use the Isle of Man as a bargaining counter much to the detriment of the Manx people. Mec Vannin continues to advocate a direct presence in Brussels to argue for derogations and easements from a body of which we are not a part yet has a profound impact upon our daily lives. The government in the Isle of Man continues to bury its head in the sand. December 2002



Illiam C. Costain. 21st December, 1994.

This report was undertaken as a result of concerns within Mec Vannin of relations, both current and future, between the Isle of Man and the European Community (EC). The particular issues of concern included: European policies towards the Isle of Man and / or concerns over the Isle of Man - particularly regarding its status as an off-shore finance centre; the possible effects of future EC legislation upon the Manx economy; and the common areas of interest between EC policies and Mec Vannin policies - with a view to the possible development of a Mec Vannin policy on future relations between the Isle of Man and the EC.

These concerns culminated in the mission to EC headquarters in Brussels, during November of 1994, in order to seek clarification, through research and discussions, on the substance of these concerns. The discussions also functioned to provide top-level European officials with an insight into Mec Vannin's interests in Europe, and in developing policies concerning Manx relations with the EC.

In both cases the discussions were initially intended to be preliminary. However, such was the substance and nature of the discussions and research that it is already possible to offer policy suggestions.

This report consists of a full account of the discussions with the European officials, an outline of the Island's relationship with Europe in the context of our economic and political interests, a brief outline of the options regarding relations with Europe, and a summary of policy proposals.

Copies of this report will be submitted to the following:

1. As a matter of course: to Mec Vannin Central Committee.

2. Upon an offer from the author:

i) The Chief-Minister, Miles Walker.
ii) Leader of the APG, Edgar Mann.
iii) Professor Trevor Salmon, Lecturer on the European Community, University of St Andrews.

3. Upon a request from the recipient:

i) Dr. Mario Burgio.
ii) Mr. Graham Avery.

The report will also be made available to the Manx press and Manx Radio, and to any individual or suitable organisation requesting a copy.


Ms. Keegan, D.G.15: External Dimensions of the Internal Market. 3:30p.m.- 4:15p.m., 15th November 1994.

SUMMARY: This meeting proved uninformative as Ms. Keegan's area of competence was not commensurate with the nature of our particular enquiry. Her area of specialisation is economic relations between first-party states (full EC members) and third-party states (those with no formal relations with the Community). The Isle of Man can be characterised as a second-party state, as a result of its relationship to the Community via Protocol 3 of the Act of Accession, 1972.

Ms.Keegan made some suggestions as to meetings with other functionaries, but these were not pursued as the relevant issues were discussed later at other previously arranged meetings.

Dr. Mario Burgio, D.G.15: Finance and Banking. A Member of Cabinet for Italy. 9:30a.m.- 10:45a.m., 17th November 1994.

SUMMARY: The broad nature of the discussion with Dr.Burgio was to determine the possible effects of European Community legislation on the Manx economy, with particular regard to the Finance Sector. The effects were considered within the framework of two scenarios; firstly, that the Isle of Man maintains its current relationship with the Community and, secondly, in the event of Manx membership of the Community.

In the light of concerns recently expressed by Luxembourg regarding the possible flight of capital to centres outside of European jurisdiction as a result of future European legislation on the regulation of financial companies, I raised the question of the Commission's policies towards off-shore finance centres. The question was necessarily generic as Dr. Burgio was unfamiliar with the particular details of the Island's position.

Dr. Burgio stated that the Commission does not seek to deliberately legislate against the interests of financial centres in non-member states, though he acknowledged that certain of the Commission's policies will inevitably have the effect of being disadvantageous to such centres.

Whilst he stated that, clearly, he could not comment on any of the matters raised by other nations regarding the policies of the Commission, Dr. Burgio pointed out that the EC was keen to introduce legislation which would restrict the flow of finances from EC member states to non-member states. Although the Isle of Man has a special relationship with the U.K. and is linked to the Community via Protocol 3, the Island is not within the jurisdiction of the EC with regard to finance and would therefore be considered as outside of the Community with respect to this legislation. This would further disadvantage the Manx-based finance centre with regard to access to European markets.

This legislation is an accurate gauging-post by which to judge the direction and orientation of future European economic policies regarding its relation with non-member states.

On the issue of regulation and supervision of the financial sector, I raised the question of banking secrecy. Dr. Burgio revealed that the Commission was not overly concerned with this matter. The member states of the Community all have different policies on the level of secrecy in banking and these different policies are allowed for within the EU (European Union). The main concern is that the policies on secrecy should not be such as would impede international investigations into fraud, or the pursuit of 'criminal 'finances.

On the general issue of laws regarding regulation and supervision, I emphasised that, whilst the Isle of Man has had problems in the past, the Manx Government now claims that its laws on financial regulation are as strict as those found in many member states of the Community, and stronger than a number of other financial centres. However, it was agreed during the meeting that there is a dear difference between legislation and actual supervision, and that the degree of 'slippage' between the two is of vital importance.

Dr. Burgio pointed out that the Commission has the power to investigate the regulation and application of Community law within the member states and, were the Isle of Man to join the EU, it would also be subject to such supervision.
On this issue, the question was raised as to whether or not any significant period of time was allowed for states joining the Union to facilitate the adjustment to European legislation. Dr.Burgio confirmed that whilst EC legislation applies instantly, it is possible to derogate.

My observation is that whilst this facility would be useful to the Isle of Man should it seek some form of membership of the EU, any concerns over the effect of Community supervisory policies on the Manx finance sector can be dismissed in the light of our own policies falling well within the standards set by the Commission. Membership would also have the added advantage of a second level of supervision.

A further issue discussed related to the planned ECB (European Central Bank) which is a central feature of the development of Monetary Union. Dr. Burgio was unable to reveal much detail concerning the exact nature of the particular role the ECB would eventually play, though he did confirm it would have the power to oblige banks to hold minimum reserves with it or with national central banks which would, however, be under instruction from the ECB.

The national central banks would also be organised so as to have a well-defined role as a part of the decision-making body regarding the maintenance of price stability. This will be arranged under the title ESCB - the European System of Central Banks - of which the ECB would also be a member.

This issue is of long-term interest to all current and potential members of the Community, though it will only be of direct concern to those states upon joining the Monetary Union. Membership of the European Union does not necessarily entail membership, at any point, of the Monetary Union.

I would observe that, regardless of any intentions regarding the European Union or the Monetary Union, it is in the interests of the Manx Government, and the Island as a whole, to consider the option of establishing a Manx Central Bank.

Mr. Helmut Wittelsberger, D.G.2: European Monetary Union; Institutional, Legal, and Financial Matters. 3:OOp.m.- 3:50p.m., 17th November 1994.

SUMMARY: Mr. Wittelsberger confirmed many of the points made by Dr. Burgio. Further to this we discussed a number other of issues relating to the development of future European legislation regarding European financial policies and the possible effects on the Manx economy.

The first issue raised was that of the policy aim, developed at the Maastricht Summit, of a harmonisation of taxes within the Community. This policy is directed towards indirect taxation - primarily VAT and excise duties, not direct taxation. The aim is to reduce the differences in taxation on goods and services, which can vary greatly between member states and between particular types of goods and services both within and between states.

A broad agreement has been reached on the principle of an approximation of taxes within a clearly defined range of 5% -possibly between 14% and 19%. This approach is clearly more flexible than the original principle of 'harmonisation' might have implied. It is also likely that possible exceptions will have to be made for some categories of goods and services, but these are yet to be agreed.

The Isle of Man will ultimately be affected by this legislation as a result of its economic relationship with the U.K., as defined by the terms of the Customs and Excise Agreement of 1979.

The possibility of a similar policy of income-tax harmonisation has not, as yet, been developed by the Commission. However, it is a highly unlikely option for future consideration, as direct taxation falls firmly within the realm of individual state prerogative.

Article 105(6) of the Treaty on European Union embodies the principles behind the Commission's intention to restrict banking secrecy. According to the article, "The Council (of Ministers) may, acting unanimously on a proposal from the Commission and, after consulting the E.C.B. and receiving the assent of the European Parliament, confer upon the E.C.B. specific tasks concerning policies relating to the prudential supervision of credit institutions and other financial bodies with the exception of insurance undertakings."

Further to the discussion with Dr. Burgio, I raised the issue of banking secrecy with Mr. Wittelsberger in the light of this potential role of the E.C.B. I questioned as to whether this could be considered to be an overly intrusive policy, but Mr. Wittelsberger stated that the intention was not to detract from the sovereignty of states over their internal supervisory matters, but merely to ensure that more states were consistently applying the regulations agreed to within the Union.

It is to be considered, as was stated earlier, as a second-level of supervision of mutually agreed measures to ensure against the abuse of relatively liberal operational regulations. Mr. Wittelsberger further revealed that, as regarding the planned establishment of the ECB and the ESCB, it is envisioned that they become fully operational by 1999 at the latest.
Mr. Graham Avery, D.G.I: Enlargement Task Force. Currently Head of negotiations for Austrian membership, formerly a member of the U.K. negotiation team during British accession.

5.OOp.m. - 6.1 0p.m. 17th November 1994.

SUMMARY: The initial subject of discussion was with regard to possibility of securing finance from Europe through the Community Structural Funds, in the event o EC membership. Prior to the meeting I had identified three of the objectives (areas of funding) as of possible relevance to the Isle of Man. These were:

1. The European Regional Development Fund (ERDF). This is objective 1, the main source of funds from the Community. This funding is mainly to facilitate the development of national infrastructures and eligibility for the funding is determined primarily by the level of the applicant state's GDP in relation to the European average. The cut-off point is 75q, and my initial calculations indicate that the Isle of Man would certainly qualify.

2. The European Social Fund (ESF). This is objective 4 and is intended to facilitate the adaptation of workers to Industrial changes and changes in production systems.

3. The European Agricultural Guidance and Guarantee Fund (EAGGf/FEOGA) and the Financial Instrument for Fisheries Guidance (FIFG). These are objectives 5a and 5b - These are intended to promote rural development by i) speeding up the adjustment of agricultural and fishery structures in the framework of the form of CAP (the Common Agricultural Policy) and of the review of the CFP (Common fisheries Policy) and, ii) to facilitate the development and structural adjustment of rural areas.

Although the allocation of Community funding is not Mr Avery's area of competence, he agreed with my calculations that it would appear given the current economic figures, that the Island would indeed qualify for objective 1 in the event of the Island's membership of the EU.

On the question of the ESF, I enquired as to whether this could be interpreted as directed towards economic restructuring in general on which Mr. Avery indicated that it would be difficult to draw such a conclusion from the wording of the original remit of that funding.

Regarding objectives 5a and 5b, Mr. Avery confirmed that 5b certainly did provide for funding which was not specifically related to the agricultural and fishery industries.

Having established the type of funding to which the Island would be eligible under current EC policies (that is, objectives 1, 5a and 5b) we then discussed the possible options of future relations between Europe and the Isle of Man. It was agreed that the current orientation of European expansion did not provide the best opportunity for small-states or small independent or semi-autonomous territories to consider application as full members. The political and economic arrangements of such areas provided various problems regarding the practicality of considering full membership under current circumstances. It was agreed that neither the Isle of Man, nor any other similarly sized state could seriously contemplate full membership under the current system.

However, Mr. Avery expressed a clear interest in the position of the Island, and other small nations and territories, in relation to the expansion of the EU. He indicated that it would eventually be necessary for the EU to develop an alternative framework in order to facilitate the accession of such places as San Marino, Liechtenstein, Malta, Iceland, and the Isle of Man; essentially any areas smaller than Luxembourg and / or with special constitutional relationships with current members of the EU.

It was agreed that it would benefit Mec Vannin, with respect to the development of a workable policy towards closer ties with Europe, to pursue contacts with other small-nations in order to discuss areas of common interest and to establish the kind of relationship with Europe which we would consider preferable. Mr. Avery also suggested contacting La Conference des Regions Peripheriques Maritimes de la CE (the EC organisation of 'peripheral and maritime' regions - which includes islands) for similar purposes.

We briefly discussed a range of other issues of special interest to Mann, particularly freedom of movement of peoples (in relation to population size), and European agricultural and fishing policies. With regard to population Mr. Avery indicated that so long as a policy on maximum population size did not discriminate either against or in favour of any particular nationality or group of nationalities the Commission would not be opposed to such legislation.

Mr. Avery expressed a personal interest in pursuing the issue of a new framework within which the EU could facilitate the accession of smaller nations and territories. It was agreed that this issue should be approached, simultaneously, from two angles - that is from within (the EU) and from without (potential 'small' members). This would better enable the development of a framework that is suitable to all parties. However as this would have implications for existing political and economic arrangements with other states which are already members of the EU (in the Manx case, the U.K.), this 'third dimension' would have to considered within any approach.

In the light of these discussions, Mr. Avery indicated that with regard to special interests in areas such as agriculture and fisheries, the Isle of Man should seek to incorporate these concerns into its proposals for a new membership framework, should it seek accession, as this would entail a new type of relationship which could well be substantially different in nature to that indicated by the existing EC framework.

Further to my meeting with Mr. Avery, I have since received from him further information regarding the Community Structural Funds and the EC organisation of 'Peripheral and Maritime' regions.


The Island's current relationship with the EC is governed by Articles 25 - 27 and Protocol 3 of the Treaty of Accession, 1972.

This Protocol facilitates the free movement of industrial and agricultural goods between Mann and the Community, and provides that goods imported from outside the Community be subject to the same Common Customs Tariff and agricultural levies as would apply if imported from the U.K. The fiscal independence of the Isle of Man is accepted and, apart from ensuring the proper functioning of free trade, the Island is excluded from the provisions of the Treaty.

The Protocol stipulates, however, that although the Treaty provisions relating to free movement of workers and the right of establishment do not apply to Islanders, nationals of all countries of the Community, including the U.K., must receive identical treatment upon the Island. Furthermore, in order to ensure the maintenance of free trade, the European Commission has the power, under Article 93, to vet local aid schemes to industry, as is the case with full members of the Community.
The virtual exclusion of The Isle of Man from Community responsibilities in all other areas enables the ' Manx Government to retain proceeds from import duties and agricultural levies raised on imports from third countries. However, as a result, Community funds are not available to the Island under any of the funding programmes.

There is evidently, then, a balance struck within Mann's current relationship with the EC. It is an economic and political balance of a status that benefits the Manx economy, in part, whilst simultaneously protecting a particular level of political independence.

On the issue of closer ties with the European Community the 1994 Report to the Manx Government by the Central Economic Strategy Unit, Prosperity Through Growth, states that, "..the Unit recommends the retention of Protocol No.3. It concludes that the Protocol still offers, and will continue to offer, the best position for the Island. Full membership of the EU would be a retrograde step in the desire for greater independence." (p.39).

As already indicated, full-membership of the EU is an unrealistic option for the Isle of Man anyway, as there are very definite practical problems, not least in relation to our small size. Given the two options of either maintaining our current relationship under Protocol 3 or seeking full membership within the existing framework, I would agree with the Unit's conclusion that the former provides the more agreeable option. However I would disagree with the rationale behind the conclusion and I would also disagree with any suggestion that the maintenance of relations as defined by Protocol 3 provides the best of all the options available to the Isle of Man.

The European Community is built upon two distinct principles: The federalist and the functionalist. Central to the federalist approach is the idea that local, regional, national and European authorities should co-operate and complement each other. The functionalist element, on the other hand, favours a gradual transfer of sovereignty from national to Community level. These two strands have led to the development of the single fundamental principle behind the EU; that national and regional authorities need to be complemented by independent and democratically accountable institutions with responsibility for areas in which joint action is more effective than action by individual States: such as the single market, monetary policy, economic and social cohesion, foreign and security policy.

Detractors of the EU have pointed to the functionalist element as leading to the erosion of national sovereignty or independence which, indeed, is a key aspect of the working definition of that principle. However, the direction of the EU, and any trend towards this end, has been complimented by the recently developed principle of subsidiarity.

This principle basically enshrines the idea that political, economic and social decisions should be taken at the lowest possible level. This principle reinforces the approach that defines the role of the Community's institutions as being restricted to "areas in which joint action is more effective than action by individual States." This principle of subsidiarity can be perceived as an inherently democratic principle empowering individuals at sub-national levels, and ensuring the sovereign independence of member states on issues which are not of central concern to the 'whole' - that is issues which are not of Common interest.

I would contend that, whilst the EC does indeed imply external control over certain issues, the areas wherein sovereignty is entrusted to this supra-national level are limited, that membership of the EC provides for direct redress to the decision-making body through representation within the decision-making bodies and institutions, and that there is also the protection of the 'opt-out' clause which allows for exemption from policies which are deemed to be contrary to the interests of an individual state. Both Denmark and the U.K. have already made use of this facility. For those states with full political independence sovereignty is indeed eroded, but the degree to which it is so is limited.

However, I would further contend that, with reference to the principle of Manx independence, the issue does not hang solely upon relations with Europe.

Complete independence implies that a nation, or a nation's government, has sole control over all decisions affecting that nation. As a principle this still exists in international law to protect against the 'meddling' or interference of one state in another's internal affairs. However, as a reality no state can claim independence from all others.

The very nature of international economics ensures that the majority of nations are interdependent to the extent that all nations are affected to some degree or another by the policies of other states. This is a particularly important factor in the smaller states. The Manx economy is already linked to, and therefore subject to, the international economic system. Sovereignty and independence therefore exist more as a political concept than as an economic and political reality.

The position of the Isle of Man is also determined by it's long-established political and economic relations with the U.K. Although the Island has been moving closer towards independence in a visible sense (such as the removal of powers from the Governor) the constitutional links still persist as an umbrella over the independence which the Island does enjoy.
As has already been illustrated, the Island's links to the U.K. also means that the Island is affected by EC policies through its links with the U.K. We cannot consider ourselves independent from Europe if we are unable to avoid the real economic effects that such policies have upon our economy and our political options.

Independence functions on a number of levels. On the economic level it is difficult for any government to justify claims to ultimate control over all the dimensions of, and influences on, the national economy. On the political level, though increasing in the 'trappings' of independence, the Isle of Man is still subject to the U.K. for its international affairs and its 'good government.' However, independence is also, and very importantly, a state of mind amongst a people.

The geographical isolation of the Island, its history, culture and way of life are all testimonies to its separateness. These factors cannot be compromised de facto by economic and political relations with other nations, whether they be bi-lateral, multi-lateral, or relations within the Community.

The people of Mann should be able to rely upon its government to facilitate the protection and development of its social and cultural identity, and the independence of the Manx government itself, such as it can be, cannot be compromised by an association within the Community of European nations. Indeed representation and exchange on this level as a separate nation is a confirmation of independence, not a negation of it.

Certainly, membership of the EU would effectively limit the policy options of a Manx government in that the Isle of Man would be subject to EC laws and regulations to a greater extent than it is so at present. However, on the other hand, membership would also provide access to the Common Market for the Island's financial sector and would provide access to Community Structural Funds which would facilitate the development of the Manx infrastructure and, depending upon government policy, the consolidation and expansion of other sectors of the economy and the development of new sectors. The loss of certain policy options are to be considered in balance with the creation of new possibilities. I propose that the net effect would be beneficial to the Island.


1. Maintaining relations under Protocol 3.

To a certain extent this option is misleading, As I believe this report has illustrated, maintaining Protocol 3 does not mean that Mann's current relations with the EC are preserved. Though Protocol 3 only directly influences the trade in our visible goods, EC policies on financial matters will ultimately affect the other areas of the Manx economy, both through our Customs and Excise agreement with the U.K. and through the effect of their policies on financial transactions with non-EC members. The isolation of our finance sector from European markets is one of the worst possible scenarios for the long-term interests of the Manx economy.

2. Full membership of the European Community.

As illustrated earlier, discussions with Mr. Avery revealed that this is not a realistic option given the current framework of the EU, and current conditions for membership. In this respect, limited to these two options, the conclusions of the Central Economic Strategy Unit correctly, though inadvertently, reflected the reality of current circumstances in circumscribing this option.

3. Membership of the European Community within an alternative framework.

As indicated in the discussions with Mr. Avery, the EU itself will need to consider a new framework for smaller nations and territories in general. The exact nature of this framework will need to be determined on the basis of mutual needs and requirements agreed between the EU and those nations and territories. Given that option 1 is potentially counterproductive as a long-term economic option, and that option 2 is impracticable, this provides a potentially more productive and forward-thinking option.


Evidently it was the intention of this report, upon consideration of the discussions with European officials and upon the research undertaken after the completion of these discussions, to orientate this report towards a favourable consideration of the above mentioned third option.

I propose that this option be considered not simply because of the unfavourable aspects of the other options that is to say that it is the 'least-worst' option - but that this option has distinct merits. Firstly, the merits of Closer economic ties are to be considered. In short: i) that it opens up the European Market for Manx-based services (primarily financial); ii) that European funding would provide for the development of the Manx infrastructure; iii) that European funding could, given the commensurate policies of the Manx government, facilitate the development of other sectors of the economy. This would have the effect of reducing reliance on one sector of the economy and potentially strengthening the economy as a whole; iv) that European legislation, and particularly super visory measures, would ensure the correct regulation of the Manx and European finance sectors - thereby reducing, conccerns over irregularities within, and abuse of, existing regulations.

Secondly, I propose that the benefits regarding the principle of Manx independence and identity would include:

i) representation on the international level in a powerful political and economic alliance;
ii) European funding for social and cultural projects;
iii) European funding for the development of traditional 'cottage' industries.

Furthermore, direct negotiations with Europe, even if unfruitful, confers upon the Island an external acknowledgement of its political independence.

In relation to existing Mec Vannin policies I can confirm that there are a number of commonalities with existing EC legislation and areas of concern. These include: Socio-economic policies - enshrined within the EC's Social Chapter - such as employment rights, minimum wage levels, democratisation of the workplace, health and safety, women's rights in the workplace and the social environment; Environmental issues and pollution - the preservation and promotion of cultural identity- civil liberties; and an emphasis on community level decision-making.

Regarding the development of a Mec Vannin policy towards the EC, I propose the following:

1. That Mec Vannin should maintain contacts with the EC and most particularly Mr. Avery, in the light of our common interests in the position of small states' relations with Europe.

2. That Mec Vannin should seek preliminary discussions with La Conference des Regions Peripheriques Maritimes de la CE, and with parties or organisations within other nations or territories in a similar position to Mann with regard to membership of the Community. To a certain extent the economic, political, and constitutional position of the Island is unique, there will, however, inevitably be areas of common interest which are best developed and ex-pressed on the basis of a co-operative approach.

3. That Mec Vannin examines more closely areas of interest in European legislation to determine the areas of common interest between the Island and the EC, and similarly to identify areas of potential conflict of interests. This needs to be undertaken in order that Mec Vannin develops the best possible option for a policy on membership of the Community.

4. That Mec Vannin encourages the Government to pursue a similar line of enquiry, if only to become more aware of future policy options, indeed to actually take a lead in developing the framework for a policy option that could also benefit other small nations and territories.

5. That Mec Vannin encourage the Government to pursue a line of enquiry which would facilitate the U.K.'s co-operation in this matter. Future relations with Europe should not be seen as an alternative to relations with the U.K., but as pursuance of our interests on the European level. Subsequent relations with the U.K. would be equally as contingent upon future U.K. relations with Europe as upon Manx relations with the EC.

6. That, in relation to the Manx-based finance sector Mec Vannin acknowledge its part as an integral feature of the Manx economy - both present and future - and that we foresee the possibility of future relations with Europe as helping to address our two main concerns over the finance sector; firstly regarding adequate supervision and, secondly, regarding the reduction of the economic and social reliance upon the finance sector as an overly dominant feature of the Island economy.


1. Pascal Fontaine - "A Brief History of European Integration" Office for Official Publications of the European Communities, 1992.
2. Backgroud Report, Overseas Countries and Territories. Relations With The European Community, European Communities Commission, 1995.
3. Commission of the European Communities, Community Structural Funds: 1994 - 99, Office for the Official Publications of the European Communities, 1993.
4. Sasha Baillie, Masters Thesis on the European Community St. Andrews University, 1994.
5. The Central Economic Strategy Unit, "Prosperity Through Growth", Isle of Man Government, August 1994.


Back to Archive Index